The risk of falling into poverty increases substantially with age, not only because the ability to perform a job and ensure an income falls, but also because expenses mount as health deteriorates and disabilities increase.
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Pension policies don’t just alleviate poverty; they also provide security for the elderly who are in danger of falling into poverty. However, pension systems in developing countries have a limited potential, as their coverage level is low. Such is the case of El Salvador, where only 20 percent of the elderly population is covered by the pension system.
Aiming to compensate for the decline in opportunities and increased vulnerability that comes with age, the government of El Salvador implemented Our Elder´s Rights Program (Nuestros Mayores Derechos, in Spanish). One of its main components is the Universal Basic Pension or UBP, a noncontributory scheme that distributes $50 a month to each person who is 70 years old or more and resides in the poorest municipalities of the country.
The government of El Salvador asked the Inter-American Development Bank (IDB) for technical support to evaluate the impact of the program. The methodology employed was instrumental variables, utilizing age as the instrument.
Six years after its implementation, this transfer doubled the participants´ household income, from $43 to $84. However, the pension crowded-out remittances from family and friends by almost $5. Nevertheless, the net effect of the transfer ($45) has been significant enough to further reduce the probability of elderly participants being extremely poor by 13 percentage points.
The evaluation found that the most important use that elderly participants report for their pension is buying food and beverages (54 percent), followed by paying for doctor consultations, medications, vitamins, and supplements (21 percent).
The ability to spend more money on food reduced food insecurity by 17 percent. As a participant of the program declared, the pension not only allowed her to add some eggs and meat to her daily diet of tortillas, beans, rice, and coffee, but also made it possible for her to take her disabled sister to her monthly health check-ups by being able to pay for a taxi.
The UBP also has an effect on decreasing senior formal labor. The program reduced by half the probability of the elderly working for remuneration. The pension allows early retirement of those who never contributed to the formal pension system. The pension also has had some impacts on other household members. Young people aged 11 to 18 years living with a UBP participants increased their probability of enrolling in school by 8 percent.
Nevertheless, no effects were found in terms of health, empowerment, or credit. The Family Health Community Teams, another component of Our Elder´s Rights Program, attend UBP participants and nonparticipants alike, making it impossible to differentiate any particular impact coming from the pension. UBP participants, nonetheless, are more likely to seek medical attention.
The UBP seems to have only small effects on the empowerment of beneficiaries. Most of the participants report that the pension does not modify the dynamics within the family or the community, and it rarely increases the respect that other household or community members show to them.
In summary, the UBP shows very positive effects in helping the elderly cope with their increased vulnerability. These results, however, measure the program outreach only for participants in El Salvador’s 32 poorest areas. Whether these effects apply to the rest of the population participating in the program remains an open question.
In any case, given the current level of program current coverage, there is an opportunity to achieve similar effects among the population with similarly low incomes that has not yet benefited from this program. The program, which has been implemented in stages, now reaches the 82 poorest municipalities in the country.
