Gaps in pension systems in the Asia-Pacific region and lessons learnt

Symposium on Old-Age Income Security and Universal Basic Income in South Asia

New Delhi, 27 February 2017

Vanessa SteinmayerChief, Sustainable Demographic Transition

Section, Social Development Division, ESCAP

Coverage is very low - in South Asia even lower than in East and South-East Asia

Pension systems tend to perpetuate existing inequalities

Women have only limited access to pension systems

Key messages on current pension systems in the Asia-Pacific region

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20

40

60

80

100

120

Percentage of older persons receiving a contributory pension

In many countries, only a small proportion of older persons receive a contributory pension

DB or DC?• Only few countries in the Asia-Pacific region have

redistributional elements in the pension schemes (China,Republic of Korea, Philippines)

• Republic of Korea, Philippines, Thailand and Viet Nam havedefined benefit schemes – but sustainable issues

• Many other countries have defined contribution schemesor privatized defined contribution schemes

• DC schemes can be compared to forced saving schemeso They are strictly speaking not to be subsumed under social

insuranceo Returns depend on investment returns – can be quite low, such

as in the case of Malaysiao Sustainability not always guaranteed!

Often, more than 50% of beneficiaries of contributory pensions are among the richest

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10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Richest Quintile

4th Quintile

3rd Quintile

2nd Quintile

Poorest Quintile

Source: ESCAP calculations from World Bank, ASPIRE Database

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10

20

30

40

50

60

70

80

Total Women

Women at working age less likely to be covered by (mandatory) contributory pensions

Lessons learned from select countries in the Asia-Pacific region

Republic of Korea: national pension introduced late compared to other OECDcountries – high poverty of rates of older persons; reforms in 2014 to provide abasic income for all older persons to address poverty – but financial challengesChina: very quick roll-out of contributory pension system – now coverage almost90% - first priority was on coverage; incentives for contributions created: benefitsalready after 15 years of contributions or when child(ren) contributesFiji: Membership in Provident Fund is compulsory for public and formal privatesector since 1966; relatively good coverage, but Provident Fund itself does notprovide income security in old-age because of lump-sum withdrawalsSri Lanka: in an effort to cover the informal sector including fishermen or migrantworkers, a number of small pension funds created, overall low coverage –sustainability of each pension fund is at stake, only small benefits – overallcoverage still lowMalaysia: Non-contributory pensions for public sector employees (increasingbudgetary burden) and provident fund for formal private sector – overall coveragearound 60% of the labour force – low compared to other countries of similarincome; relatively low benefits, no annuity for formal private sector

Key challenges in South AsiaThe key challenge: extending coverage!

Creating trust in the system

Covering the informal sector – are contributory pensions the right instrument?

Introducing re-distributionary elements, particularly for women into the pension system

Designing contributory pensions in a way to keep reasonable replacement rates while having re-distributionary elements

The challenge of reforms: political and financial feasibility

Thank you!