Extension of Social Security 10 November 2005 Seoul Hiroshi Yamabana ILO SRO-Bangkok

2 Outline of the presentation §1.Historical development of risk management strategies §2.Social security schemes §3.Social security coverage in Thailand §4.Dynamics for coverage extension §5.Key issues in designing schemes for informal economy §6.Rough classification of countries covered by ILO- SRO BKK §7.Country examples: Thailand, Lao PDR and Cambodia

3 1.Historical Development of risk management strategies §1.Family, most primitive way of risk management (plus non-cash assets such as lands, cattle etc.) §2.Industrialization and urbanization l Weakened family roles l Young wage-earners in cities with nucleus families

4 1.Historical Development of risk management strategies (Contd.) §1.Cash saving §2.Insurance l Contribution requirement l Cope with catastrophic risks §2.1Private insurance §2.2Social insurance l Re-distribution of wealth through solidarity =>Compulsory nature in principle §3.Social security (including social insurance)

5 2.Social security schemes §1.Insurance schemes l Statutory schemes -Universal (insurance) schemes -(Formal-sector) employees’ schemes l Special (occupational/public-sector) schemes l Micro (occupational/community) scheme §2.Tax-based schemes l Social welfare programs with means test l Tax-based universal schemes e.g. (Tax-based) universal pension e.g. Thailand 30-Baht health care scheme

6 3.Example:Social security coverage in Thailand Formal Sector Informal Sector Good coverage ( Working population=33 million, Year 2000) No coverage Low coverage

7 2. Extension 4.Dynamics of coverage extension 4. Micro scheme 3. Special schemes (e.g. for farmers) Statutory scheme Improvement of compliance rate 2.Extension of statutory scheme 3.Creating special schemes 4.Creating micro insurance schemes 5.Creating universal schemes 4. Micro scheme

8 5.Key issues in designing schemes for informal economy §1.Coverage l Who will be covered? l What are characteristics of these people? l Compulsory or voluntary? §2.Benefit package / structure l Which benefits should be included? l What benefit formulae could be used? §3.Finance l Tax-based or insurance? §4.Organization / Administration

9 5.Key issues in designing schemes for informal economy (Continued) §1.Coverage l Groups with diversified characters e.g.farmers, self-employed, unpaid family workers l Mostly composed by low income earners =>limited contributing capacity l Difficult in registration (and assessing income / assets) =>linkage with resident registration and taxation required l Compulsory nature desirable <=adverse selections and high drop-outs in voluntary scheme

10 5.Key issues in designing schemes for informal economy (Continued) §1.Coverage (Continued.) l Large risk pool desirable <= avoid fluctuations in occurrence and hence finance of the scheme l Long-term financial risk in schemes for specific groups <= it may cause rapid aging than general population (e.g. Public sector scheme). l Some coverage extension could be attained through improvement in legislation e.g.labour law (type of contract, part-time workers), spouses

11 5.Key issues in designing schemes for informal economy (Continued) §2.Benefit package / structure l Administrative difficulties in judging cases of: -Sickness (cash) benefits -Employment injury benefits -Unemployment benefits l Non-income-related (e.g. flat rate) benefits in case of difficulties in measuring income l Benefit package (or level) could be reduced according to finance

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13 5.Key issues in designing schemes for informal economy (Continued) §3.Finance §3.1Insurance scheme l Mostly composed by low income earners l No employers’ part of contributions =>limited contributing capacity =>government subsidies and cross-subsidization (or redistribution) mechanism from formal sector workers could be considered. l Difficulty in contribution collection <=Low income, income instability

14 5.Key issues in designing schemes for informal economy (Continued) §3.Finance (Continued) §3.1Insurance scheme (Continued) l Difficulty in income / assets assessment =>Possibility of flat-rate contribution §3.2Tax-based scheme l (Long-term) sustainability of finance from state budget l Consensus nationals of payment from state budget in case mostly contributed from formal economic activities

15 5.Key issues in designing schemes for informal economy (Continued) §4.Organization / Administration l Registration of scheme members l Income / asset assessment (if necessary) l Record keeping =>linkage with resident registration and taxation desirable =>social security number?

16 5.Key issues in designing schemes for informal economy (Continued) §4.Organization / Administration (Continued) l Contribution collection <=No employers to do administration on contribution collections =>more administrative capacity needed =>contribution collection agencies (e.g.cooperatives) l Benefit disbursement =>efficient benefit disbursement (e.g. bank account)

17 6.Rough classification of countries covered by ILO-SRO BKK §1.Developed countries (e.g. Republic of Korea) §2.Middle income countries (e.g. Malaysia, Thailand) §3.Transition countries (e.g. China, Vietnam) §4.Low-developed countries (Cambodia, Lao PDR)

18 7.Country examples: Thailand, Lao PDR and Cambodia §1.Thailand l Civil service scheme existed l Current rapid development of coverage extension for private-sector formal economy workers through SSO l Universal health care scheme (30-baht scheme) financed from government budget

19 7.Country examples: Thailand, Lao PDR and Cambodia §1.Thailand §ILO activities (for both formal and informal economy) l Actuarial valuations and assessments l Financial sustainability study of 30-baht scheme l Social Security Priority and needs survey l Policy paper

20 7.Country examples: Thailand, Lao PDR and Cambodia §1.Thailand §Future challenges l Further extension of SSO to private economy workers l Secure financial sustainability study of 30- baht scheme l Extension of health care benefits to dependents of SSO workers l Extension to non-covered population

21 7.Country examples: Thailand, Lao PDR and Cambodia §2.Lao PDR l Low income, majority in agriculture (80%) l Civil service scheme existed (direct compensation) l SSO scheme started for private workers in 2001, covering 25,000 workers and dependents

22 7.Country examples: Thailand, Lao PDR and Cambodia §2.Lao PDR §ILO activities (for both formal and informal economy) l Actuarial valuations and assessments l Capacity building for SSO l Reform civil service social security scheme (legislation, administration, financing) l Develop ‘road-map’ for social security extension for non-covered (starting next year)

23 7.Country examples: Thailand, Lao PDR and Cambodia §2.Lao PDR §Future challenges l Further extension of SSO to private economy workers (now only in the capital) l Reform of civil service scheme, including amending medical provider payment to capitation l Develop ‘road-map’ for social security extension for non-covered (starting next year) <=External donor financing necessary for a transition phase (Social Trust Fund?)?

24 7.Country examples: Thailand, Lao PDR and Cambodia §3.Cambodia l Low income (e.g. per capita GDP lower than Lao PDR), majority in agriculture l Rapidly expanding garment sector workers l Civil service scheme existed (direct compensation) l ILO recommended to start with Employment Injury Insurance Scheme in the Capital for workers in enterprises of more than 10 workers as a pilot

25 7.Country examples: Thailand, Lao PDR and Cambodia §3.Cambodia §ILO activities (for formal economy) l Feasibility study of the introduction of EII scheme l Capacity building for Ministry of Labour and Vocational Training (study tour etc.) l Reform civil service social security scheme to start this year (legislation, administration, financing)

26 7.Country examples: Thailand, Lao PDR and Cambodia §3.Cambodia §Future challenges l Introduction of EII on the pilot basis and gradual extension of the scheme in coverage (formal economy workers at the first place) and benefits (HI? Pensions?) l Reform of civil service scheme

27 8.Concluding remarks §1.Country-wise strategies should be developed, taking into account of social and economic environments and the possible / realistic dynamics of extension §2.Solid research necessary -Social Security Priority and needs survey -Social Security Expenditure and Performance Review (SPER) -Social Budgeting -Actuarial valuations

28 8.Concluding remarks (Contd.) §3.Legislation and administration framework to be developed, taking into account ILO Conventions (e.g. No. 102) and international best practices §Please visit our websites, e.g. asro/bangkok/ bangkok/index.htm