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Enhancing Pension Systems in Rural Asia: Strategies and Challenges

This workshop focuses on expanding pension system coverage in rural Asia, highlighting the necessity for inclusive social protection. It explores the unique challenges faced by rural populations, including informal employment, migration, and inadequate savings. Through analysis of various models and case studies, the presentation illustrates how adaptable pension schemes can be implemented effectively. Attendees will gain insights into the technical and policy frameworks required to create sustainable and affordable pensions for elderly workers, ultimately contributing to poverty reduction and economic stability in rural communities.

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Enhancing Pension Systems in Rural Asia: Strategies and Challenges

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  1. Expanding Pension System Coverage Developing Rural Pension Systems Axel Weber Social Protection Specialist APFD Workshop 16-17 October 2007

  2. 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 APFD Workshop 16-17 October 2007

  3. Structure • Facts and Data • The need for more coverage • The possibilities for Extension • Examples of coverage • How to Extend Coverage - Techniques • Policy issues APFD Workshop 16-17 October 2007

  4. Facts and Data APFD Workshop 16-17 October 2007

  5. Facts and Data Source: World Population Prospects, 2006 revision. UN 2007 APFD Workshop 16-17 October 2007

  6. Facts and Data APFD Workshop 16-17 October 2007

  7. The Need for Coverage APFD Workshop 16-17 October 2007

  8. 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 APFD Workshop 16-17 October 2007

  9. 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 APFD Workshop 16-17 October 2007

  10. 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 APFD Workshop 16-17 October 2007

  11. Extension of Coverage APFD Workshop 16-17 October 2007

  12. 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 APFD Workshop 16-17 October 2007

  13. 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. APFD Workshop 16-17 October 2007

  14. Extension of Coverage- ADB Social Protection Index - APFD Workshop 16-17 October 2007

  15. Extension of Coverage- ADB Social Protection Index - APFD Workshop 16-17 October 2007

  16. Examples of Coverage APFD Workshop 16-17 October 2007

  17. Examples of Coverage- Pensions - Source: Help Age International 2007 APFD Workshop 16-17 October 2007

  18. Examples of Coverage- Pensions - Source: Help Age International 2007 APFD Workshop 16-17 October 2007

  19. How to Extend Coverage APFD Workshop 16-17 October 2007

  20. 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 APFD Workshop 16-17 October 2007

  21. How to Extend Coverage - alternatives - • Universal non contributory flat rate pension – means tested or not • Volutary contributory funded pension • Compulsory contributory • PAYG • Funded APFD Workshop 16-17 October 2007

  22. 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 How to Extend Coverage - flat rate pensions - APFD Workshop 16-17 October 2007

  23. Advantages Link to contributions Less budgetary implications Disadvantages Poor cannot afford High administrative challenge Underestimation of need by people No solution to poverty How to Extend Coverage - voluntary contributory - APFD Workshop 16-17 October 2007

  24. Advantages Everybody is covered More solidarity effects possible Disadvantages Difficult to enforce Political resistance How to Extend Coverage - compulsory contributory - APFD Workshop 16-17 October 2007

  25. 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 How to Extend Coverage - PAYG contributory - APFD Workshop 16-17 October 2007

  26. Advantages Not sensible to aging Accumulates capital Benefits are defined (within limits) Disadvantages Needs capital market Benefits depend on fund management Higher administration costs How to Extend Coverage - funde schemes - APFD Workshop 16-17 October 2007

  27. 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 APFD Workshop 16-17 October 2007

  28. 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 APFD Workshop 16-17 October 2007

  29. Policy Issues APFD Workshop 16-17 October 2007

  30. 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 APFD Workshop 16-17 October 2007

  31. Thank You APFD Workshop 16-17 October 2007

  32. 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 APFD Workshop 16-17 October 2007

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