Why Social Pensions? Achieving Income Security for All in Older Age About Helpage

Why social pensions? Achieving income security for all in older age About HelpAge

HelpAge International is a global network of organisations promoting the right of all older people Any parts of this publication may be repro- to lead dignified, healthy and secure lives. duced without permission for non-profit and Why social pensions? educational purposes. Achieving income security for all in older age Published by HelpAge International Please clearly credit HelpAge International and send us a copy or link. Written by Florian Juergens ([email protected]) and Dr Flavia Galvani ([email protected])

The authors would like to express their gratitude to Nicholas Barr, Charles Knox-Vydmanov, Luis Frota, Gibrán Cruz-Martínez, Usa Khiewrord, Peter Morrison and Tapiwa Huye for their review and invaluable contributions to this brief. www.helpage.org

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Front page photo © Hereward Holland/ Age International Female Daw Mu Nge, 63, Myanmar

2 Table of Contents

1 Introduction...... 3 2 Social protection throughout the life-course...... 3 3 Economic and social challenges in older age...... 5 4 Pension systems ensure social protection in older age...... 7 5 chieving income security for all older people through universal social pensions...... 10 6 Impacts of social pensions...... 13 7 The affordability of universal social pensions...... 17 8 References...... 18 1 Introduction

This paper aims to present a concise yet comprehensive The paper starts with an introduction of the concept argument for the importance of old age social pensions of social protection, followed by a short discussion of as an effective, efficient and affordable policy to achieve common socioeconomic challenges faced by many older income security, and reduce poverty and inequality in people which provide a fundamental justification for older age. social protection in older age. Section four presents a discussion of the objectives and components of pension It makes the case for social pensions by drawing on systems, followed by an analysis of the crucial role of international human rights principles and standards, universal social pensions in providing basic income decades of global experience in the design and security within comprehensive pension systems. Section implementation of pension systems, as well as evidence six presents some of the impacts of social pensions emerging from a wide range of lower and middle-income on recipients, their households and communities. The countries implementing social pensions. paper concludes with considerations on financing and affordability of social pensions. 2 Social protection throughout the life-course

Every person, male or female, young or old, rich or benefit, maternity benefit, invalidity benefit, survivors’ poor, faces a variety of circumstances throughout their benefit - relate to these risks.1 life-course that hold the potential to negatively impact The human right to appropriate social security their health, psychosocial wellbeing, livelihoods and the and social protection throughout the life-course ability to achieve and maintain an adequate standard of is well-established in international human rights living. law (Box 2). However, there are different views on the Although each individual’s life-course is unique, objectives and scope of social protection, which have there are stages or circumstances in a person’s implications for how the right to social protection is life which are universally recognized to heighten implemented in practice. the risks to one’s wellbeing, including childhood, There are a variety of approaches to social protection orphanhood, parenthood, disability, sickness or ranging from more narrow ones which focus on injury, unemployment, widowhood and old age. The addressing the challenges faced by today’s poor and interventions developed in response to these risks reducing existing poverty (safety net approach), to are known as social security. Indeed, the nine approaches that see the role of social protection as not classical branches of social security which constitute the only reducing today’s existing poverty but protecting foundations of comprehensive social protection systems everyone against universal risks that might lead to - medical care, sickness benefit, unemployment benefit, poverty and multiple forms of deprivation (life-cycle old-age benefit, employment injury benefit, family approach).

3 For HelpAge, social protection is an effective it can make in increasing people’s dignity and self- mechanism to reduce existing poverty, deprivation esteem, inclusion and social participation, as well as and marginalization, including amongst older active citizenship and empowerment. people, but its real potential lies in its capacity to provide protection against shocks and stresses that In this sense, HelpAge defines social protection as everyone faces throughout their lives, thus ensuring the system of public policies and programmes aimed that people do not become destitute in the first place. at preventing or protecting all people against poverty, vulnerability, and social exclusion throughout their life HelpAge further believes in the transformative power of courses. social protection, recognizing the crucial contributions

BOX 1 Approaches to social protection

The safety net approach is based on the idea disability, old age, raising a family, unemployment) that limited resources should be directed to those then this will prevent them from falling into poverty identified as the poorest and most vulnerable in in the first place. A key distinction is that such an society to address their economic needs, while approach defines universal risks that all people may benefits or services provided on a universal basis, face at some point in their lives, rather than seeing including to the those identified as “non-poor” social protection as something relevant to a small would be considered inefficient. This is a model portion of a country’s population. often advocated for by institutions such as the World This approach is championed by the United Nations, Bank and the International Monetary Fund (IMF). in particular the ILO, and other rights-based It can also be called the “poor relief”, “charity” or organizations. Figure 1 illustrates the life-cycle “poverty-targeted approach”. approach to social protection, showing the different The life-cycle approach focuses less on targeting kinds of social protection benefits that may be “the poor” and is instead based around the logic that relevant for risks faced at different stages of the life- if people are protected from life cycle risks (such as course.

Figure 1 The life-cycle approach to social protection

Maternal and child grants

Pre-natal and Support to orphans and early childhood vulnerable children

Disability Older Age School Age Residual social assistence Old age pensions Support to education Widows pensions

Working Age Adolescence

Unemployment insurance Active labour market policies

Source: Kidd (2017)2

4 3 Economic and social challenges in older age 3. Economic and social challenges in older age Growing older is often associated with increasing estimates, over 40 percent of older men and around 15 rowingchallenges older to earning is often an adequate associated income with to maintain increasing challengespercent of older to women earning (65+) an in adequatelow- and middle-income income to “Inequalities maintainan acceptable an acceptalestandard of living, standard while expenditure, of living while ependiturecountries participated especially in the labour on healthcare force in 2017. often accrue and get increaseespeciallys. on healthcare, often increases. reinforced over a person’s life. WWorkork in in older age age Global evidence shows that although a significant hey come home “Inequalities accrue and get reinforced over a to roost in later Globalproportion evidence of people remainshows economically that although active a significantperson’s life. pr Theyopor cometion home of to roostpeople in later remain years, economicallyin older age, especially active inin lower- older and middle-incomeage, especially inoften lower exacerbating- and eachmiddle other-income and causing countries greater . years often onethelesscountries. Nonetheless,, participation participation in the in laour the labour force force declines disadvantage.” maredly in older age. s shown in igure eacerating each declines markedly in older age. As shown in Figure 2, 2 the laour force participation rate peas at agesSir 2 Richard reducing Jolly, Honorary consideraly Professor of among the Institute older other and causing the labour force participation rate peaks at ages 25-54, greater agereducing groups. considerably among older age groups. of Development Studies at the University of Sussex, in Facing the Facts: The Truth About Ageing and disadvantage.” OlderOlder mmenen are are significantly significantly more likelymore to likelybe in paid to be inDevelopment paid employment than older women. ccordingemployment to thanI olderestimates women. over According 0 percent to ILO of older men and around 1 percent of older women ir ichard olly in low and middleincome countries participated in the laour force in 201. onorary rofessor of the FigureFigure 2: 2 Labour Labour force force participation participation rate rate by by age age Institute of 100 evelopment 8 0 80 81 82 tudies at the 80 niversity of 0 1 8 0 usse in acing 0 8 8 8 the acts he 0 2 0 ruth out 0 3 2 2 30 2 geing and 30 22 23 20 13 13 13 evelopment 10 0 12 2 12 2 12 2 12 2 12 2 12 2 12 2 12 2 ra tates entral and Eastern sia atin orthern outh outhern uaharan estern sia merica and frica Eastern sia sia frica the and the ariean acific

ourceSource: ILOSTAT, I 2018 2018 3 3

Family responsibilities are also an important reason Moreover,Moreover, the the intensity intensity of work of and work the qualityand the of jobs quality of jobs available tend to decrease with age. available tend to decrease with age. Older workers tend for not engaging in paid work, particularly for older lderto work worers fewer hours tend on to average wor than fewer younger hours ones. on averagewomen than .younger5 A 2018 study ones on. older women’s economic empowerment in 30 countries across the world found DecliningDeclining healthhealth and and increasing increasing rates of rates disabilities of disabilities that older are women major across reasons all income why levels older spent peoplemore reduceare major their reasons levels why of older work. people orldwide reduce their prevalence than rates four of hours disailities daily, on average, increase on unpaidwith age. work hile and levelspercent of work. of 18 Worldwide,8year prevalenceolds and rates 21 of percent of care.06yearolds eperience some form of disailitydisabilities the increase prevalence with age. ofWhile disaility 9 percent for of those aged 0 stands at 38 percent. It should also 18-48-year-olds, and 21 percent of 50-59-year-olds, Older people are also more likely to have informal eexperience noted that some the form prevalence of disability, theof prevalencedisaility of among andpeople precarious aged jobs.0 Worldwideis higher 80 in per lower cent of incomeolder countriesdisability for3 those percent aged 60+ compared stands at 38-46 to higher percent. income peoplecountries are in 2informal percent. employment. 7 It should also be noted that the prevalence of disability Family responsibilities are also an important Asreason a result, for work not in older engaging age tends in to providepaid worklower , among people aged 60+ is higher in lower income 5 and more volatile incomes. Figure 3 shows per capita particularlycountries (43 percent),for older compared women. to higher 2018 income study on older women’s economic empowerment in 30 countriescountries across(29 percent). the4 world found that older women across all income levels spent more than four hours daily on average on unpaid wor and care.5 Older people are also more likely to have informal and precarious jobs. orldwide 80 per cent of older people are in informal employment. As a result, work in older age tends to provide lower and more volatile incomes. igure 3 shows per capita consumption and laour income throughout the life course in igeria ietnam osta ica and oldova. he graphs illustrate typical trends in laour income in lowermiddle and uppermiddleincome countries average per capita incomes start rising rapidly from around the 1 years and pea in somewhere the early 0s. Incomes earned through laour then decline quicly from the late 0s onwards efore stailiing somewhat in the 0s and 80s at low levels.

4 consumption and labour income throughout the life - average per capita incomes start rising rapidly from course in Nigeria, Vietnam, Costa Rica and Moldova. around the 16 years and peak in somewhere the early The graphs illustrate typical trends in labour income 40s. Incomes earned through labour then decline quickly in lower-middle and upper-middle-income countries from the late 50s onwards, before stabilizing somewhat in the 70s and 80s at low levels.

Figure 3 Lifetime consumption and labour income in selected middle-income countries FigureFigure 3: Lifetime3: Lifetime consumption consumption and and labour labour income income in selectedin selected middle middle-income-income countries countries

igeriaigeria 201 201 ietnamietnam 2018 2018

12000001200000 2000020000 10000001000000 10001000 800000800000 0000000000 1000010000 0000000000 000000 200000200000 0 0 0 0 0 0 0 0 10 10 10 10 120 111 212 120 230 212 313 230 30 313 1 30 0 1 1 0 0 1 1 0 0 1 1 0 80 1 818 80 80 818 80 111 111 120 212 230 313 30 111 120 212 230 313 30 1 0 1 1 0 0 1 1 0 0 1 1 0 80 1 818 80 80 818 80

aoraor Income Income nits nits onsumptiononsumption nits nits aoraor Income Income nits nits onsumptiononsumption nits nits

ostaosta ica ica 2013 2013 Moldawienoldovaoldova 201 (2014) 201

80008000 00000000 000000 3000030000 000000 2000020000 20002000 1000010000 0 0 0 0 0 0 0 0 10 10 10 10 111 120 212 230 313 30 1 0 1 0 1 0 1 80 818 80 111 120 212 230 313 30 1 0 1 111 120 212 230 313 30 1 0 1 0 1 0 0 1 1 0 80 1 818 80 80 818 80 111 120 212 230 313 30 1 0 1 0 1 0 1 80 818 80

aoraor Income Income nits nits onsumptiononsumption nits nits aoraor Income Income nits nits onsumptiononsumption nits nits

ourceSource:ource ational National ational ransfer Transfer ransfer ccounts Accounts ccounts8 8

FamilyFamily support support is important,is important, but but often often not not enough enough Family support is important, but often not enough WithWith few few opportunities opportunities to workto work and and limited limited availability availability of pensionof pensions, as, large a large proportion proportion of of Witholder fewolder people opportunities people rely rely on toontheir work their families andfamilies limited for forfinancial financial and and materialNevertheless, material support. support. the adequacy of this support is availability of pensions, a large proportion of older often limited. High levels of poverty and economic peopleIn lowerIn rely lower on and theirand middle familiesmiddle-income-income for financial countries, countries, and the the majority majority ofvulnerability olderof older people people faced live by live with,the with, population or closeor close as to, a to,whole mean otherother family family members. members. or or instance instance in angladeshin angladesh epal epal hilippines hilippines hailand hailand and and ietnam ietnam material support. many families have limited resources to share. While the etweenetween and and 80 percent80 percent of olderof older people people live live with with at leastat least one one child child. . data on sources of income shows the relative importance In lower and middle-income countries, the majority of IntraIntrafamilyfamily transfers transfers of cashof cash or goodsor goods are are common common with withsupport per per centreceived cent of olderof from older people family, people inin hailandparticularin hailand from children, older people live with, or close to, other family members. andand per per cent cent in i inetnam ietnam receiving receiving income income support support from fromthey family familyalso. consistently. similar similar picture to picture point can tocan e the founde insufficiency found of For instance, in Bangladesh, Nepal, Philippines, Thai- in otherin other regions. regions. lder lder aniaris aniaris estimate estimated thatd that nearly nearly thistwo two support.thirdsthirds of In theirof the their Philippines,income income and and formaterial instance,material despite land and Vietnam between 55 and 80 percent of older supportsupport is providedis provided y yfamily family memers memers.10 Even.10 Even in placesin placeswidespread with with relatively relativelyfinancial overall overallsupport high highfrom pension pensionchildren, half of older people live with at least one child. coveragecoverage such such as asordan ordan gendered gendered productive productive and and reproductivepeople reproductive still report roles roles facing often often someresult result or in considerable olderin older difficulty 11 11 Intra-familywomenwomen rely transfers relyinging to of ato largecash a large oretend goods etend on are onfamily common, family support support and and spousalin meetingspousal or expenses.householdor household In income Myanmar, income. . 45 per cent of older withNevertheless, 79Nevertheless, per cent of olderthe the adequacy people adequacy in Thailandof ofthis this supportand support 67 per is oftenis oftenpeople limited. limited. reported High High theirlevels levels income of ofpoverty was poverty only and sometimes and or centeconomic ineconomic Vietnam vulnerability receiving vulnerability income faced faced support by bythe the frompopulation population family.9 as aas whole ararely whole mean adequate. mean many many12 Forfamilies families41 per have cent have limitedof Jordanian limited men and A similarresourcesresources picture to canshare.to share. be foundhile hile in the other the data data regions. on onsources sources Older of income of income47 shows per shows cent the theof relative women, relative importance their importance income support wassupport seldom or never Zanzibarisreceivedreceived estimated from from family that family nearly in inparticular two-thirds particular fromof theirfrom children children theyenough they also also to consistently cover consistently their basic to topointneeds, point towith tothe twothe thirds of incomeinsufficiencyinsufficiency and material of supportofthis this support supportis provided. In. Inthe by the hilippinesfamily hilippines for forinstanceolder instance women despite despiteand menwidespread widespread reporting financialhaving financial accumulated members.supportsupport10 Evenfrom from inchildren places children withhalf half relativelyof olderof older peopleoverall people stillhigh still report report facingdebts. facing some13 some or consideraleor considerale difficulty difficulty in in pensionmeetingmeeting coverage, epenses epenses such. asIn. Jordan,yanmarIn yanmar gendered per productiveper cent cent of olderof older peopleMoreover, people reported reportedalthough their thetheir income majority income was of was older only only men and andsometimes reproductivesometimes or roles rarelyor rarely often adequate adequateresult in.12 older.12or 1orwomen 1per per cent cent of ordanianof ordanianwomen men live men withand and their per children, per cent cent of family womenof women structures are fast relyingtheirtheir to income a largeincome wasextend was seldom on seldom family or neveror support, never enough andenough spousal to coverto cover their theirchanging, asic asic needs and needs a with growing with two two numberthirds thirds of of olderofolder older people are 13 13 or householdwomenwomen and income. and men men reporting11 reporting having having accumulated accumulated dets dets. living. in nuclear families. oreoveroreover although although the the maority maority of ofolder older men men and and women women live live with with their their children children family family 6 structuresstructures are are fast fast changing changing and and a growing a growing numer numer of older of older people people are are living living in nuclear in nuclear families. families. In recognitionIn recognition of theof the reduced reduced opportunities opportunities that that older older people people have have to earnto earn adequate adequate income, income, oldold age age is widely is widely acknowledged acknowledged as oneas one of theof the crucial crucial stages stages or circumstancesor circumstances in ain person’s a person’s lifelife-course-course that that require require financial financial support support through through social social protection protection systems. systems. he he net net section section presentspresents a discussion a discussion of howof how pension pension system systems cans can provide provide income income security security in olderin older age age. .

5 5 In recognition of the reduced opportunities that older financial support through social protection systems. people have to earn adequate income, old age is The next section presents a discussion of how pension widely acknowledged as one of the crucial stages or systems can provide income security in older age. circumstances in a person’s life-course that require

BOX 2 The right to social protection

The right to social security and social protection is 202 on Social Protection Floors (2012), provide an enshrined in the Universal Declaration of Human international reference framework and set out the Rights (1948) Articles 22 and 25, the International range and levels of social security benefits that Covenant on Economic, Social and Cultural Rights are necessary and adequate for ensuring income (1966) Article 9, the Convention on the Elimination of maintenance and income security, as well as access All Forms of Discrimination Against Women (1979) to health care, in old age. Article 11, and the Convention on the Rights of Persons with Disabilities (2008) Article 28. “Social pensions are critical to human rights” At the regional level older persons’ right to social Magdalena Sepúlveda, United National Independent security is enshrined in Article 17 of the Inter- Expert on human rights and extreme poverty. American Convention on Protecting the Human HelpAge International, March 2010 Rights of Older Persons, Article 7 of the Protocol to the African Charter on Human and Peoples’ Rights on the Rights of Older Persons in Africa and Article 23 of ILO Conventions 102 and 128 envisage the the revised European Social Charter. provision of income security to all older people through earnings-related contributory pensions The content of these rights is further specified in (guaranteeing minimum benefit levels, or the normative body of standards developed by the replacement rates corresponding to a prescribed International Labour Organisation, which provide proportion of an individual’s past earnings – in concrete guidance to countries to realize the right particular for those with lower earnings) and/or by of older persons to social security. Convention 102 social pensions. The guaranteed minimum levels on Social Security (Minimum Standards) (1952), of non-contributory pensions “shall be sufficient to Convention 128 on Old-Age, Invalidity and Survivors’ maintain the family of the beneficiary in health and Benefits Convention (1967) and Recommendation decency” (Convention No. 102, Art. 67(a)).

4 Pension systems ensure social protection in older age

Pension systems are the main social protection instru- – Smooth consumption, by maintaining an income in ment to protect people against the socioeconomic risks retirement that is comparable to pre-retirement income. and vulnerabilities that can be associated with older age. These core objectives are not achieved by a single Objectives of pension systems pension scheme. Rather, pension systems usually consist of different components or pillars that 14 The core objectives of pension systems are to: focus to varying degrees on one or more of these – Eliminate poverty in older age and ensure at least objectives. What is crucial is that the totality of a basic income security for older people; country’s pension systems effectively addresses all of these objectives. – Redistribute incomes between the rich and poor, as well as between current and older generations, to Policymakers rely on two main instruments to develop reduce inequalities in older age; comprehensive pension systems – tax-financed social pensions and contributory pensions. – Provide insurance to individuals to protect them from the risk of outliving their savings, guaranteeing a – Tax-financed social pensions, also known as ‘social reliable stream of income for the rest of their lives; assistance’ or ‘non-contributory’ pensions, are regular cash transfers provided to older people regardless of

7 their employment histories or contributions to pension a degree of redistribution within schemes, where bet- schemes. The main objective of social pensions is ter-off workers subsidise those with lower life-time eliminating poverty in older age and ensuring at earnings and interrupted working lives; private schemes, least basic income security for all older people. on the other hand, closely link pension benefits to contributions without redistribution, acting more like a Social pensions can be provided universally to all people private savings account for individuals, leading to lower of a certain age or be targeted at segments of older pension levels for those with lower life-time earnings people, such as those living in poverty. For universal and interrupted working lives. social pensions, age and citizenship or residence are the only eligibility criteria, while targeted social pensions A comprehensive pension system needs to combine include additional requirements related to individual or contributory schemes with tax financed elements to household characteristics. achieve the objectives of poverty reduction, insurance, redistribution, and consumption smoothing. The box – Contributory pensions are regular cash transfers below outlines the ILO model of a comprehensive and financed by workers and employers’ contributions over well-developed pension system. defined period of time, and linked to an individual’s salary and work history. Contributory pensions aim “Though there are sound principles of pension primarily to ensure individuals maintain an income design, there is no single best pension system for in retirement comparable to their income during working years. all countries” Nicholas Barr, Professor of Public Economics at the Contributory schemes can be public (often called social London School of Economics and Public Policy, in insurance) or private. Social insurance normally include Barr and Diamond (2009).

BOX 3 Outline of a well-developed pension system

Comprehensive and well-developed pension systems In addition, some pension systems include are often presented as a set of pillars that complement complementary contributory pillars aimed at and build on each other. supplementing the pension benefits from the two

Savings “3rd pillar“ (voluntary) Complementary rd schemes “2 pillar“ (mandatory/voluntary) coverage Social insurance “2rd pillar“ (mandatory)

Universal social pension Floor “0 pillar“ (non-contributory)

poorest richest Source: ILO (2017)15

The foundation of a pension system - “Pillar 0” or main pillars. These can be mandatory or voluntary Social Protection Floor - seeks to ensure income contributory schemes (“Pillar 2”) or voluntary security for all in older age. This is often achieved private schemes for those with the economic through a universal non-contributory social pension or, capacity to make additional savings, generally in places where contributory schemes have significant managed by private pension administrators with coverage, through a combination of guaranteed government regulation (“Pillar 3”). Such schemes minimum pensions from contributory schemes and a place too many risks (macroeconomic, financial means-tested or pension-tested social pension. and demographic) on individuals, and limit the scope for solidarity and redistribution within Mandatory social insurance (“Pillar 1”) aims to pension systems, and as such shouldn’t be seen as provide higher levels of benefits to enable people to a substitute for social insurance, but rather as an maintain similar standards of living after retirement. additional component or pillar of well-developed Social insurance is based on the principles of systems. solidary and redistribution.

8 National pension systems differ inconfigurations Some systems place more importance on eliminating and design choices. Pension systems have often poverty in older age and redistributing incomes, while developed over decades, and their design and priorities others accept higher levels of inequality and focus are shaped by complex historic, political, and social mainly on enabling individuals to smooth their lifetime influences, as well as the nature of acountry’s consumption and provide insurance against the risk of demography, economy, labour market and poverty profile. people living past their savings.

Figure 4 Global overview of types of pension systems

60%

Contributory and 50% 8% universal non-contributory scheme 40% 13% Contributory and pension-tested non-contributory scheme 30%

Contributory and 20% 34% 39% means-tested non-contributory scheme 10% 6% 0% Mixed contributory Contributory Non- and non-contributory scheme only Contributory 16 Source: ILO (2017) system scheme only

As shown in Figure 4, a large proportion of national work in the informal sector or have intermittent careers pension systems only have contributory schemes. The and are thus in most cases unable to access contributory main issue with such systems is that they often have systems. Women, who tend to have lower incomes large coverage gaps, as contributory schemes rarely and formal employment rates due to discrimination, have universal or near-universal coverage. In rich or poor gender norms and care responsibilities, are particularly countries there are a significant number of people who disadvantaged.

BOX 4 Social pensions and gender equality 17,18

Throughout their lives, women and men are exposed Despite all this, women are less likely than men to to different risks and disadvantages, which are often receive a pension at all, and if they do, they have specific to their gender and related to gendered considerably lower benefits. Even in countries inequalities or discrimination. Inequalities in older where women enjoy broad access to pensions, their age stem from the accumulation of multiple and inter- benefit levels are often only a fraction of pensions connected disadvantages, discrimination, inequalities enjoyed by men.19 The link between contributory and denial of rights that women experience across pensions and labour markets means that the life-course, such as education and wage contributory pensions tend to replicate inequalities differentials; gendered productive and reproductive and exacerbate the discrimination that women roles; mobility constraints and a lack of voice and experience throughout their lives. agency. Social pensions are detached from assumptions Around the world, women are more likely than men about continuous participation in paid formal sector to experience poverty throughout their lives, with employment and therefore more accurately reflect poverty often deepening in older age. Women also the gendered nature of the life-course. They play a tend to live longer than men, are more likely to be key role in ensuring that women can access at least widowed and living alone. Women are also less likely a basic pension and enjoy a at least basic income to be able to rely on savings and income in older age, security in older age. Although social pensions as they often have shorter work histories, less formal cannot be expected to reverse years of discrimination, education and training, spend more time in informal detaching entitlements to a basic social pension from and low-paid employment, shoulder most unpaid labour markets ensures that accumulated inequalities care, and face persistent discrimination. are not transferred into the pension system.

9 Coverage of contributory systems are particularly low in changing structure of labour markets might further limit lower- and middle-income countries, given high levels of the scope of systems based on employment status to chronic and transient poverty, and large informal labour effectively increase coverage. markets. For instance, in Bangladesh, India, Indonesia, Nigeria, and Pakistan, which hold about a third of the In an effort to solve the coverage issue and build more world’s population, the number of people covered by comprehensive and inclusive pension systems, more contributory schemes remains in the single digits, and more governments have started to implement social with very limited progress in decades.20 Moreover, the pensions.

Figure 5 Percentage of persons above statutory pensionable age receiving a pension igure ercentage of persons aoe statutory pensionale age receiing a pension

orth merica 100.0 orthern outhern and estern Europe . Europe and entral sia .2 Eastern Europe 3.8 entral and estern sia 82.0 Eastern sia .3 outhEastern sia .1 atin merica and the ariean 0.8 sia and acific .2 orth frica .0 ra tates 2. outhern sia 23. uaharan frica 22. orld . 0 20 40 60 80 100 0 20 40 60 80 100 Population aovePopulationpensionable above pensionableage receiving age receivinga pension a (%)pension (%) In an effort to solve the coverage issue and uild more comprehensive and inclusive pension systems more and more governments have started to implement social pensions. 5.5 AchievingAchieving income incomesecurity for allsecurity older people through universal for all social older pensions people ocial pensions are tafinanced cash transfers paid regularly to older people regardless of their employment through history or social universal security contriutions. socialocial pensions pensionsoften constitute the ero pillar or floor of pension systems providing minimum levels of income security in older age. igure haracteristics of a social pension Social pensions are tax-financed cash transfers paid Social pensions have become an increasingly regularly to older people, regardless of their employment popular policy in low- and middle-income countries non cash historya or financedsocial security contributions. Social pensionsregular in the last three decades. The olderfirst social people pensions often constitute the zero pillarcontriutory or floor of pension were introducedtransfers in countries such as Australia, systems, providing minimum levels of income security in Denmark, New Zealand, Sweden and the United ocialolder age. pensions hae ecome an increasingly popularKingdom inpolicy the late in 1800s low and and early middle 1900s. income countries in the last three decades he first social pensions were introduced in countries such as ustralia enmar ew ealand weden and the nited ingdom in the late 1800s and earlyFigure 100s. 6 Characteristics y the mid180s of aonly social around pension 33 countries had social pensions. owever during the past thirty years that there has een a rapid increase in the numer of countries introducing and epanding social pensions. oday it is estimated that 10 countries have social pensions andTax-financed most of them are lownon-contributory and middleincomeregular countries. cash transfers older people ocial pensions are of particular relevance to countries where the scope for epanding coverage of contriutory pensions in the near future is low given high levels of structural socioeconomic issues particularly high informality. social pension could e seen as a way to rapidly increase coverage of the pension system providing a foundation for longerterm efforts to strengthen the contriutory system. 10 igure ocial pension coerage in and

Source: HelpAge International Pension Watch21

9 By the mid-1980s only around 33 countries had so- Social pensions are of particular relevance to countries cial pensions. However, during the past thirty years where the scope for expanding coverage of contributory that there has been a rapid increase in the number of pensions in the near future is low given high levels countries introducing and expanding social pensions. of structural socio-economic issues, particularly high Today it is estimated that 109 countries have social informality. A social pension could be seen as a way pensions and most of them are low- and middle-income to rapidly increase coverage of the pension system, countries. providing a foundation for longer-term efforts to strengthen the contributory system.

Figure 7 Social pension coverage in 1997 and 2019

1997

2019

Source: HelpAge International Pension Watch21 11 In terms of design, social pension can be either offered Moreover, while poverty-targeted programmes are often to all (universal), exclude only those in receipt of other associated with social cohesion and sustainability pensions (pension-tested), or targeted at the poor issues, universal transfers, such as universal social (means-tested). pensions, tend to be much more popular with the general population, mainly because they are perceived as fairer Universal social pensions have particular and more transparent, and because everyone can expect advantages in their administrative simplici- to benefit from them. The inclusion of the politically ty, political popularly and ability to effectively powerful ‘middle class’ consistently results in higher marginalized older people. The fact that all older overall transfer levels and political sustainability of people are eligible means they effectively reach the very programmes, as compared to poverty-targeted schemes.23 poorest and most vulnerable, including those living close to the poverty line.

By providing an entitlement that all citizens will “Benefits meant exclusively for the poor often end one day benefit from, universal pensions tend to be up being poor benefits”. politically popular, which supports the willingness of Amartya Sen, Nobel Prize winning philosopher and the population to see them financed through general tax economist in The Political Economy of Targeting, in revenue. Public Spending and the Poor. Theory and evidence (1995) Their simple eligibility criteria also mean that they are relatively straightforward and cheaper to implement at Finally, poverty targeting can also undermine national scale, even in low income settings with limited societal support for programmes, often resulting administrative capacities. This is exemplified by the in low quality services or meagre transfers - as the cases of Zanzibar, which was able to reach 86 per cent Nobel Prize winning philosopher and economist Amartya coverage of its universal social pension in the first month Sen put it: “Benefits meant exclusively for the poor often of implementation,22 and Kenya where more than 600,000 end up being poor benefits”.24 people were reached in the first payment.

BOX 5 The challenges of targeting ‘the poor’ Means-testing requires complex, bureaucratic, and Therefore, PMTs have been found to generate high expensive techniques to identify those that are eligible exclusion errors, ranging from around 50 percent to to receive a social pension. Since actual incomes are 93 percent.25 In Bangladesh and Thailand, for instance, difficult to establish and verify in lower and middle- over half of eligible beneficiaries were found to miss out income countries, poverty-targeted programmes from means tested schemes, and similar issues have largely rely on a methodology called ‘proxy-means been reported in the social pension in the Philippines.26 testing’ (PMT), which attempts to predict a Qualitative evidence also corroborates these findings, household’s level of welfare based on indicators with many studies reporting complaints by community derived from national household surveys such as members that many living in extreme poverty were demographics, human capital, type of housing, excluded from programmes using PMT targeting, while durable goods, and productive assets. many they regard as affluent were included.27

These approaches are particularly challenging to These high levels of inclusion and exclusion errors implement in low- and middle-income countries. First, can create animosity between beneficiaries and it is difficult to establish and verify data on income non-beneficiaries, and weaken social relations. or assets in largely informal economies. Second, Complex eligibility criteria often mean that people administrative systems are often not equipped to collect do not understand why some in the community are detailed data on the economic situation of older people. included in programmes while others are not, creating Third, “the poor” does not exist as a fixed group - resentment towards recipients and implementers, and income levels of most of the population are relatively undermining social cohesion, particularly in places similar and fluctuating, and the differences between where there is little difference in living standards poor and non-poor older people tend to be small and between beneficiaries and non-beneficiaries.28 The IMF constantly changing. Fourth, PMTs do not capture notes that “the random nature of exclusion around the intrahousehold poverty differences, even though eligibility cut-off score, and the associated lack of trans- pensions are targeted to individuals. Fifth, asset owner parency in defining eligibility, can generate significant ship does not necessarily equate to income security. community discontent.”29 Finally, proxy-means testing is a very costly process.

12 6 Impacts of social pensions

The following section introduces HelpAge’s theory of Social Pension’s theory of change change on social pension, and briefly presents the global The primary objective of pensions is to improve the evidence on the impacts of social pensions on older economic status and wellbeing of older people at an people, their households and communities. individual level. Indeed, social pensions differ from many other cash transfers in low- and middle-income countries Figure 8 Social Pension’s in that they target individuals, in this case older people, Theory of Change rather than households.

Source: HelpAge International (2019)

It is expected that receipt of a pension will result in it may enable older people to reduce levels of work, a direct effect in the level income at an individual particularly physically intensive and undignified work; or level, leading to changes in recipients’ patterns of it may provide greater livelihood opportunities, with expenditure, savings and investment. increased investment and productivity of work under taken. Social pensions are expected to support older people to meet their basic needs, particularly in the case of The ability of a pension recipients to cover their basic expenses which primarily benefit the older person as needs may reduce the amount of material support an individual, rather than the household as a whole. For provided to them by family members, although other instance, social pensions can be particularly important factors may result in increased levels of financial in helping older people meet health expenses, given support . Pension income may also allow older people the high levels of ill health and disability experienced by to provide greater material and financial support to older people, and considering the high levels of out-of- others, both within their households and beyond. These pocket health expenditures in most countries. dynamics and potential impacts on households are further discussed below. Receipt of a pension may also result in changes in the level and composition of other sources of income at The above changes – having some income of their the individual level, such as income from economic own; greater ability to meet their own basic needs; activities or transfers from family members. reduced need to undertake undignified work or beg for financial support; the ability to contribute to family and Pension receipt may impact an older person’s community life – are likely to lead to positive impacts on engagement in economic activities in different ways – wellbeing and empowerment of older people.

13 Impacts on pension recipients’ What does the evidence say? households Social pensions help older people and their households meet their basic needs and reduce The vast majority of older people live with or in close poverty proximity to their families, and are often part of rich networks of transfers to and from family members (particu- Around the world, social pensions have been found to larly children and grandchildren). While recognising that have a major impact on poverty and on older people’s these kinship networks transcend the boundaries of the ability to meet their basic needs. household, these impacts are likely to be greatest at the Increased income and expenditure: household level. There are two primary mechanisms by – China’s New Rural Pension Scheme has been found which pensions can impact the households of pension to increase household income by 18 percent and food recipients: expenditure by 10 percent.31 1. The ability of a pension recipient to cover her/ – Vietnam’s social pension was found to increase the his basic needs may allow the family to shift incomes of recipient households.32 some household funds to other needs. Resources – The social pension in the Philippines is having a previously used to provide financial andmaterial meaningful impact on the income and expenditure of support to older people can be used for other purposes. recipients.33 This dynamic is often described as “crowding out” of – The Zanzibar Universal Pension Scheme (ZUPS) has transfers to older people but is rarely assessed in terms been found to have increased recipients’ individual of how it may result in positive impacts for family income, as well as household per capita expenditure. members who can reallocate resources. ZUPS recipients were also 11 percentage points more likely to think their household income is adequate 2. Older people may share part of their pension. compare to non-recipients.34 Rather than being exclusively dependent on others, a pension enables an older person to be a contributor “Because we did not get money in the past, to family income. This may be through contributing some of the people were eating one meal, to consumption pooled at a household or family level now the situation is better.” (e.g. making food purchases) or purchasing things for Female social pension recipient from Zanzibar family members, for instance school uniforms.

These dynamics may have a direct impact on household Improved ability to meet basic needs: income and expenditure, and intermediary impacts on – Qualitative research on Nepal’s universal social areas including savings and debt, food security, and pension show that it helps poor households meet basic healthcare access. Household level impacts are likely subsistence needs.35 to be influenced by household composition and the – In the Philippines, the social pension has been found associated income-earning capacity of other household reduce the proportion of households without sufficient members. income for food by 8 percentage points. – In Zanzibar, the ZUPS has increased per capita All these effects are contingent on transfer’s level, household food expenditure, and increased the that is, if the transfer amount is low, it is unlikely that probability of a household eating three meals a day by the pension would be used for anything other than 7 pp. supplementing food consumption on the most basic – In Malawi, the SCTP increased by 12 pp the level. The international literature on cash transfers proportion of households eating more than one meal considers that the value of the transfer should be at least per day. twenty per cent of the target population’s consumption.30 – Myanmar’s Dry Zone social pension pilot has been found to decreased household debt by 60 per cent.

“The pension is what I depend on. There is nothing except the pension.” Female social pension recipient from Zanzibar

Poverty reduction: • In Thailand, according to the World Bank, 65 percent of poverty reduction amongst older people can be credited to the expansion of the universal social pension between 2006-2010.36 • Uganda’s social pension increases household expenditure by 33 percent.37

14 • In Malawi, older people headed households receiving – Mexico’s universal social pension has been found to the SCTP were 15 percentage points less likely to live reduce depressive symptoms, and feelings of sadness. below the ultra-poverty line.38 – Peru’s social pension has been found to reduce levels of depression by 9 percent. – Zanzibar’s social pension has had a positive impact in “Even though the amount is low, it is very useful for reducing negative feelings such as sadness. me Before, I felt depressed when I was sick, but now I can take medicine and buy things, as I prefer. Improved outlook Now, I am happy.” – Malawi’s SCTP has been shown to improve perception of future wellbeing by 19 pp. Female social pension recipient from Myanmar Improved agency and autonomy – Mexico’s universal social pension has been found to Social pensions improve older people’s health increased participation in household decision-making and increase access to healthcare and increase empowerment.45 Studies often find that pensions improve older people’s – Peru’s social pension has been found to increase health and increase access to healthcare. recipients’ sense of contribution and self-worth by 12 per cent and 7 per cent respectively.46 Increased health expenditure and access to – Quantitative evidence suggests that Myanmar’s Dry healthcare Zone pension pilot has given recipients a sense of – Philippines’ social pension increased health spending dignity and independence, by allowing them cover of recipients.39 some of their own expenses, reducing their reliance on – In Zanzibar, the ZUPS has been found to increase children and other family members, or, in the case of individual and household-level health expenditure. those who have no support, the charity of others. – El Salvador’s social pension increased the likelihood of seeking medical attention by 5 percent.40 – In Mexico City, households receiving the universal “Now we have hope and we can make plans about pension were 25 percentage points less likely to not our future that is why we are joining Banki Mkhonde being able to buy medicines because they were too [Village Bank] as one way of investing for the expensive.41 future.” – In Malawi, the SCTP increased by 10 percentage Older female recipient of Malawi’s SCTP points the probability of seeking treatment for an illness or injury at a public or private health facility – Qualitative evidence suggests that Zanzibar’s among individuals aged 65 and over. ZUPS has given recipients a sense of dignity and independence by allowing them cover some of their own expenses, reducing their reliance on children and “I now have my own money without being dependent other family members. Community leaders (Shehas) on anyone. We were not used to see money regularly and health workers also noticed improvements in older but now we do. This is a proud thing.” people’s wellbeing since the introduction of the ZUPS. Female social pension recipient from Zanzibar Social pensions strengthen social relations and informal support Improved health outcomes A social pension can also strengthen systems of informal – Vietnam’s social pension was found to reduce the support and care. One concern sometimes raised about number of self-reported health problems.42 formal social protection is that it could undermine – China’s rural social pension significantly reduced existing informal systems support within families and rates of disability, underweight and mortality amongst communities. However, evidence suggests that pensions older people.43 can have the opposite dynamic and – in fact – strengthen – Myanmar’s Dry Zone social pension pilot was found informal support and social relations.47 Anthropological to decrease the occurrence of illness or injury among studies across the world have highlighted how people recipients by 15 percentage points. build kinship relations by offering “gifts” to others. So, by receiving pensions, older people are in a position to Social pensions enhance self-esteem and dignity strengthen their kinship relations, as they have resources of older people or “gifts” to share with others.48 Having a source of income to call their own can give older people a renewed sense of dignity and autonomy. No “crowding out” of family support – In Myanmar’s Dry Zone pension pilot, there has been Reduction in depressive symptoms no significant change in prevalence, or the amount of – China’s rural social pension has been found to reduce transfers received by households from family members the prevalence of depressive symptoms amongst older outside the household, from non-family members, from 44 people by 40 percentage points. religious organisations and scholarships.

15 – In Zanzibar, ZUPS beneficiaries were more likely to – In Zanzibar, the ZUPS is estimated to have increased have received support from family. household education spending in children’s education. – Malawi’s SCTP has had positive effects on school Improved social inclusion attendance (10pp), attendance without interruptions – Quantitative evidence suggests that Myanmar’s Dry (12pp), highest grade completed (0.5) of children living Zone pension pilot allowed older people to support in older people headed households. others and actively contribute to their communities, potentially strengthening their social relations. – Quantitative evidence suggests that Malawi’s “It helps a lot. When I receive it, the children cele- SCTP Qualitative has had a positive impact on brate at home as they are sure that that day they will the self-esteem and inclusion of older people by eat nice food. It becomes celebration day to them.” enabling beneficiaries to take part in community Male social pension recipient from Zanzibar activities, which often involve some costs or financial contributions.

Social pensions also improve children’s Social pensions support inclusive economic wellbeing development and reduce inequalities Many older persons use their pension income to care for Social pensions can create multiplier effects which boost their grandchildren, thereby building their capabilities local economies. Impact evaluations of cash transfers and future productivity. and social pensions often find that local traders record increased business due to pensioners having more – Evidence from China has shown that among children money to spend, which increases incomes of traders and aged 15 and below, the pension scheme has led to producers. more pocket money and caring received from grand parents, as well as improved health and higher – Research in Thailand on how older people spent their schooling rates.49 pension found that most was spent, or shared, within – In Namibia older people give around half their the community.54 pensions to children to help with schooling, food and – In Africa, research has found income multipliers other costs.50 between 1.27 and 2.52. This implies that for every dollar put into a community through a transfer between “We are caring for orphans and we are able to 0.27 to 1.52 extra dollars were circulating in the local support them because of the assistance we get from economy.55 SCTP.” Older male recipient of Malawi’s SCTP High levels of inequality reduce economic growth and pensions are a key tool used by countries to bring down – In Brazil and South Africa, over 80 per cent of inequality. pensioners share the majority of their pensions with – Brazil’s near-universal pension system is estimated to others, much of it with children.51 have reduced inequality by 12 per cent. – Georgia’s pension accounted for 69 per cent of the – Georgia’s universal pension has reduced the Gini reduction in child poverty.52 coefficient – a measure of inequality - from 0.41 to – Uganda’s social pension has contributed reduction in 0.37.56 stunting and a 10 percent increase in the number of meals eaten each day by children aged 0-5 years.53

16 7 The affordability of universal social pensions

The cost of a universal pension is influenced by two Global experiences and research demonstrate that key factors: the size of the population targeted, and universal social pensions are affordable even in the benefit level. The cost of a universal pension would low-income countries. Recent global research57 into the vary significantly depending on the parameters chosen. affordability of universal social pensions shows that:

The size of the eligible population for a universal – 79 countries would be economically able to shift from pension is determined solely by the age of eligibil- targeted social pensions to basic universal social pen- ity. There is a strong case for low-income countries sions with less than 1.2 percent of their GDP; to adopt relatively low age of eligibility for universal pension given the low life expectancy. However, many – 16 countries have means-tested, or geographically low- and middle-income countries have chosen to set limited, social pensions that more expensive than a higher ages of eligibility as a pragmatic starting point hypothetical basic universal social pension; for their social pensions and to gradually reduce the age – An arbitrary threshold of “economic development” of eligibility over time. Nepal, for instance, introduced is not a limitation for implementing social pensions its universal pension in 1995 for older people aged since at least 17 countries with relatively low economic 75 and over, but reduced the age to 70 in 2008 (60 for development have successfully implemented universal Dalits and those resident in the Karnali zone). Bolivia social pensions. introduced its universal pension for all older people 65+ in 1997, reducing the age to 60+ in 2008. Other countries The experience of low and middle-income countries including Mexico, Vietnam, and Myanmar have all shows that they have been able to use innovative followed a similar path. approaches to financing social pensions. Countries such as Mexico, Brazil, Thailand, Costa Rica and Bolivia demonstrate a variety of sustainable financing methods “Countries agreed to establish social protection for from general taxation as well as payroll and consumption all, but many feel they can’t afford it. In reality, we taxes, expenditure switching and taxing natural can’t afford to be without it” resources.58 Importantly, evidence from several countries Archbishop Desmond Tutu, December 2014 shows that fiscal space for new social protection expenditure can be extended without reducing economic growth. One way to do this is by increasing tax rates, Benefit levels for a universal pension would ideally introducing new taxes, broadening the tax base, and be set at the poverty, however it may take some time improving tax collection.59 to reach this ambition. A benefit level between 10 and 20 per cent of average income would be in line with most Above all, fiscal space needs to be considered in a low-middle income countries. country-specific context, as it is dependent on the specific national circumstances, including political While a benefit with lower age of eligibility and an priorities and macroeconomic conditions. Eventually, adequate benefit level would be optimal, identifying the chosen financing option will be based as much which scenarios are feasible in the short, medium- and on political debates and decisions as on technical long-term means taking account of the potential to create considerations. What is clear, is that there are a number “fiscal space”. Countries have a number of low-cost of options open for investigation for countries aiming to options for gradually expanding a universal pension. increase fiscal space in order to fund social pensions in For example, by starting with a higher eligibility age and the long term. relatively low transfer level and gradually decreasing the age and increasing the amount, as fiscal space growths with economic development.

17 BOX 6 More information on pensions and social protection

HelpAge’s Knowledge Hub on Social Protection: Pension Watch - HelpAge Social Pensions Database

socialprotection.org - An online member-based knowledge sharing and capacity building platform on social protection

Social Protection Platform of the International Labour Organization

8 References

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