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Expanding Pension System Coverage. Developing Rural Pension Systems Axel Weber Social Protection Specialist. Objectives of the Presentation. To clarify: Pensions in Asia – it is possible! To describe: Experiences of others To analyse: Technical possibilities of rural pensions - PowerPoint PPT Presentation
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04/19/23 APFD Workshop 16-17 October 2007
Expanding Pension System Coverage
Developing Rural Pension SystemsAxel WeberAxel WeberSocial Protection SpecialistSocial Protection Specialist
04/19/23 APFD Workshop 16-17 October 2007
Objectives of the Objectives of the PresentationPresentation
• To clarify:To clarify: Pensions in Asia – it is Pensions in Asia – it is possible!possible!
• To describe: To describe: Experiences of Experiences of othersothers
• To analyse:To analyse: Technical possibilities Technical possibilities of of rural pensionsrural pensions
• To alert:To alert: The political agenda The political agenda
04/19/23 APFD Workshop 16-17 October 2007
StructureStructure
• Facts and DataFacts and Data• The need for more coverageThe need for more coverage• The possibilities for ExtensionThe possibilities for Extension• Examples of coverageExamples of coverage• How to Extend Coverage - How to Extend Coverage -
TechniquesTechniques• Policy issuesPolicy issues
04/19/23 APFD Workshop 16-17 October 2007
Facts and DataFacts and Data
04/19/23 APFD Workshop 16-17 October 2007
Facts and DataFacts and Data
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
20
15
20
20
20
25
20
30
Asia
India
Philippines
0
10
20
30
40
50
60
70
80
90
% o
f to
tal
Year
Rural Population in Asia
Asia
China
India
Indonesia
Philippines
Vietnam
Source: World Population Prospects, 2006 revision. UN 2007World Population Prospects, 2006 revision. UN 2007
04/19/23 APFD Workshop 16-17 October 2007
Facts and DataFacts and Data
0% 20% 40% 60% 80% 100% 120%
% of persons over 65
BhutanPNGLaos
CambodiaPakistan
TongaFiji
PhilippinesTuvalu
IndiaBangladesh
ChinaSri LankaMaldives
Nepal Vietnam
Malaysia Nauru
IndonesiaVanuatu
KoreaTajikistan
JapanKazahkstanAzerbaijan
CookKyrgyzstanUzbekistan
ArmeniaMarshallMongolia
Co
un
try
Persons over 65 with Pension Entitlement
04/19/23 APFD Workshop 16-17 October 2007
The Need for CoverageThe Need for Coverage
04/19/23 APFD Workshop 16-17 October 2007
The Need for CoverageThe Need for Coverage- need for pensions -- need for pensions -
• Changing family structures - migrationChanging family structures - migration• Large informal sectors without protectionLarge informal sectors without protection
– Traditional farmersTraditional farmers– Self-employed workers like small shopsSelf-employed workers like small shops– Employed people without securityEmployed people without security
• People have not enough savingsPeople have not enough savings• Jobs for elderly may diminishJobs for elderly may diminish• Governments may not be willing to payGovernments may not be willing to pay
04/19/23 APFD Workshop 16-17 October 2007
The Need for CoverageThe Need for Coverage- Informal sector -- Informal sector -
IssuesIssues• Majority of people work in ISMajority of people work in IS• Absence of social securityAbsence of social security• Retirement, Pension and health insurance a Retirement, Pension and health insurance a
luxuryluxury• Most of the elderly are working (Most of the elderly are working (for example for example
Indonesia 81% of male and 41% of femaleIndonesia 81% of male and 41% of female))TargetsTargets• To build up entitlementsTo build up entitlements• To protect elderly workers and their familiesTo protect elderly workers and their families• To prevent widespread povertyTo prevent widespread poverty• To avoid social dumpingTo avoid social dumping
04/19/23 APFD Workshop 16-17 October 2007
The Need for CoverageThe Need for Coverage- Pensions -- Pensions -
• Pensions are importantPensions are important– Smoothen consumptionSmoothen consumption– Prevent old age povertyPrevent old age poverty– Support economic stabilitySupport economic stability
• Pensions are possiblePensions are possible– More GDP means more fiscal spaceMore GDP means more fiscal space– Technological progress allows redistributionTechnological progress allows redistribution– Indirect instead of direct taxes broaden Indirect instead of direct taxes broaden
assessment base and avoid reduction in assessment base and avoid reduction in competitivenesscompetitiveness
04/19/23 APFD Workshop 16-17 October 2007
Extension of CoverageExtension of Coverage
04/19/23 APFD Workshop 16-17 October 2007
Extension of Coverage Extension of Coverage - Issues -- Issues -
• Is Social Protection Affordable?Is Social Protection Affordable?– ILO study proves: all countries can affordILO study proves: all countries can afford– Strong growth means fiscal spaceStrong growth means fiscal space
• Is Social Protection good for the Economy?Is Social Protection good for the Economy?– Stabilizes demandStabilizes demand– Allows individuals to take risksAllows individuals to take risks– Shifts responsibilities from families to risk communitiesShifts responsibilities from families to risk communities– Prevents povertyPrevents poverty– Money is not „lost“ and creates demand. If there are Money is not „lost“ and creates demand. If there are
pensions, just other people use it.pensions, just other people use it.– Effects on competitiveness depend on financing Effects on competitiveness depend on financing
mechanismsmechanisms
04/19/23 APFD Workshop 16-17 October 2007
Extension of Coverage Extension of Coverage - ADB Social Protection Index -- ADB Social Protection Index -
Preliminary Results.Preliminary Results.Four Indicators:Four Indicators:• Social protection expenditure – as % of Social protection expenditure – as % of
GDP.GDP.• The total number of beneficiaries of Social The total number of beneficiaries of Social
Protection programs – SP coverage.Protection programs – SP coverage.• The number of poor beneficiaries of SP The number of poor beneficiaries of SP
programs – SP Distribution.programs – SP Distribution.• Social protection expenditure going to the Social protection expenditure going to the
poor – SP Impact.poor – SP Impact.
04/19/23 APFD Workshop 16-17 October 2007
Extension of CoverageExtension of Coverage- ADB Social Protection Index -- ADB Social Protection Index -
0.00
1.00
0.74
0.63
0.56
0.55
0.53
0.52
0.49
0.47
0.44
0.42
0.41
0.35
0.34
0.32
0.32
0.30
0.30
0.24
0.21
0.20
0.20
0.19
0.19
0.15
0.08
0.07
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00
Afghanistan
Fiji
Marshall Islands
PNG
Solomon Islands
Vanuatu
Japan
Korea
Kyrgyzstan
Uzbekistan
Cook Islands
Kazahkstan
Mongolia
Sri Lanka
India
China
Nauru
Azerbaijan
Malaysia
Armenia
Indonesia
Tajikistan
Vietnam
Tuvalu
Maldives
Philippines
Bangladesh
Bhutan
Laos
Cambodia
Nepal
Tonga
Pakistan
04/19/23 APFD Workshop 16-17 October 2007
Extension of CoverageExtension of Coverage- ADB Social Protection Index -- ADB Social Protection Index -
Correlation GPD per Capita and SPI
0
0.2
0.4
0.6
0.8
1
1.2
100 1000 10000 100000
GDP per Capita
SP
I va
lues
04/19/23 APFD Workshop 16-17 October 2007
Examples of CoverageExamples of Coverage
04/19/23 APFD Workshop 16-17 October 2007
Examples of CoverageExamples of Coverage- Pensions -- Pensions -
Source: Help Age International 2007Help Age International 2007
04/19/23 APFD Workshop 16-17 October 2007
Examples of CoverageExamples of Coverage- Pensions -- Pensions -
Source: Help Age International 2007Help Age International 2007
04/19/23 APFD Workshop 16-17 October 2007
How to Extend CoverageHow to Extend Coverage
04/19/23 APFD Workshop 16-17 October 2007
How to Extend CoverageHow to Extend Coverage- problems -- problems -
• Rural sector less densly populatedRural sector less densly populated• Less infrastructureLess infrastructure• Less regular incomeLess regular income• Large informal sectorLarge informal sector• Low literarcy and low awarenessLow literarcy and low awareness• No identification and high mobilityNo identification and high mobility• Less access to capital marketsLess access to capital markets• Low pensions face high adminitration costsLow pensions face high adminitration costs• People do not trustPeople do not trust
More difficult to administer pensionsMore difficult to administer pensions
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - alternatives -- alternatives -
• Universal non contributory flat rate Universal non contributory flat rate pension – means tested or notpension – means tested or not
• Volutary contributory funded Volutary contributory funded pensionpension
• Compulsory contributoryCompulsory contributory• PAYGPAYG• FundedFunded
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - flat rate pensions -- flat rate pensions -
AdvantagesAdvantages• Everybody is Everybody is
coveredcovered• Easy to Easy to
administeradminister• Guarantees Guarantees
universal universal protectionprotection
DisadvantagesDisadvantages• No link to No link to
contributionscontributions• Gives a free Gives a free
pension also to pension also to those who do not those who do not need itneed it
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - voluntary contributory -- voluntary contributory -
AdvantagesAdvantages• Link to Link to
contributionscontributions• Less budgetary Less budgetary
implicationsimplications
DisadvantagesDisadvantages• Poor cannot affordPoor cannot afford• High administrative High administrative
challengechallenge• Underestimation of Underestimation of
need by peopleneed by people• No solution to No solution to
povertypoverty
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - compulsory contributory - compulsory contributory
--AdvantagesAdvantages
• Everybody is Everybody is coveredcovered
• More solidarity More solidarity effects possibleeffects possible
DisadvantagesDisadvantages• Difficult to Difficult to
enforceenforce• Political Political
resistanceresistance
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - PAYG contributory -- PAYG contributory -
AdvantagesAdvantages• High surpluses in High surpluses in
building – up building – up phasephase
• No capital market No capital market neededneeded
• Easy to Easy to administeradminister
DisadvantagesDisadvantages• Higher Higher
contributions with contributions with agingaging
• Needs mechanism Needs mechanism to prevent erosionto prevent erosion
• Benefits not Benefits not defineddefined
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - funde schemes -- funde schemes -
• AdvantagesAdvantages• Not sensible to Not sensible to
agingaging• Accumulates Accumulates
capitalcapital• Benefits are Benefits are
defined (within defined (within limits)limits)
• DisadvantagesDisadvantages• Needs capital Needs capital
marketmarket• Benefits depend Benefits depend
on fund on fund managementmanagement
• Higher Higher administration administration costscosts
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - how to reach rural population -- how to reach rural population -
• To involve communities and To involve communities and extend to communitiesextend to communities
• To do social marketingTo do social marketing• To do low cost administrationTo do low cost administration• To create synergy effects with To create synergy effects with
other public administrationother public administration• To create synergy effects with To create synergy effects with
other products like microfinanceother products like microfinance
04/19/23 APFD Workshop 16-17 October 2007
How to Extend Coverage How to Extend Coverage - risks -- risks -
• Mismanagement of fundsMismanagement of funds• FraudFraud• Policy risks and Government risksPolicy risks and Government risks• Loss of information and contact Loss of information and contact
riskrisk• Insolvency riskInsolvency risk• Discontinuation and drop out riskDiscontinuation and drop out risk
04/19/23 APFD Workshop 16-17 October 2007
Policy IssuesPolicy Issues
04/19/23 APFD Workshop 16-17 October 2007
Policy IssuesPolicy Issues
• „„Society for all AgesSociety for all Ages“ must be “ must be discovereddiscovered
• Awareness must be created that Awareness must be created that Social protection is Social protection is affordableaffordable!!
• Schemes must be Schemes must be built up and built up and reformedreformed
• To pay to every person over 65 in To pay to every person over 65 in China a pension of 2$ a day costs China a pension of 2$ a day costs 2% of GDP 2% of GDP
04/19/23 APFD Workshop 16-17 October 2007
Thank YouThank You
04/19/23 APFD Workshop 16-17 October 2007
SourcesSources
• World Population Prospects, 2006 World Population Prospects, 2006 revision. UN 2007revision. UN 2007
• The retirement project: Urban The retirement project: Urban Institute 2000Institute 2000
• Aging in Asia. The growing need Aging in Asia. The growing need for social protection. ILO 2000for social protection. ILO 2000
• Help Age International 2007Help Age International 2007• ADB Social Protection Index ProjectADB Social Protection Index Project
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