Mexico dreaming

No country in history has been able to eliminate or even alleviate elder poverty with employment-related, contributory pensions alone. The authors of a study sponsored by Centro Fox, AARP, and the RAND Corporation are nonetheless confident that Mexico will somehow succeed in doing this. This is a very strange, very optimistic report.

The federal government and many (but not all) states [of Mexico] have introduced noncontributory pensions, varying in coverage, eligibility ages, benefit levels, and other eligibility requirements. In the longer run, with a sharply increasing older population, a universal noncontributory pension scheme would put a heavy strain on both federal and state budgets. A possibility for Mexico to reduce poverty rates in old age would be to extend the existing noncontributory pension programs in the short run, while at the same time ensuring that current workers save more today for their future pensions. In the longer run, noncontributory programs could then be phased out. The design of the noncontributory pension program could be the same in all states in Mexico in order to avoid incentives to change residence to states with more generous safety net pension programs.

It is crucial to consider extending the coverage of the existing funded pension systems to be able to later diminish the role of the noncontributory pension system.

Emma Aguila, Claudia Díaz, Mary Manqing Fu, Arie Kapteyn and Ashley Pierson, Living Longer in Mexico: Income Security and Health  (RAND Corporation, Centro Fox, AARP, October 2011), p. 88.

There is little coverage of noncontributory pensions in this report. The authors might have noted, but didn’t, that half of Mexico’s 32 states have no social (noncontributory) pensions of any kind.

Informality is high in Mexico, even though enrolment in social security is mandated by law. Only the self-employed are legally exempt from social security taxes, yet in a typical week less than half the labour force pays them. Unpaid workers, such as housewives, do not participate because they are not in the labour force, and low-wage workers who are in the labour force drift in and out of formal employment. As a result, the vast majority of Mexicans reach age 65 or older without the minimum 1,250 weeks of contributions needed to qualify for an employment-related pension. The federal government of Mexico in 2007 began to give universal pensions to residents of rural areas aged 70 years and older. Last year (2012) these benefits were extended, as universal minimum pensions, to residents of urban areas. This year (2013) a new government has fulfilled its pledge to reduce the age of eligibility from 70 to 65 years. Regardless of how Mexico develops, we can expect noncontributory minimum pensions to continue to play an important role in provision of income security, just as they have in Sweden, where a minimum pension scheme has functioned continuously for 100 years.

And, why such concern with internal migration “to states with more generous safety net pension programs”? This is the first time I have seen such a statement. If any local government might face an influx of elderly residents, that government would be the Federal District (Mexico City). The local government there has provided its elderly with the most generous social pension in Mexico, and the benefit is universal, not means-tested, not even pension-tested. It even comes with free medical care, and free public transportation. The only requirement is age and residence. Mexico City spills over into the State of Mexico, which does not have – and has never had – a social pension of any kind for its elderly residents. It would be easy for residents of the suburbs of Mexico (in the State of Mexico) to Mexico City proper. (ME is the State of Mexico in the map below.) Yet there has been no mass movement of elderly to Mexico City, no ageing of the population since universal pensions began in 2001.

Or has there been? I could be wrong, so consulted the excellent, publicly available data of CONAPO, the federal government’s National Population Council.  There I looked first at the percentage of elderly, over the age of 70, which was the age of eligibility for the universal pension from 2001 through 2008. Well, the percentage of population 70 years and older did increase a full percentage point in Mexico City, from 4.1% in 2001 to 5.1% in 2009 (the last year for which estimates are available). Does this imply that the elderly are moving to Mexico City to take advantage of the social pension? Possibly. But the percentage of elderly increased in the rest of Mexico as well, from 3.4% in 2001 to 4.0% in 2009. Mexico City is wealthier than the rest of Mexico, so has always had a larger percentage of elderly in its population, and the percentage of elderly have always grown faster in Mexico City than in the rest of the country. Indeed, the universal pension itself may be responsible at least in part for the increased number of elderly who are alive in Mexico City.

A more direct way to look at this is to examine estimates of internal migration, which are also provided by CONAPO. From the detailed CONAPO tables, it is evident that there is net internal out-migration from Mexico City, with more emigrants than immigrants in each year. The number of elderly (70+) emigrants actually increases, from 2,994 in 2001 to 3,154 in 2009. The number of 70+ immigrants falls from 881 to 688 over the same period of time, so net outward migration from 2,113 to 2.446. For all ages (young and elderly) the net migration from Mexico City to the rest of Mexico also increases, 77,378 in 2001 to 89,645 in 2009.

In sum, there is no evidence that Mexico City is suffering from disproportionate ageing of its population. If anything, the reverse is true.

Here is a brief description of the three sponsors of this report, in case you are not familiar with them.

AARP (American Association of Retired Persons) is a Washington, DC-based “nonprofit, nonpartisan membership organization for people age 50 and over”

The RAND Corporation, based in Santa Monica, CA, is a nonprofit global policy think tank. It began in 1946 as a project of Douglas Aircraft Company to provide research and analysis to the US armed forces. RAND separated from Douglas Aircraft and became an independent corporation in 1948.

Centro Fox is a non-profit organisation founded by former President of Mexico (2000-2006) Vicente Fox (born 1942) near his ranch in Guanajuato, Mexico. Its mission statement is very broad, with emphasis on developing “quality leaders dedicated to serving their community in Mexico and Latin America”.

Source: Wikipedia Commons.

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