Understanding the challenge of HIV/Aids for pension funds

Written by CHRISTIAN GAYA:  Published in Business Times

Friday, 02 November 2012 11:38

The HIV/AIDS pandemic is the most dramatic of the challenges facing pension funds in certain countries, notably in Africa. Its human consequences are becoming all too evident, but its implications for pension schemes are still far from fully known or understood. The pandemic has served to underline the gravely inadequate nature of social protection systems in the countries most affected. Many of the individuals who have been infected have no social security coverage. As a result they typically do not have access to the quality medical care they require. Nor if they are breadwinner do their dependants receive any replacement income when they die or become unable to carry on working. The first figure shows how dramatic the situation already is in many African countries. In a typical African country, Zimbabwe, a 15-year-old boy today has only about a 50 per cent chance of reaching age 50. The equivalent figures for women are not available but it is to be expected that the pattern is not very different. That means implicitly that a huge number of families will lose their prime-age breadwinners before the pandemic can be halted. The informal social protection mechanisms (extended family, local community) are being stretched well beyond breaking point by the large numbers of adult breadwinners now being struck down in their prime. Never was it more clear why social solidarity and risk-pooling must be organized on the widest possible basis: this is vital in order to ensure that all the necessary help is channelled to the family, groups, communities and regions most direly affected. International solidarity is urgently needed to back up national efforts, particularly to help in prevention campaigns and to assist in the provision of health care. Partnerships must be developed between the competent health authorities, governmental and non-governmental organizations and the drug industry to ensure a supply of medication which, if international prices were charged, would be totally beyond the reach of patients in certain communities. At the local level, pension schemes, health care providers and social services must coordinate their efforts in order that AIDS sufferers receive proper care in the most appropriate setting. The finances of pension schemes are being affected in a number of ways by the pandemic. Generally, their resource base declines with the general contraction that the AIDS pandemic inflicts on national economies. In the industrialized countries, the financial impact of HIV/AIDS is much less serious; in the United States, for example, spending on HIV/AIDS care represents less than 1 per cent of personal health care expenditure and the average cost of care per person is less than that of treating many other disabling conditions. However, the financial effects on individuals are often dramatic, particularly if they do not have adequate health insurance. In the United States, only 32 per cent of people with HIV have private health insurance (compared with 71 per cent of Americans overall); almost 50 per cent depend on Medicaid or Medicare for coverage; and about 20 per cent are uninsured. Even among people who have resources, the costs of HIV/AIDS care (approximately US$20,000 per annum per patient) can quickly exhaust their assets and leave them impoverished. In most other industrialized countries, social security health care systems or national health services protect people from this risk. In many countries pension schemes will cease or have already ceased to receive contributions from workers who are unable to carry on working. Depending on the scope of the scheme, they have to finance considerably higher expenditure on medical care, cash sickness benefits, disability benefits and, ultimately, survivors’ benefits. Premature mortality, on the other hand, will tend to reduce expenditure on old-age pensions, but these savings will become significant only at a much later stage. Research is necessary to obtain data which is indispensable for making valid projections and thereby ensure the financial equilibrium of pension schemes in the long term. As part of its action against HIV/AIDS, the ILO is embarking on a project which seeks to assess the impact of AIDS on the financial viability of social insurance schemes and national budgets. Employers’ and workers’ organizations have an enormously important role to play in dealing with the pandemic. The workplace is a setting in which highly effective preventive activities can be conducted. Investment in such activities pays off handsomely by helping to retain a healthy and experienced workforce and to contain the costs of employer medical care, sick pay and pension schemes. Companies can maximize the benefits of their prevention activities by involving not only their employees, but also their clients and the community of which they are a part.