Social Security: principles, challenges and reforms

forfinancial security in a "good" old

age

Elsa ForneroUniversity of Turin, CeRP-CCA, Netspar

Thematic Forum: Old Age Human Rights

Marrakech, 29 November, 2014

Principles

The elderly of tomorrow are the young of today

Adequate care must be given to the older people, for whom "les jeux sont faits"at the same time fair and sustainable social protection schemes have to be designed for the young,

To this purpose, full participation of the young in economic activity is a necessary condition

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Social Security

• SocialA collective agreement (not a private market), possibly extended to all current and future generations, guaranteed and implemented by public institutions

• Security A system designed to cover risks

• What risks?Personal/micro (unemployment, disability, longevity etc.)

Aggregate/macro (inflation, recession, financial crisis, war…) Elsa Fornero – University of Turin – November 2014

Social Security as a Human Right

Social security is based upon a concept set forth in Article 22 of the Universal Declaration of Human Rights stating:

“Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality”.

"The society in which you live should help you to develop and to make the most of all the advantages (culture, work, social welfare) which are offered to you and to all the men and women in your country. "

Elsa Fornero – University of Turin – November 2014

• Responsibility for the maintenance of children (family benefit)• Interruption of earnings due to

pregnancy (maternity benefit); unemployment (unemployment benefit); incapacity to work because of illness (sickness leave benefit);

•Treatment of any illness (+ pregnancy), whatever its cause (medical care)•Permanent/persistent inability to engage in work (disability benefit);• The costs and losses due to an occupational accident or disease (employment injuries).•Survival beyond a prescribed retirement age (old age pensions) •Loss of support suffered by widow/child following death of breadwinner (survivor’s benefit) People who cannot reach a guaranteed social minimum for other reasons

may be eligible for social assistance

Contingencies covered by a social security systemaccording to ILO Social Security Convention

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Risks are widespread and unequally distributed: some people are, from the start, much more at risk than

others

Risk of:not receiving, in childhood, a proper nutrition and

adequate education or training being social marginalized/excluded, etc. having inadequate opportunities to get a job family risks gender specific risks

Women are more at risk, at any point of their life cycle, in present male-dominated societies

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• Aggregate risks are more difficult to share because they are already spread in the population

• In the last 20-25 years, structural changes in world economy have intensified and generalized risks:

population ageing (changes in fertility and longevity)

low/negative economic growth (the great recession)

higher unemployment financial crises (lower returns and higher

volatility in financial markets)

Risks are not only individual but also aggregate

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Aggregate risk: Demographic changesOld-age dependency ratios

(% of population aged 65 years or over to working age population 15-64)

Source: Visco (2006)

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Economic security in old age is provided by the pension system

The pension system as the most important sub-system of social security has to be:

• Adequate: to prevent poverty in old age and also an unexpected fall in consumption at retirement

• Sustainable: to avoid creating an excessive debt on future generations

• Efficient and transparent: to avoid waste of resources (as with premature retirement), fragmentation and privileges; exceptions to the general rules motivated by solidarity towards the less fortunate

• Existing pension systems reflect the needs and the mistakes of the past

• New pension systems can avoid most mistakes:

• must take into account the interest of the young as well as future generations

• affect both men and women• politically, difficult choices are involved: “gradual” vs “sudden

implementation” • coordination with other reforms is required (labor market,

training..)

Participation of citizens is very important, and people must be both informed and financially literate

Elsa Fornero – University of Turin – November 2014

Information and financial literacy in individual and collective choices

Lack of financial literacy has typically been associated to the risk of poor saving choices during the life cycle. This risk is indeed increasing, together with individual responsibility, as a result of both the reform of pension systems and the greater sophistication of today’s financial and labor markets

Financial-economic literacy is also crucial for the success of economic reforms

Lack of understanding of a pension reform may cause the reform to be reversed/greatly revised or its incentives not to work

A conclusion strongly derived from my own experience as an economist (unexpectedly) turned the Italian Minister of Labor, Social Policies and Equal Opportunities

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Social rights are often affirmed but much less respected

People have difficulties in understanding why the state cannot simply provide security

Running for one’s pension should not become a new sport

Uncertainty and individual responsibility increase: relying on information and financial literacy, on the one side, and on a good regulation of the market, on the other, is essential, but insufficient

To adequately protect the elderly, special attention has to be devoted to groups more at risk, such as women and vulnerable workers

Conclusions

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