Expanding Pension System Coverage

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Expanding Pension System Coverage

• Developing Rural Pension Systems
• Axel Weber
• Social Protection Specialist

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Objectives of the Presentation

• To clarify Pensions in Asia it is possible!
• To describe Experiences of others
• To analyse Technical possibilities of rural
  pensions
• To alert The political agenda

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Structure

• Facts and Data
• The need for more coverage
• The possibilities for Extension
• Examples of coverage
• How to Extend Coverage - Techniques
• Policy issues

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Facts and Data
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Facts and Data
Source World Population Prospects, 2006
revision. UN 2007
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Facts and Data
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The Need for Coverage
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The Need for Coverage- need for pensions -

• Changing family structures - migration
• Large informal sectors without protection
• Traditional farmers
• Self-employed workers like small shops
• Employed people without security
• People have not enough savings
• Jobs for elderly may diminish
• Governments may not be willing to pay

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The Need for Coverage- Informal sector -

• Issues
• Majority of people work in IS
• Absence of social security
• Retirement, Pension and health insurance a luxury
• Most of the elderly are working (for example
  Indonesia 81 of male and 41 of female)
• Targets
• To build up entitlements
• To protect elderly workers and their families
• To prevent widespread poverty
• To avoid social dumping

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The Need for Coverage- Pensions -

• Pensions are important
• Smoothen consumption
• Prevent old age poverty
• Support economic stability
• Pensions are possible
• More GDP means more fiscal space
• Technological progress allows redistribution
• Indirect instead of direct taxes broaden
  assessment base and avoid reduction in
  competitiveness

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Extension of Coverage
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Extension of Coverage - Issues -

• Is Social Protection Affordable?
• ILO study proves all countries can afford
• Strong growth means fiscal space
• Is Social Protection good for the Economy?
• Stabilizes demand
• Allows individuals to take risks
• Shifts responsibilities from families to risk
  communities
• Prevents poverty
• Money is not lost and creates demand. If there
  are pensions, just other people use it.
• Effects on competitiveness depend on financing
  mechanisms

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Extension of Coverage - ADB Social Protection
Index -

• Preliminary Results.
• Four Indicators
• Social protection expenditure as of GDP.
• The total number of beneficiaries of Social
  Protection programs SP coverage.
• The number of poor beneficiaries of SP programs
  SP Distribution.
• Social protection expenditure going to the poor
  SP Impact.

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Extension of Coverage- ADB Social Protection
Index -
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Extension of Coverage- ADB Social Protection
Index -
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Examples of Coverage
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Examples of Coverage- Pensions -
Source Help Age International 2007
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Examples of Coverage- Pensions -
Source Help Age International 2007
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How to Extend Coverage
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How to Extend Coverage- problems -

• Rural sector less densly populated
• Less infrastructure
• Less regular income
• Large informal sector
• Low literarcy and low awareness
• No identification and high mobility
• Less access to capital markets
• Low pensions face high adminitration costs
• People do not trust
• More difficult to administer pensions

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How to Extend Coverage - alternatives -

• Universal non contributory flat rate pension
  means tested or not
• Volutary contributory funded pension
• Compulsory contributory
• PAYG
• Funded

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How to Extend Coverage - flat rate pensions -

• Advantages
• Everybody is covered
• Easy to administer
• Guarantees universal protection

• Disadvantages
• No link to contributions
• Gives a free pension also to those who do not
  need it

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How to Extend Coverage - voluntary contributory -

• Advantages
• Link to contributions
• Less budgetary implications

• Disadvantages
• Poor cannot afford
• High administrative challenge
• Underestimation of need by people
• No solution to poverty

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How to Extend Coverage - compulsory contributory
-

• Advantages
• Everybody is covered
• More solidarity effects possible

• Disadvantages
• Difficult to enforce
• Political resistance

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How to Extend Coverage - PAYG contributory -

• Advantages
• High surpluses in building up phase
• No capital market needed
• Easy to administer

• Disadvantages
• Higher contributions with aging
• Needs mechanism to prevent erosion
• Benefits not defined

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How to Extend Coverage - funde schemes -

• Advantages
• Not sensible to aging
• Accumulates capital
• Benefits are defined (within limits)

• Disadvantages
• Needs capital market
• Benefits depend on fund management
• Higher administration costs

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How to Extend Coverage - how to reach rural
population -

• To involve communities and extend to communities
• To do social marketing
• To do low cost administration
• To create synergy effects with other public
  administration
• To create synergy effects with other products
  like microfinance

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How to Extend Coverage - risks -

• Mismanagement of funds
• Fraud
• Policy risks and Government risks
• Loss of information and contact risk
• Insolvency risk
• Discontinuation and drop out risk

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Policy Issues
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Policy Issues

• Society for all Ages must be discovered
• Awareness must be created that Social protection
  is affordable!
• Schemes must be built up and reformed
• To pay to every person over 65 in China a pension
  of 2 a day costs 2 of GDP

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Thank You
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Sources

• World Population Prospects, 2006 revision. UN
  2007
• The retirement project Urban Institute 2000
• Aging in Asia. The growing need for social
  protection. ILO 2000
• Help Age International 2007
• ADB Social Protection Index Project