Equity Analysis for Pensions (Social Insurance) Public Expenditure Analysis and Manage Core Course Presented by: Anita M. Schwarz ECSHD Presented to: March 21-24, 2005 The World Bank

Equity Analysis for Pensions (Social Insurance) Anita M. Schwarz ECSHD March 2005

Pensions Based on Contributions Coverage limited to those who pay; benefits based on level and duration of contributions Less than 50% of the labor force is paying contributions – likelihood of paying goes up with income Unsurprisingly, expenditures go to higher income groups

Important Redistributions Nonetheless Redistribution from those outside the system to those within when there are fiscal deficits Redistribution across generations – younger cohorts pay more with aging of the population Redistribution within covered cohort Progressive benefit formula Minimum pension

Fiscal Sustainability

Fiscal Sustainability Someone has to pay the future pensioners Either paid from outside the system Partial default due to rules change Redistribution from outside the system to within Intergenerational equity

Equity within a Cohort

Sometimes Need to Look Beyond Pension System for Intracohort Equity Sometimes means-tested pension benefits available in addition to contributory Sometimes basic benefits available to all Sometime pensioners eligible for same social assistance as other age groups