The goal is for it to reach 6,000 pesos every two months in 2024
President Andrés Manuel López Obrador announced that the universal pension for the elderly, which has constitutional status, will increase to double to reach about 6 thousand pesos every two months in 2024.
The president also said that this benefit will be delivered from 65 years of age, and not from 68 as is the current norm.
López Obrador seemed to settle in this way the controversy over the way to measure pensions, which is being waged between those who defend the Measurement and Update Unit (UMA) and those who demand the minimum wage reference.
In the act for the birth of Benito Juárez, in the land of Benemérito, the president tacitly indicated that the measurement in UMA will prevail, as determined by the Supreme Court of Justice.
He acknowledged that the minimum wage is well above the UMA, with which pensions are punished.
But “it is argued by the productive sectors and the government itself that if the disappearance of the UMA were decided and the minimum wage was returned to the base, it would not increase beyond inflation due to the peso that the payment of pensions ”, he pointed out.
He explained that under his government the minimum wage has grown 44 percent in real terms and in comparison the UMA has been reduced by 58 percent.
At this point, the UMA is equivalent to 89.62 pesos, while the minimum wage this year is 141.70 pesos in most of the country and 213.39 pesos at the border.
The progressive increase to the universal pension will begin next July, with an increase of 15 percent. In January of the next three years, growth will be 20 percent per year plus inflation, until it reaches 6 thousand pesos every two months, López Obrador explained.
Mexico is aging and does not have pensions: In 2035, 1 in 5 older adults will live in poverty
In the year 2035, Mexico will have between 20 and 24 million older adults. President AMLO has said that he will not increase the legal retirement age (65 years) during his six-year term; But in the next 16 years, a fifth of older adults will be poor and one in three will have to work to survive or supplement their pension.
According to figures from the federal government and international organizations, the Mexican outlook for 2035 will be dichotomous: poverty and inequality will go down, although the informal economy and the insufficiency of the pension system will go up.
In the next 16 years the number of older adults in Mexico will double and the country’s labor market will house 7.9 million elderly workers. By then it will be the year 2035 and two out of every 10 Mexicans will be at least 65 years old. This army of older adults will be made up of people who will fight to get ahead, many of them without a pension , in informality or mired in poverty , according to official figures analyzed by this digital medium.
The projections for the future, however, are encouraging up to a point. The Economic Commission for Latin America and the Caribbean (ECLAC) predicts that in the year 2035, Mexico will have half as poor as it is today. Likewise, figures from the federal government and the Organization for Economic Cooperation and Development (OECD) indicate that the population without social security will decline by 28.7 percent.
The foregoing is extremely important considering that the coverage and sufficiency of social protection systems in old age are related to poverty rates in older adults, says the National Commission of the Retirement Savings System (Consar).
Both the Consar and the OECD point out that there are three basic elements to guarantee that the population of older adults in a country has a decent old age or pension: access to a formal job with an income above the monthly cost of living, income control and expenses. , as well as a retirement or retirement ( savings ) plan.
But at present these conditions are insufficient.
Figures from the National Institute of Statistics, Geography and Informatics (Inegi) refer that only 26 percent of the Mexican population – or 13.4 million people – has a monthly income higher than the current expenditure of households in Mexico (10 thousand 638 pesos per month). This includes expenses for food, beverages, and tobacco; transportation and communications; education and entertainment; housing and fuels; personal and health care; household items and services; clothing and footwear, in addition to micro-expenses.
Mexico will age in the next 16 years. By 2035, two out of every 10 Mexicans will be older adults. Photo: Rogelio Morales, Cuartoscuro.
Likewise, figures from Cepal and Consar indicate that half of the elderly in Mexico (more than 7 million people) are retired, either because they have saved during their working lives (39 percent of the cases) or because they are beneficiaries. of social programs (61 percent of the cases). However, they point out that the average income of pensioners, ranging from 610 to 5,865 pesos per month, is insufficient to cope with old age without additional income, in most cases.
Today about 9.4 percent of the workers in the employed Economically Active Population (EAP) are at least 65 years old. It is about 4.9 million older adults who work voluntarily or out of necessity. Three million people will be added to this demographic group in the next 16 years, half of them employed in the informal economy, which, by 2035, will have grown by 25.5 percentage points, so that 45.2 percent of the employed EAP –Of 67.4 million Mexicans– will be informal.
Lack of sufficient income (during working years) and control of personal finances, in addition to the impossibility of saving, will limit the quality of life of adults who in the next decade and a half will be considered older adults of legal retirement age.
In the year 2035 there will be, in this way, a population of approximately 5.3 million elderly people living in poverty. In addition, the country will have to deal with the uncertain future of 42 million Mexicans with at least one lack of social security.
THE CRISIS IN THE FUTURE
Retirement and old-age compensation are part of the minimum bases of social security in Mexico (article 123 of the Constitution, section B, subsection XI) and the granting of pensions must be – prior compliance with legal requirements – guaranteed by the State (Article 2 of the Social Security Law).
When a person does not have a pension or retirement and is not a relative of a beneficiary, or when someone aged 65 or over does not have those benefits or is a beneficiary of any social program for the elderly, there is deprivation of social security, according to the National Council for the Evaluation of Social Development Policy (Coneval).
For Coneval, the EAP with income without registration with the IMSS and that which is not salaried and independent without voluntary registration and with Afore, also constitute cases of deprivation of social security, according to the study (2018) “Poverty and Social Rights in Mexico ”.
“Having a secure and sufficient income during old age is a general aspiration, although making contributions or being part of one of the social security institutions that offer these benefits is a necessary but not sufficient condition to ensure that the respective right is exercised. ”, Says the Council.
As the population ages and life expectancy increases – by 2030 an average Mexican will live 85 years, according to the OECD – traditional pension systems become “financially unsustainable,” reads the report “Las pensions in Mexico and the world ”by Consar.
This context of crisis forced Mexico to move from one pension system to another.
Before the 1997 and 2007 reforms, workers in the public sector (affiliated with ISSSTE) and in the private sector (affiliated with IMSS) were quoted using a “defined benefit” formula. This implied that the workers contributed part of their salary to finance the pensions of retired workers, and when it was their turn to retire, the new generations paid their pension.
As of the reforms, Mexico adopted the “defined contribution” pension scheme and consequently, the IMSS and the ISSSTE stopped administering the pensions of workers who began to contribute after 1997 (in the case of IMSS affiliates ) and 2007 (in the case of ISSSTE affiliates).
This meant that an individual contribution scheme was adopted that – unlike the previous system that operated with a general pension formula according to the salary, age and contribution time of each worker – depends on subsidies from the employer and the government. but above all of the worker’s savings and of his accumulated income (and no longer of a general formula of the State).
The transition stage in the Mexican pension system had two main consequences: that a large part of the IMSS and ISSSTE budgets – 64 percent on average, according to the 2019 Federation Expenditure Budget – goes into payment. of pensions and retirements, instead of being used in health services; and that the accumulated savings of today’s workers provide a lower pension amount than the previous pension system.
Low income from pensions will limit the purchasing power of two out of 10 Mexicans who will be at least 65 years old by 2035. But the spending on pensions that the federal government will drag by then will limit the social development of the general population.
Between the years 2035 and 2040, the total pension obligations of the federal government –IMSS, ISSSTE, Pemex, CFE, among others– will reach their historical maximum cost of 1.2 trillion pesos, according to the study (2018) “Expenditure on Pensions and its Long-Term Perspective ”from the Center for Public Finance Studies (CEFP) of the Chamber of Deputies.
The cost of pension obligations in the next 20 years will be equal to 6.5 percent of the nominal Gross Domestic Product (GDP) of Mexico during the first quarter of 2019, according to Inegi figures. This amount is seven times higher than the total budget of the Ministry of Welfare (formerly Sedesol) for this year, according to the analytics of the Federation Expenditure Budget (PEF) 2019.
THE CHALLENGE TO COME
ECLAC indicates that Mexico has two major problems related to the current pension system: inequality in the amounts of pensions and lack of planning to cover pension obligations.
On the one hand, the Commission states that the country lacks a uniform public policy regarding pensions and retirements, to which is added “a great disparity in the amounts of pensions offered and inequity by limiting the granting of pensions of the Pension for Older Adults program, while with public resources pensions are paid that significantly exceed the 580 pesos per month that are established in the operating rules of said program ”.
It also indicates that “the protection for retirement by various public institutions has not been based on the analysis of its financial effects, which has led to insolvency situations as the federal government has increasingly had to support the commitments respective ”.
In contrast, and despite the high payment for pensions, says Cepal, “the coverage of the EAP has been insufficient, particularly given the high proportion that is located in conditions of labor informality. The low economic growth has also been a limiting factor for the creation of formal jobs in accordance with the demographic evolution ”.
This circumstance – the Consar agrees – implies that pension spending in Mexico is “regressive”. However, solving the problem requires reducing spending on pensions – whose cost will decline as of 2045, according to CEPF – and increasing the income of Mexicans, in addition to strengthening the culture of savings at the national level.
Regarding this last point, the Consar states that people require “a push” to save enough for their pension. To do this, it proposes –among other things– a policy of increasing the rate of mandatory and voluntary contributions in Mexico, to boost the replacement rate of pensioners and retirees.
According to the OECD and Consar, the mandatory and voluntary contribution rate in Mexico (6.5 percent) is the second lowest of the 27 countries analyzed, only above that of Costa Rica (4.3 percent). While these countries have average contributions of 17 percent, nations such as Italy, Hungary, France, Finland and Israel maintain rates of 25 to 33 percent.
To strengthen the contributions of workers, Consar proposes creating an “automatic enrollment of all workers affiliated with the IMSS and ISSSTE in an automatic voluntary savings program.”
This would imply generating a voluntary savings scheme of 5 percent of the worker’s base contribution salary that, together with the current mandatory 6.5, would guarantee 11 or 11.5 percent savings on monthly income. This would bring us closer to international standards that establish a minimum of 20 percent savings on the base contribution salary.
If achieved, Mexico could reduce the national poverty rate for older adults, which currently stands at 43 percent, equivalent to 6.3 million people aged 65 or older.
According to OECD figures, the replacement rate in Mexico – or the percentage of salary a retired worker receives compared to the salary before retirement – is the lowest among 43 countries analyzed. While in our country an average worker receives 26.4 percent of his last salary, most OECD countries receive 58.7 percent. In countries such as the Netherlands, India, Denmark and Italy, the replacement rate ranges between 83.1 and 96.9 percent of the last salary received by the worker.