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Social pensions in Thailand and beyond

Charles Knox-Vydmanov, HelpAge International

5 March 2013

Growing interest in social pensions

Pension coverage globally remains low

Estimated just 20% of older people get a social pension Purely contributory models of social protection have failed to expand coverage

Social pensions increasingly seen as key part of the solution

Defined as:

Eligibility:

Always: citizenship and/or residency Sometimes:

Means test Pensions test

Countries with social pensions

www.pension-watch.net

Social pensions wave in last twenty years

14000 0

1993: Old age allowance introduced 2009: Extended to nearly all older people
12000 0
An gua and Barbuda a d a Canada a Seychelles s

Incom eperperson(fixedPPP$)

Venezuela, Bolivari , a Mexico Panama o

10000 0

Netherlands s France e

Argen na a Peru u Botswana a Brazil l

8000 0

United States of America d s f a

Colombia a Belize Saint Vincent and the e t t d e Jamaica a r Ecuador El Salvador r l Maldives s Guatemala a Swaziland d Paraguay y Bolivia a Kiriba a Philippines s Indonesia a Cape Verde e e Kosovo Timor-Leste o e Nigeria a Viet Nam t m Kenya a Lesotho o Bangladesh h

6000 0
Australia a New Z w ealand d

United Kingdom d m

Norway y

Suriname e Costa Rica a a Turkey y Malaysia a

Finland d

Thailand d
Samoa a

4000 0
Denmark k

Sweden n Ireland d Trinidad and Tobago d d o Guyana a South Africa h a Namibia Malta a a Mauri us s

2000 0

Cook Islands k s India a Nepal l

Iceland d

1880 0

1900 0

1920 0

1940 0

Y r ear

1960 0

1980 0

2000 0

2020 0

Thailand has been part of this trend

Social pension coverage since 1995
12 10 8 6 4 2 0
Source: Thaworn Sakunphanit and Worawet Suwanrada (2010) 500 Baht Universal Pension Scheme in ILO/UNDP, Successful Social Protection Floor Experiences

No. of recipients (000s)

A leader in the region

Beneficiaries of social pensions relative to population over 65:
12 10

Coverage index

8 6 4 2 0
Coverage index equals absolute number of beneficiaries as a percent of the total population 65+. Note that in some cases where eligibility age is below 65 including Thailand some beneficiaries will be below the age of 65. Source: Social pensions database (22 February 2013 unpublished); UN Population Division, World Population Prospects, 2008

A leader in the region

Spending on social pension
12 10

Cost (% of GDP)

8 6 4 2 0
Source: HelpAge International, Social pensions database www.pension-watch.net

Relationship to health and care

Pensions help older people and their families to cover health costs

Thailand: pension used in cases where older people cannot access public health facilities (Suwanrada and Wesumperuma, 2012) Mexico: increase in visits to the doctor by 22 per cent (Aguila et al, 2011) Not just about healthcare costs, but also cost of access (eg. transport)

How do social pensions interact with care?

The caring role throughout the life course

women who spend a long time caring for children and families unable to accumulate a pension social pensions particularly important social pensions support older people in caring role for other family members (especially grandchildren) Clear logic support to families caring for an older person Strengthening family relationships little evidence of negative crowding out But limited research into the issue

Do social pensions support care of older people?

Future considerations in Thailand

1. Coverage: is the social pension a good model for the
future?

1. Adequacy: Is 600 Baht enough? 1. Sustainability: Can a more generous social pension
be sustained?

Future considerations in Thailand

1. Coverage: is the social pension a good model for the
future?

1. Adequacy: Is 600 Baht enough? 1. Sustainability: Can a more generous social pension
be sustained?

Current Thai pension system

Pension income

Old Age Allowance

Contributory pensions (mainly government)

Poorer Older people

Richer

Future vision: Increase contributory savings

Pension income

Contributory pensions: Future vision Government pensions Informal sector

Old Age Allowance

Poorer Older people

Richer

Option 1: Means-tested pension

Challenges
Issues of means testing Inaccuracy

Pension income

Administrative, political, social

costs
Can create perverse incentives

Contributory pensions: Future vision Government pensions Informal sector

Old Age Allowance

Poorer Older people

Richer

Option 2: Citizens pension

Countries with this model include New Zealand, Bolivia, Namibia, Mauritius
Administratively, this is the simplest structure, with the lowest transaction costs, for the public pillar an important advantage in developing countries with limited institutional capacities and incomplete record-keeping systems. It avoids the disincentive to work and save inherent in means-tested plans. Its universal coverage helps ensure that the poverty reduction objectives are met, [and] provides a basic income for all old people. World Bank, 1994

Pension income

Contributory pensions: Future vision Government pensions Informal sector

Old Age Allowance

Poorer Older people

Richer

Option 3: Citizens pension

Chile, Norway, Sweden, Maldives

(with tapered pension test)

Countries with this model include

Pension income

Contributory pensions: Future vision Government pensions Informal sector

Old Age Allowance

Poorer Older people

Richer

Future considerations in Thailand

1. Coverage: is the social pension a good model for the
future?

1. Adequacy: Is 600 Baht enough? 1. Sustainability: Can a more generous social pension
be sustained?

900% %

800% % B enefitlevel (%of 1.25PPP$perdaypovertyline)

Adequacy is low by international standards

B l razil

700% %
Suriname e

600% %

Kiriba a

S h Africa outh a

Current levels 60 - 69: 600 Baht 70 - 79: 700 Baht 80 - 89: 800 Baht 90+: 1,000 Baht
Mauri us s Panama a

500% %

Ukraine e

Maldives s

Costa Rica a a

400% %
Paraguay y Dominican republic n c Azerbaijan n Guyana a El Salvador l r Belize e Samoa a Namibia a Georgia a Uzbekestan n Guatemala a Ecuador r Cape Verde e e Lesotho o Mongolia Bolivia a a Tim este or-L e Kyrgyzstan n Armenia a Swaziland d Turkmenistan n Indonesia a Kenya a Viet Nam t m Tajikistan n Philippines s Nepal l Moldova, Republic of , c f Bangladesh h India a Bulgaria a Saint Vincent and the t t d e Grenadines s Belarus s Mexico o Turkey y Peru u Kazakhstan n Colombia a

300% %

200% %

100% %

Thailand d
Jamaica a China a

0% %

2000 0

4000 0

6000 0 8000 0 GD per capita (PPP$) P r a )

10000 0

12000 0

14000 0

How would a more generous option compare

Current old age allowance

Source: HelpAge, Social Pensions Database, www.pension-watch.net

How much would a more generous pension cost?

Conclusions

Thailand has put growing emphasis on social pensions

Following a global trend

Social pensions interact with issues of health and care What next for the Old Age Allowance?

Citizens pension a good model Current benefits are low

but could be tweaked to better fit with contributory system They could be increased without making old age allowance unaffordable

Thank you Charles Knox-Vydmanov HelpAge International cknox@helpage.org

Find more at

www.pension-watch.net

Additional slides

Pensions and informality

Wor king age pop ulat ion cont ribu ting to old age pen sion sch eme (%)

Wage and salaried employment (as % of total employment)

Source: ILO 2011

3. Social pensions: design and implementation

Why target?

Efficiency

Why give benefits to the non-poor = wasteful

A given resource envelope will have five times more impact on poverty if it is disbursed to the poorest 20% than if it is thinly spread over an entire population.
Stephen Devereux, 2009

But:

Efficiency gains are minimal Other costs:

Social Economic Administrative Political

3. Social pensions: Efficiency? design and implementation

Exclusion errors of proxy means testing

100 90 80 70 60 50 40 30 20 10 0

% of target group excluded

Target group
Source: AusAid (2011), Targeting the Poorest: An assessment of the proxy means test methodology

3. Social pensions: design and implementation

Inaccuracy in targeting
Reasons How to measure poor?

Challenges in obtaining information Poor face greater barriers to accessing benefits

Assets? Income?

Lower literacy Access to documentation

International picture Good targeting can expect to miss of target group

Source: Barrientos, 2009; ILO, 2006

3. Social pensions: design and implementation

The costs of targeting (1)

Social costs

Can create divisions in communities and loss of social cohesion Namalomba in Malawi cash transfer: I was lucky that I was identified to benefit from the scheme. All my neighbours are poor and they need similar help. They despise me now and I cant do anything about it Rewarding dishonesty

Economic costs

Perverse incentives you lose the benefit if you:

Discourages saving in the contributory system.

Work Invest Have assets

3. Social pensions: design and implementation

The costs of targeting (2)

Administrative costs

Targeting is costly and complicated to administer The complexity of means testing compared to, say, universal provision, is associated with higher administrative costs and increased fraud and error. National Audit Office UK 2011 Comparison in Zambia

Universal approach 6% administrative costs Targeted approach 15-20% administrative costs (maybe more)

Political costs

Corruption is easier with targeted schemes less transparent Universal transfers are more popular

Can affect the popularity of the scheme. Bigger budget may make sense to give to wealthier people to get buy in.