Thought du Jour

The government of Sinaloa in 2011 inaugurated a scheme, known as “70 y Más Estatal”, to provide pensions to every person aged 70 years and older and living in a community larger than 30,000, who had no access to the rural 70+ scheme of the federal government. Benefits are the same as those provided by the federal programme: 500 pesos (39 US dollars) a month, paid bimonthly. The state pension scheme began in April 2011, with payments retroactive to January, and a budget for 26 thousand million pensioners. This was too small a budget to provide pensions for all eligible residents. The intent was to increase coverage gradually, to eventually achieve universality. That will no longer be necessary, thanks to expansion of the federal scheme to urban communities.

The number of beneficiaries of the state pension remains fixed at 26 thousand million. As pensioners transfer to the federal 70+ programme, new beneficiaries take their place in the state scheme. It is not clear how many pensioners will remain in the state system in the end, nor when the goal of universality will be achieved. Sinaloa’s programme began three months before that of Oaxaca, and is identical, with one important difference: Sinaloa does not provide pensioners with any benefits other than cash. At least, I could found no reference in Sinaloa media or government reports to health care, life insurance, accident insurance, free telephone calls, or anything other than the cash pension.

Federal 70+ pensioners in Sinaloa numbered 76,092 at the end of 2011 and 91,383 in June of 2012. The goal is to increase the number to  106,510 by the end of 2012. (more…)

Update: Sinaloa is added to the universal pension list.

The Governor of Oaxaca, when he launched a universal pension in 2011, claimed that his state was the first to follow the path of Mexico City in providing a cash pension to all elderly residents, regardless of their employment history, income or assets. Here is the assertion, from a government press release issued at the time, that is still available at the internet portal of the government of Oaxaca.

Por primera vez, en toda la historia del estado, habrá cobertura universal a las personas de la tercera edad, mediante el Programa Estatal de Pensión Alimentaria para Adultos Mayores de 70 años y más del Programa Bienestar, el cual beneficiará a 33 mil hombres y mujeres con apoyos económicos, de salud, seguro de vida y otros servicios. ….

Con el inicio de este importante Programa … Oaxaca se convirtió en el segundo estado, después del Distrito Federal con cobertura total en apoyo a los adultos mayores.

Government of Oaxaca, “Gabino Cué inicia entrega de tarjetas Bienestar a 33 mil Adultos Mayores“, 3 August 2011

And here is my rough translation of the text.

For the first time in the history of the state, there will be universal coverage of elderly people, thanks to a State Food Allowance for Seniors 70 years of age and older, which will benefit 33,000 men and women with economic support, health care, life insurance and other services. ….

By initiating this important program … Oaxaca became the second state, after Mexico City to have full coverage in support of the elderly.

The claim that Oaxaca in 2011 was the first state to follow the example of Mexico City is false. Chiapas in 2007 introduced a universal pension, with a cash benefit of 550 pesos a month for all residents from the age of 64. This is a remarkable achievement because Chiapas is the poorest state of the Mexican union, ranking just below Oaxaca. at the very bottom in both per capita income and the Human Development Index. Failure to mention Chiapas might be an honest error. The pensions of Chiapas have received little attention in the media, so it is possible that Governor Gabino Cué was unaware of universal pensions in Chiapas, even though the state borders his own.

The claim is also incomplete. Mexico City and Chiapas provide pensions to every resident who qualifies by age (68 in Mexico City, 64 in Chiapas). From age 70, the elderly are entitled to two pensions: one from the local government and another from the federal government. These ‘double pensions’ provide a total cash income of 1,435 pesos (US$112) a month in Mexico City and 1,050 pesos (US$82) in Chiapas. Oaxaca, in contrast, like Sinaloa, provides pensions only to those over the age of 70 who are excluded from the pension-tested federal 70+ scheme. In Oaxaca and Sinaloa, then, elderly residents receive a cash pension of 500 pesos (US$39) either from the state or from the federal government. Oaxaca and Sinaloa attains universal coverage only by combining two pension-tested schemes that operate at distinct levels of government.

It is true that the elderly of Mexico have access to universal pensions only in Mexico City, Chiapas and -now- Sinaloa and Oaxaca. But the effort of the government of Oaxaca – laudable though it is – is not comparable to that of Mexico City or Chiapas. It is, though, comparable to the effort of Sinaloa.

Oaxaca, in July of 2011, joined Mexico City and Chiapas in providing a universal pension to all residents. The benefits (500 pesos a month) are lower, however, and the age of eligibility (70 years) higher than they are in the other two states with universal pensions. A more important difference is that Oaxaca achieved universal coverage by complementing federal benefits without duplicating them. The legislation specifically states that the purpose of the scheme is to provide pensions for those who, because they live in communities with more than 30,000 inhabitants, do not qualify for federal 70+ MX$500 (US$39) pensions

In January of 2012, the federal 70+ scheme expanded, to include cities larger than 30,000 inhabitants. This would have meant the end of Oaxaca’s universal (subsidiary) pension, were it not for the fact that the 70+ benefit is now restricted to those without any other federal pension (from social security, civil service, military, or PEMEX). This means that the government of Oaxaca is providing social pensions only to those residents who have access to a federal pension, but no access to the (usually much smaller) 70+ pension. This does achieve the goal of universality, but one might question whether it is a good use of public funds to provide benefits to those with relatively high incomes in a state with a high incidence of poverty. This policy can be justified, although the government has not made the case, other than to claim that universality in itself is a worthy goal, hence the correction of an ‘error- pension-testing – in the federal scheme.

The justification I am thinking of is improved incentives. Most of the non-70+ federal pensions are contributory pensions, earned by participating in social security, and many of the earned pensions are very modest. Now, the majority of workers in Mexico are informal and do not contribute to social security. To deny a 70+ pension to those who earn a social security pension, no matter how small, is to convert social security contributions into taxes. This provides an incentive to remain outside the formal economy, outside the social security system which, incidentally, provides health care and survivor benefits as well as retirement pensions.

Oxaca’s legislation provides not only monthly cash pensions of 500 pesos (39 US dollars), but also “complementary benefits” such as life insurance (50 thousand pesos for accidental death, 7,500 pesos for natural death), accident insurance (500 pesos for each day of hospitalisation, up to 10 days), discounts on purchases in participating stores, and free telephone calls to the United States and Mexico. These benefits are provided by the state government to each resident aged 70 years or older, irrespective of the source of their ‘universal’ MX$500 pension.

Beneficiaries of Oaxaca’s social pension, which numbered 33,000 last year, have dropped to about 13,000 because of the expansion of the federal 70+ scheme to urban areas, and are expected to fall further, to 11,000. Oaxaca’s 70+ beneficiaries, in contrast, grew from 172,532 at the end of 2011 to 185,924 by mid-2012.

Detailed information, with links, follows in Spanish. (more…)

This updates a previous post on this subject.

For the record, the supporters of Andrés Manuel López Obrador – members of the centre-left PRD, Partido de la Revolución Democrática – in Mexico’s upper chamber (the Senate) introduced legislation last month that would provide a universal pension for all Mexicans from age 65, with no test for eligibility other than residence and age. The proposed pension is the same size as that of Mexico City’s universal pension – one-half of a minimum wage – but with an age of eligibility that is three years younger. Mexico has daily minimum wages that increase annually with consumer prices, and vary slightly by region. “One-half a minimum wage” in Mexico is calculated as 15 days of minimum wages per month, equal to MX$934.95 [US$73] in zone ‘A’, which includes Mexico City, MX$908.55 in zone ‘B’ and MX$886.20 in zone ‘C’. Differences between zones are supposed to reflect differences in the cost of living.

This pension would replace the federal 70+ pension, which is pension-tested (not universal), with a benefit that has remained at MX$500 a month since the scheme was introduced in 2007, with no adjustment for price inflation.

Andrés Manuel López Obrador, known as AMLO, introduced universal pensions to Mexico’s capital city in 2001, when he was Mayor. AMLO ran for president in 2006 and would have implemented universal pensions in all of Mexico had he won, but he lost narrowly to Felipe Calderón of the centre-right PAN (Partido Acción Nacional). He ran again in 2012 and polled second out of three major candidates, with 32% of the popular vote. Enrique Peña Nieto of the traditional PRI (Partido Revolucionario Institucional) won that election with 38% of the popular vote.

The PRD is a minority in both legislative chambers, so there is little chance that the proposed legislation will ever become law. It is promising, though, that four PRI senators joined their PRD colleagues to sponsor this initiative. (more…)

Mexican economist Miguel Angel Ferrer (born 1948) has written a very nice column on the virtues of Mexico City’s universal pension. Here is an extract. (For those who cannot read Spanish, a rough translation follows the original text. But this type of prose always reads better in the original.)

Por lo que toca a los adultos mayores, el salario social asume la forma de una asignación universal sin contraprestación ninguna y sin más requisito que haber alcanzado los sesenta y ocho años de vida y residir en la Ciudad de México, igualmente llamada Distrito Federal. Y a partir del primer día de 2012, esa asignación universal y directa es de 934 pesos y 25 centavos al mes, algo más 30 pesos diarios, y recibe el nombre oficial de “Pensión alimentaria para adultos mayores”.

Este programa, desde luego, cuenta con la aquiescencia de la inmensa mayoría de la población de la ciudad de México. Y sólo recibe críticas y demandas de cancelación por cuenta de algunos sectores sociales y personalidades del más rancio conservadurismo y nula solidaridad social e inteligencia.

Al ser un programa de carácter universal y no focalizado, la pensión alimentaria para adultos mayores es casi inmune a la corrupción y a la simulación. Y acaso lo único censurable del noble programa sea la insuficiencia o el reducido monto que recibe cada anciano inscrito en el padrón respectivo. Pero a pesar de su bajo monto, esos 30 pesos al día pueden hacer la diferencia entre comer y no comer, entre una vida austera y la más dolorosa de las miserias. ….

Probada la justicia, pertinencia y viabilidad financiera del programa, éste ha adquirido carácter institucional. Y ya es patrimonio, difícilmente reversible, de los habitantes de la ciudad capital de los mexicanos.

Miguel Angel Ferrer, “Ancianos y pensión alimentaria“, El Sol de México, 21 de septiembre de 2012.

The social wage of seniors takes the form of a universal pension without need for a record of contributions or employment and without any requirement other than reach the age of sixty-eight years and reside in Mexico City, also called the Federal District. From the first day of the year 2012, that universal pension is 934 pesos and 25 cents a month, somewhat more than 30 pesos (USS$2.35) daily, and it goes by the official name “Food allowance for seniors”.

This programme of course is supported by the vast majority of the population of Mexico City. It receives criticism and demands for cancellation only from certain social sectors, from personalities of the most rancid conservatism, who show zero social solidarity and intelligence.

Being a programme that is universal and not targeted, the food allowance for seniors is nearly immune to corruption and graft. Perhaps the only defect of the noble programme is the small amount received by each senior included in the list of beneficiaries. But 30 pesos a day can make the difference between eating and not eating, between a life of austerity and the most painful miseries. ….

Having proven its justice, relevance and financial viability, the programme has acquired an institutional character. It has come to form part of the heritage, difficult to reverse, of residents of Mexico’s capital city.