Why integrated approach towards formal and informal social security coverage is needed

Written by CHRISTIAN GAYA Published in Business Times Newspaper

Friday, 30 November 2012 09:59

The pursuit of social justice ideals demands that coverage of existing social insurance schemes be extended to informal sector workers. However, most of the existing public pension schemes in Tanzania cannot easily be extended to the self-employed and the informal sector, because the threshold of entry in terms of their contribution and benefit structure is too high for most of those excluded and because the benefits provided are not consistent with the priorities of people living in poor circumstances whose social protection requirements are essentially short-term. Also, it needs to be determined whether the administrative capacity of the existing public pension schemes is inadequate to take on the task of extending coverage. Ghana provides an illustration of a less than successful attempt to use an existing public fund to extend social security coverage to the informally employed.  The Social Security and National Insurance Trust Fund (SSNIT) of Ghana covers the self-employed on a voluntary basis. Of its 942,000 active members (10 per cent of the working population) a few years ago, there were only 5,400 voluntary members in spite of the fact that those in the informal sector represent 70 per cent of the working population. Tunisia, on the other hand, provides an example of a country that has gradually extended its mainstream social insurance system (in particular its health insurance) to increasingly cover the working population. As a third option, the importance and potential use of existing informal social security arrangements have to be acknowledged. While the family- or kinship-based forms of support may be decreasing due to the disintegration of family-based structures, there is ample evidence that mutuality- or self-organized group-based arrangements offer real solutions to the dilemma of limited formal social security coverage. This does, however, require that these institutions and the role played by them be recognized and supported by governments. Economies of scale can be achieved if proper links are developed between these informal arrangements and the formal social security system. There should therefore be a proper model aimed at developing an integrated approach towards formal and informal social security coverage. This may require a limited measure of formalization, in particular if government support were to be extended to these informal schemes.  However, it is doubtful whether the existing informal social security arrangements are able to extend social security coverage to the bulk of the excluded informal sector workers. As a matter of general experience these institutions reach only a fraction of the essentially unorganized informal sector. Also, the effectiveness, reach and sustainability of informal social security arrangements are limited. These arrangements on their own rarely provide a sufficient and all-encompassing solution to the risks which poor people are confronted with. governments could consider, as a fourth option, the establishment and support (by way of, for example, a subsidy) of a public low cost social security savings scheme as a strategy for enhancing coverage and social protection. The scheme should be set up for informal sector workers and for low-income formal sector workers who are not members of one of the existing social insurance schemes. In this way responsibility can be taken on a national basis for ensuring that as many of the informal sector workers and lowly paid formal sector workers as possible enjoy social security protection.