Understanding of the prospects for pension funds

Written by Christian Gaya:  Published in Business Times Newspaper

Friday, 09 November 2012 13:17

In many parts of the world, in the closing years of the twentieth century, social pension systems have been under challenge. Some consider that the systems are too expensive, and that they harm the process of economic growth and development. Others point to deficiencies in the level of protection and the scope of coverage, and argue that in times of increased unemployment and other forms of labour insecurity, social security is more needed than ever. In industrialized countries including the transition economies of Central and Eastern Europe, social pension systems must respond to new demographic challenges, such as ageing and changing family structures, with important implications for the financing of social protection. In some countries, there is dissatisfaction with the administration of social pension funds, and calls for reform involve a review of the role of the State, responsibilities of the social partners and the desirability of greater participation of the private sector. One of the key global problems facing pension schemes today is the fact that more than half of the world’s population (workers and their dependants) are excluded from any type of social security protection. They are covered neither by a contribution-based social insurance scheme nor by tax-financed social benefits, while a significant additional proportion are covered for only a few contingencies. In sub-Saharan Africa and South Asia, statutory social security personal coverage is estimated at 5 to 10 per cent of the working population and in some cases is decreasing. In Latin America, coverage lies roughly between 10 and 80 per cent, and is mainly stagnating. In South-East and East Asia, coverage can vary between 10 and almost 100 per cent, and in many cases was until recently increasing. In most industrialized countries, coverage is close to 100 per cent, although in a number of these countries, especially those in transition, compliance rates have fallen in recent years. In most of its standard-setting and technical cooperation activities on social security, the ILO had expected that an increasing proportion of the labour force in developing countries would end up in formal sector employment or self-employment covered by social security. It implicitly assumed that past economic and social development patterns of the industrialized countries would replicate themselves in other regions. However, experience in developing countries, and more recently in the industrialized countries — has shown that this proportion is in many cases now stagnating or declining. Even in countries with high economic growth, increasing numbers of workers, often women, are in less secure employment, such as casual labour, home work and certain types of self-employment. The growth of informal, unprotected work creates dangers for formal and informal economy workers alike. The area of social protection illustrates the very real and direct interest, on the part of workers with “normal” employment status and of their organizations, in bringing informal economy workers into the mainstream of formal employment. With shrinking formal employment, workers bear an increasing direct burden of financing social needs, with adverse effects on their quality of life. That burden may also undermine the capacity of enterprises to compete in the global economy.