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Social security at a crossroads: Global trends and innovations

A story of two worlds

Michael CichonSocial Security Department, ILOWashington, 15 February 2011

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The Structure

Setting the scene... The big issues ... Just to warm up... A stylised view of the global state of social

security: – Key findings and conclusions from four new ILO

Flagship Reports

The challenges ahead:– Developed countries: Defending expenditure

against convenient old excuses – Developing countries: The UN SPF initiative: A

rare sign of hope for the MDGs?

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The ILO policy context … The ILO is running a campaign to extend social

security to all, and has in the last 5 to 10 years invested heavily in

– in building the global monitoring system for social security coverage (the WSSR)

– in policy development by developing a two tier policy paradigm for the extension of social security

– in incorporating the extension strategy into a coherent social and economic development paradigm (in the Global Jobs Pact)

...and bring the new concepts to the discussions at the International Labour Conference in 2011

*Focus on financial protection, not services components of the floor

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Mandatory social insurance/social security benefits of guaranteed levels for

contributors

The Social Protection Floor* and the overall national social protection architecture and extension strategy

Individual/household income

Leve

l of p

rote

ctio

n

THE FLOOR: Four essential guarantees 1. Access to essential health care for all

2. Income securityChildren

3. Assistance Unemployed,

underemployed & poor

Voluntary insurance

4. Income securityElderly & disabled

*Focus on financial protection, not services components of the floor

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The underlying development policy paradigm in the Global Jobs Pact : “Growing with equity” …that could look as follows…

The virtuous cycle of

development

SPF Investments

Schooling/TrainingHealth

Employable

Employed in formal sector and

paying taxes

Higher levelsof Social Protection

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The Big Issues (from AR,WSSR, Guide, RIR) , just to warm up...

We need less than 2% of Global GDP to provide all of the world’s poor with basic social protection…

With an investment of about 4% of national GDP for basic social transfers in developing countries we can reduce the the “food poverty”rate by about 40%

With an investment in essential health care for all we can reduce the poverty rate further by about 10 to 20%- points ...

The impact of ageing on the total social expenditure even in “old Europe” remains under 4%-points of GDP between 2010 and 2050

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... A quick excursion to the ageing myth...

Expected increases in EU social expenditure, 2004 - 2050

Level in2004

(per cent of GDP)

2030 2050(Change from 2004 in percentage points)

Pensions 10.6 +1.3 +2 .2Health care 6.4 +1.0 +1.6

Long - term care 0.9 +0.2 +0.2Unemployment benefits 0.9 - 0.3 - 0.3

Education 4.6 - 0.6 - 0.6Total 23.4 +1.6 +3.4

Source: European Commission 2006

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The main facts from the WSSR…

It is estimated that only about 20 per cent of the world’s working age population (and their families) have effective access to comprehensive social protection systems.

On average, 17.2 % of global GDP is allocated to social security (US 15.9 % but without most of its HC) . However, these expenditures are concentrated in higher-income countries, g ranging form 4.1% in low income countries to 19.4% in high income countries,

…but at each level of GDP per capita government’s spend very different share of GDP in social protection, likewise the share of government spending, the share that goes to social protection varies greatly,

*Focus on financial protection, not services components of the floor

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The main facts of the WSSR…

Worldwide, nearly 40 per cent of the population of working age is legally covered by contributory old-age pension schemes.

– In North America and Europe, this number is nearly double as high , while in Africa less than one-third of the working-age population is covered even by legislation, however...

– Effective coverage is significantly lower than legal coverage. In sub-Saharan Africa, only 5 per cent of the working-age population is effectively covered by contributory programmes, while this share is about 20 per cent in Asia, the Middle East and North Africa.

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The main facts of the WSSR…

In high income countries, 75 per cent of people aged 65 or over are receiving some kind of public pension while in low-income countries less than 20 per cent of the elderly receive pension benefits.

In the OECD countries, private financial sources constitute on average one fifth of retirement incomes

– but they Account for over 40 per cent in five countries: Australia, Canada,

the Netherlands, the United Kingdom and the United States. And for less than 5 per cent in Austria, the Czech Republic,

Hungary, Poland and Slovakia.

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Fact about the crisis effects and responses...

In high-income countries the most common response to the economic crisis has been to modify existing unemployment schemes.

In middle-income countries, the general response has been the extension of public employment schemes (for example in the Philippines) as well as cash transfer schemes such as the Bolsa Familia in Brasil, the Oportunidades in Mexico, the social grant system in South Africa or universal pension schemes in countries such as Namibia and Nepal.

The crisis and the consequential losses in pension reserves clearly demonstrated the vulnerability of pension levels, and hence old-age income security created by the re-introduction of fully funded pension schemes since the 1980s.

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Key policy conclusions :

Social security benefits/social transfers are the most powerful, most direct tool that any society has to combat poverty , inequality and invest in social and economic development; they are one of the key tools to achieve at some point the MDG targets;

Social security benefits are the only tangible instruments to achieve a meaningful social dimension of globalisation;

Systems in OECD countries, have succeeded in reducing poverty and inequality, ageing in the “old” developed societies remains manageable

At basic set of social security guarantees (i.e. a social protection floor) or at least elements thereof can be afforded by nearly all countries;

about 30 developing countries basic social transfer systems which are rudimentary social security systems are already being put in place, and they are financed by as little as 0.5 % of GDP and reach can reach out - as is the case of Brazil - to about 25% of the population; .

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A sad conclusion on the crisis ...

during the hot phase of the crisis everyone agreed that social security systems serve as economic and social stabilisers... but now

according to a UNDP study 25% of all countries plan to reduce their social expenditure as budgets need to be “consolidated” to finance crisis-triggered public deficits

=> the old, the disabled, the sick, the poor will pay for the crisis

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The challenges in the developed world ... Defend social expenditure against convenient myths...

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The challenges in the developed world ... Defend social expenditure against convenient myths...higher female LF participation and de facto retirement

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The challenges in the developed world ... Defend social expenditure against convenient myths...the dependency myths...

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And in the developing world: a new drive towards universal coverage

The UN Social Protection Floor Initiative aims at joint global and local UN action to promote access to essential services and social transfers for the poor and vulnerable. It includes:

– A basic set of essential social rights and transfers, in cash and in kind, to provide a minimum income and livelihood security for poor and vulnerable populations and to facilitate access to essential services, such as health care

– Geographical and financial access to essential services, such as health, water and sanitation, education, social work

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... a basic social protection floor package is affordable: Cost of basic transfers in % of GDP

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Financing strategies: Lack of fiscal space? The good news

Combined

Ireland

France

Mauritius

Croatia

South Africa

Estonia

Panama

ThailandDominican Republic

Romania

Iran

Bulgaria

Senegal

Moldova

Seychelles

Malta

Estonia

Mexico

Dominican Rep.

Romania

China

Syrian Arab Rep.

Senegal

Moldova

Uganda

Congo,Rep

Congo, Dem Rep

Burundi

0

10

20

30

40

50

60

70

0 5000 10000 15000 20000 25000 30000 35000

Health & SP exp. (% of GDP).

Government exp. (% of GDP)

Linear (Health+SP)

Linear (gov exp)

Pub

lic S

P &

Hea

lth e

xpen

ditu

re (a

s a

% o

f GD

P);

and

Tota

l gov

ernm

ent e

xpen

ditu

re (a

s a

% o

f GD

P)

GDP per capita PPP

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Evidence from the South – as hard as it gets: an ILO Meta study shows …a number of countries are already providing some basic guarantees…innovation happens in the South

Number of countries in study: 28 - 8 in Africa, 9 in Asia, 11 in Latin America

Number of studies: 80 studies during 1999 and 2008

Number of programmes: 63 Positive impacts on poverty, health status,

nutrition, schooling, economic activity, status of women

Estimated number of total beneficiaries (primary and secondary, at the end of 2008): between 150 and 200 million people

Expenditure starts at less than 0.5% of GDP…

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What else has been done so far? 10 Things…

One: Advocacy at global, regional, national levels => e.g. Global Jobs Pact, UNCSocD Resolution 2010, UN Millennium Summit, G8, G20, Yaounde Triparite Declaration

Two: Methodology for rapid SPF country assessments and joint ILO/UNICEF costing tool is being applied in Cambodia, Burkina, Mozambique, Nepal, Togo, Vietnam...

Three: South-South dialogue on SPF success stories started and is ongoing

Four: Training programme for national planners is operational, Five: High-level Advisory Group established under chair-

personship of Ms. Michelle Bachelet Six : Analytical work on impact and, jointly with the IMF, on

fiscal space ongoing

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What next in the coming months … in the next 12 months

Consolidation of the SPF concept as development paradigm in Bachelet report,

Discussions at the International Labour Conference Support the G20 process (France), and the SPF Advisory

group report SOUTH- SOUTH dialogue to intensify Country projects to be continued / undertaken, i.e.

UNDAFs and beyond…

Promotion of an ILO and UN instrument to keep the global policy discussions going...

Making UN delivery of TC more effective Creating a new funding mechanism ?

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Further information:

Read more :http://www.socialsecurityextension.org/

Sources:

- Employment and Social protection in the changing demographic context, 2010

- World Social Security Report 2010/11: Protecting people in the crisis and beyond, 2010

- The Director General’s report for the Conference 2011: Social security for social justice and a fair Globalisation, 2011

- Extending Social Security to all: A guide through challenges and options, 2010

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