Fiona Stewart
OECD/ IOPS
MENA Workshop on Private Pension Supervision
March 1-2 2011
Amman, Jordan
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The Challenge of Coverage
Developing Economies
 Social change means less ability to rely on family support – yet only
a small % of the population have any formal retirement income
Thailand 27%
Bolivia
China 25%
Peru
India 11%
Colombia
<20%
 More worryingly it is often the poorest sections of society most in need
of pensions who are not covered
Chile 23% independent workers contribute to retirement accounts vs.
57% of employees
South Africa c1/3 total coverage – 80% formal sector workers (1/3 of
workforce) but only around 10% of informal sector workers (2/3 of
workforce)
The Challenge of Coverage
Developed Economies
 Basic social security may be in place, but as government provision
declines, private pension participation rates remain low in many
countries
Germany 43%
Italy 10%
Spain 10%
Portugal 7%
 More ‘vulnerable’ groups have consistently lower coverage rates – e.g.
women, part-time or migrant workers, rural inhabitants+ agricultural
workers, self-employed
USA - around 60% full time workers have an occupational pension vs.
only 20% of part-timers + in some age groups women are half as likely as
men to belong to a pension scheme
Ireland - coverage rates for men 55% vs. women 44%
Coverage is challenge in OECD and non-OECD countries
What can be done?
 Wide range of policy responses to raise pension coverage have been tried
-
Labour Market reforms and Economic growth (China)
Comprehensive pension reform (Chile, Mexico)
Linking 1st and 2nd tier pensions (Sweden)
Making occupation pensions compulsory (HK, Australia)
Tax incentives (USA)
Improving portability / vesting rights (Korea)
Ensure equal access (Korea - smaller firms / more sectors)
Encouraging collective schemes (Netherlands)
Automatic enrolment (New Zealand, UK)
Control charges (UK)
Adjusting size of contribution rate (Japan)
Building trust in the pension system as a whole (UK)
Using financial education and awareness (Ireland)
 Research suggests that government policies do influence coverage
 Which are appropriate will differ according to the situation in each
country
Informal Sector Workers
 Pension reform has been widely observed around the globe
 However, focus has been given to formal sector workers;
thus the informal sector left out
 Definition of informal sector employees: low income, self-
employee, small firm, farmer, part-time/seasonal, etc
 Higher income owners (e.g. lawyer, consultant) excluded
 Despite the importance of the informal sector (number of
people and contribution to GDP), pension coverage is very
low
 No reliable/official statistics found, however it is estimated
to be very low, i.e. well below 5-10%.
 Experiences from both OECD & non-OECD countries
presented
 Some policy suggestions proposed
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Background: some statistics (ILO 2002)
Table 1. Informal employment as % of non-agricultural employment, 2000
North Africa
Algeria
Morocco
Tunisia
Egypt
Sub-Saharan Africa
Benin
Chad
Guinea
Kenya
South Africa
Asia
India
Indonesia
Philippines
Thailand
Syria
Memo
Developing world (non-agriculture)
Developing world (all)
European countries (15)
48
43
45
50
55
72
93
74
72
72
51
65
83
78
72
51
42
Latin America
Bolivia
Brazil
Chile
Colombia
Costa Rica
El Salvador
Guatemala
Honduras
Mexico
Rep Dominicana
Venezuela
51
63
60
36
38
44
57
56
58
55
48
47
60-70 (approx)
80-90 (approx)
15-25
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Table 2. Contribution of informal sector to GDP in %, 1990-2000
North Africa
27
Sub-Saharan Africa
41
Algeria
26
Benin
43
Morocco
31
Burkina Faso
36
Tunisia
23
Burundi
44
Latin America
29
Cameroon
42
Colombia
25
Chad
45
Mexico
13
Cote d'lvoire
30
Peru
49
Ghana
58
Asia
31
Guinea Bissau
30
India
45
Kenya
25
Indonesia
31
Mali
42
Philippines
32
Mozambique
39
Republic of Korea
17
Niger
54
Senegal
41
Tanzania
43
Togo
55
Zambia
24
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Countries taking actions to address this
issue
 Non-contributory arrangements
 Contributory arrangements
 Others
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I. Non-contributory arrangements
 Broaden access to social assistance program (old-age)
 No contribution necessary
 Means-tested or universal
 Particularly relevant to the poor who are too poor to save
 It operates in some African countries, e.g. Botswana,
Mauritius, South Africa, and Kenya is considering a “zero
pillar” pension
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I. Non-contributory arrangements
 Broaden access to social assistance program (old-age)
 No contribution necessary
 Means-tested or universal
 Particularly relevant to the poor who are too poor to save
 It operates in some African countries, e.g. Botswana,
Mauritius, South Africa, and Kenya is considering a “zero
pillar” pension
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Examples of universal and means
tested schemes
Age limit
Bangladesh
57
Bolivia
65
Botswana
65
Brazil (Rural)
60 (M) 55 (W)
Chile
65
Costa Rica
65
India
65
Mauritius
60
Moldova
62 (M) 57 (W)
Namibia
60
Nepal
75
South Africa
65 (M) 60 (W)
Thailand
60
Vietnam
60
US$
2
18
27
140
75
26
4
60
5
28
2
109
8
6
% of GDP
0.03
means tested
1.3
universal
0.4
universal
0.7
means tested
0.38
means tested
0.18
means tested
0.01
means tested
2
universal
0.08
means tested
0.8
universal
universal
1.4
means tested
0.005
means tested
0.5
means tested
Source: Willmore (2006). Universal pensions for low income
countries
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II. Contributory arrangements: Encourage voluntary
contribution
 Flexible terms:
 contribution requirements (reduced contribution,
periodic contribution)
 vesting policies (earlier withdrawal, e.g. due to
emergency, housing, foods)
 Financial incentives: tax credit, tax reduction, and
matching contributions
 Financial education: enhance financial/pension awareness.
ADB project in India (2006); similar schemes in the UK
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II. Contributory arrangements: compulsory contribution
 The main logic: individuals have reluctance, inertia in making complex
financial decisions
 Semi-compulsory (or auto enrolment), e.g. the NEST in the UK,
KiwiSaver in NZ, and similar schemes in Italy
 Compulsory, e.g. Chile, Hong Kong, Kenya (under consideration)
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III. Other routes
 Utilization of existing (non-pension) infrastructure: banks, post
offices, depository agencies
 Utilization of existing (non-pension) financial intuitions - micro-
finance
 Creation of new institutions to reduce transaction costs, e.g. central
clearing house (India, Sweden and UK)
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Some policy suggestions
 Old-age pension guarantee
 Flexible terms
 Target those capable of extra saving
 Utilize existing infrastructure
 Centralised admin. agency
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However…
 Any reform options (in developing countries) MUST be
considered in line with country-specific conditions, which
are a function of various parameters
 economic growth
 income level
 consumption preference
 financial markets
 governance, etc
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