By

Karla Small Dwyer Senior Legal Officer: Financial Services Commission

Objective To look at the current status of the provision of

pensions in developing countries.

To encourage discussion and proposals for reform

Methodology A Questionnaire was sent out to pension lawyers,

consulates and organisations specialising in pensions in developing countries

Supplemented research with third party resources such as IOHPS.com and SocialSecurities.com

Questions Questions

– What proportion of the working population has State pension coverage?

– What proportion of their working income is replaced by State

pension upon retirement?

– Is your pension system funded by monetary funding, pay-as-you-go taxation or both? Please elaborate.

– What percentage of GDP are pension assets in your country (showing separately State funds where these exist to support State pensions) ?

– What proportion of your working population is employed by the Government, including employers established through statute or similar public sector orders ?

Questions Cont’d

– What proportion of these 'government' employees have pension coverage?

– What proportion of their working income is replaced by pension upon retirement (a) by the State system (b) by the additional occupational coverage ?

– Does your private sector provide pension coverage? Is this coverage voluntary or mandatory?

– Do you have pension policies and plans that address potential problems that may arise from migration of populations from rural to urban areas?

– What is the life expectancy of males and females in your country? What is the life expectancy of the average pensioner in your country?

Observations

Most if not all countries have a public pension system which normally pays defined benefits and are financed by payroll taxes on a pay-as-you-go (PAYG) basis.

There is wide scale coverage for public sector workers.

Countries Received information from 16 countries

Africa, Asia, Europe South America and the Caribbean

Life Expectancy

Life Expectancy After NRA

Pension Assets as a % of GDP

Replacement Rate

Challenges The IMF and the World Bank have noted the following challenges faced by developed and developing countries regarding the provision of pensions. For example:

Developed Countries

Demographic factors: declining working population and increasing life span of retirees.

These demographic factors also affect developing countries however additional challenges are:

Challenges

Developing Countries

Financially unsustainable

Adequacy of coverage

High % of workers in the informal sector

JAMAICA - Caribbean National Insurance Scheme (NIS) – Mandatory, Pay as

You Go Social Security Scheme

Superannuation Funds and Retirement Schemes – Voluntary, funded

400,000 people contribute to NIS

6.71% or 85,000 persons of the private sector covered by superannuation funds/retirement Schemes

JAMAICA Cont’d Pension assets are equal in size to approximately 18%

of GDP

Public Sector employs roughly 117,000 or 10% of the labour force.

Overall Size of the labour force is 1.2 million.

Replacement value of Social Security benefit is 48.7%

Average life expectancy is 72.6 years (Female life expectancy is 75.3yrs and Male is 71.83 years.)

Life Expectancy after retirement in Jamaica is 17.9 years for men and 20 years for women.

BRAZIL – South America Regime Geral de Previdência Social (RGPS),

mandatory, pay as you go basis.

Regime Próprio de Previdência Social (RPPS) (Public Employees Retirement System), mandatory, funded “pay as you go” and/or by capitalization.

Regime Previdenciário Complementar (RPC) (Private Pension System), optional and supported by capitalization.

BRAZIL Cont’d State Pension covers 67% of the working population or

approximately 55 million people (27 million people are uncovered).

8.1% of the working population or 6,256,504 people work for the government.

Brazil’s pension assets are equal to 303 billion USD or 15.2% of GDP.

BRAZIL Cont’d Life expectancy in Brazil is 69.42 years for men and

77.01 years for women. The life expectancy of the average pensioner is 26.7 years past normal retirement age.

Pension legislation designed to provide rural populations with incentives to stay in the rural communities include:

No refunds of contributions

Lower NRA

Lower contribution rates for employers

LATVIA – Europe Three pillar system – First two pillars are compulsory

and require social tax payments. Third pillar is voluntary.

The second pillar – part of the social tax payments are invested by fund managers.

In Latvia a person needs 70% of pre-retirement income to cover pension needs. The state pension system covers only a fraction of that amount.

LATIVA cont’d The NRA in Latvia can begin as early as 55 years old.

Average Life expectancy is 72.68 years

ZAMBIA - AFRICA National Pension Scheme Authority (NAPSA) –

Mandatory, funded by taxes.

Occupational Pension Schemes - Voluntary

Replacement Rate – 40% average for those who work for 30 years.

Pension Assets as a % of GDP – Less than 3%

ZAMBIA Cont’d Distribution of pensions – Private Sector 65.1%, Quasi

Government/Parastatal 9.8%, Central Government 23.5%, and Local Authorities 1.6%.

Life Expectancy is 50yrs. Life expectancy after retirement is 16 years for females and 14 for males.

No pension plans geared at preventing rural migration.

CHINA - Asia China’s state pension insurance system consists of 3 parts:

1. Basic Pension System for Urban Employees 2. New-Pattern Rural Social Pension System (New Rural

Pension) 3. Social Pension System for Urban Residents

Participants in the Urban Employees Pension System totalled 257.07 million. 194.02 million urban workers and 63.05 retirees.

Replacement rate is 42% (estimate) Pension Fund Assets are equal to 4% of GDP

CHINA Cont’d Government Employees have 100% pension coverage.

State Council initiated the New Rural Pension in 2009 the goal is full coverage for rural resident by 2020.

The Social Pension System for Urban Residents is designed to cover employed and unemployed urban residents.

Life Expectancy is 73.5 years.

Five Pillar Approach

“The Five Pillar Approach” – The conceptual framework that the World Bank has developed to be used as a benchmark to evaluate pensions in developing countries

Five Pillar Approach The WB’s five-pillar approach consists of the following

pillars:

Zero Pillar: a non-contributory social assistance financed by the state, fiscal conditions permitting

First Pillar: mandatory with contributions linked to earnings and objective of replacing some portion of lifetime pre-retirement income.

Five Pillar Approach cont’d Second Pillar: mandatory defined contribution

plan with independent investment management

Third Pillar: voluntary taking many forms (e.g. individual savings; employer sponsored; defined benefit or defined contribution)

Fourth Pillar: informal support (such as family), other formal social programme (such as health care or housing), and other individual assets (such as home ownership and reverse mortgages).

The End

Thank You