Improving Adequacy of Benefits The Role of Social Security Presented during Regional Social Security Forum for Africa, Arusha -Tanzania, December 2011 Irene Isaka Director General- SSRA

Social Security The ILO has traditionally defined social security as a set of public measures that address three types of contingencies: 1.The need of medical care, 2.The loss or substantial reduction of earnings due to different lifecycle events, sickness, maternity, employment injury, old age, invalidity, death of breadwinner or unemployment, 3.The cost associated with raising children

The Right to Social Security … Article 22 of the Universal Declaration of Human Rights states: “Everyone, as a member of society, has the right to social security” United Republic of Tanzania Constitution Article 9, 11, and general article 29 provides the basis for the realisation of Social Protection as Human Right. At the ILO Conference last June, “the ISSA expressed its full support on social protection floor initiative of the ILO, which calls on governments to provide basic social protection guarantees for the whole population and at the same time, to promote higher levels of income security and health protection through contributory coverage” by Errol Frank Stoove’ – President ISSA -

Guiding principles Equality national and non nationals men& women Solidarity –individual right to social security protection for all human beings Compulsory affiliation(compulsory vs voluntary coverage) General responsibility of the state derived from human nature of ss &democratic management-financing through contributions Solidarity Applies to financing techniques irrespective of the approach (full, partial, pay-as-you go, taxation or combination of those). Collective financing is indispensable to ensure that the most vulnerable categories enjoy real access to social protection they require

Policy framework for adequate social security for all Universality – formal and informal sector should be provided with an opportunity to participate in social security schemes Progressiveness - provision of basic benefit package should progressively be improved as national resources allows Pluralism Outcome focus

General government User fees Financing Mode; Financing principles with institutional implications Benefit Principle LowHigh Vertical Cross- subsidy Low High General tax Earmarked tax Mandatory insurance Private insurance INCREASING willingness to pay DECREASING willingness to pay Public entity Regulated Private agent Delivery mechanisms Tier/pillar 1 Tier/pillar 2 Tier/pillar 3

Social security benefits may be considered adequate if: they help to achieve expected social policy outcomes (e.g. meeting the needs of people who have to cope with life’s essential risks) listed in slide2 the relationship between benefit levels and taxes and/or contributions paid during a working life is considered to be “fair” (social adequacy); they work in synergy with employment instruments and fiscal and other economic policies, and do not result in unwanted economic consequences (economic adequacy). Should be sustainable and robust enough to withstand shocks. It Must offer beneficiaries security of adequacy even during periods of economic and financial fluctuations

Adequacy of social security benefits is linked to the quality of public services

Comprehensiveness & adequacy Collective “actuarial equivalence” of contributions and benefit levels: minimum benefit replacement rate minimum rate of return in case of savings schemes, must adequately reflect the overall level of the contributions, such minimum levels should be effectively guaranteed, preferably by the State. Timely payments of benefits

Comprehensiveness & adequacy Sound financing: financing method that ensures long-term financial sustainability, maintenance of adequate fiscal space for the entire national social security systems Responsibility for governance: The Government as the ultimate guarantor of social security rights contributors and beneficiaries participate in the governance of schemes and programmes.

Poverty Reduction Benefits adequacy shares the benefits of economic growth. Makes any economic reform programme more pro-poor. Increases the likelihood of success of the reforms. Improve nutrition health, and education outcomes. Protects people from shocks and directly supports well-being. Protects assets. Enables economy to better with stand shocks. Provide economic automatic stabilizer. Strengthens bond between state and people. Social security adequacy Human Capital Livelihood Risk Management Economic Resilience Social Cohesion Economic reform Multi-dimensional impact of social security benefits adequacy

Situation in Africa There are 55 countries in Africa with a combined population of over 1 billion people, with over 850 million living in sub-Saharan Africa. In 2011, the global population reached 7 billion and will reach 10 billion by Much of this future increase will occur in 58 high-fertility countries, 39 of which are in Africa. Africa’s population represents 15 per cent of the world’s current population; by 2050, it will represent 24 per cent. In 2011, 40 per cent of Africa’s population lives in urban areas, an increase of over 110 per cent since The number of Africans aged 60 or older is estimated to be around 56 million, which equates to around 6 per cent of the total population. Approximately 50 per cent of Africa’s population is younger than age 20. In low-income African countries, social security coverage ranges from 5 to 10 per cent of the population. Source :ISSA policy Highlights 21

Situation in Africa Since mid -1990, many sub-Saharan African (SSA) countries have experienced a marked acceleration in economic growth. Whereas region-wide real GDP growth averaged some 2.25 percent between 1980 and 1995, since 1995 growth has averaged more than 5 percent and a higher still 5.5 percent from 2000 to 2010 Progress on poverty reduction, however, looks to have been much limited. Region-wide estimates, which are available only through 2005, show that the proportion of people living below the poverty line (US$1.25 a day) declined only modestly from 59 percent in 1996 to 51 in And when one looks at the link between per capita growth and poverty reduction in a sample of SSA countries that incudes more recent data points, the relationship is a weak one. Source :IMF World Economic and Financial Survey Oct 2011

…Level of Resources dedicated to Social security show there is catching up to do on mobilizing resources and financing.. Luis Frota – Presentation; Nov 2011

Efforts made in Africa Efforts made include; Initiatives made by NHIF/CHFS, NSSF on health insurance and GEPF Voluntary saving Retirement scheme Rwanda on health and informal sector SNIIT informal in Ghana Gabon NSSF coverage on health(prevention of occupational diseases) Mauritania and Mali –prevention measure in health care prov. Mauritius (Transition unemployment Benefits) Kenya social protection programs with as support from DFID Senegal – social protection initiative Morocco- National Sickness Insurance Agency(prevention program on long-term illness)

Current situation in Tanzania Levels of contributions and benefits do not match across the schemes SectorSchemeContributionBenefit factor/formula Civil Service/Government employees PSPF/LAPF GEPF – DC 20% of members salary 25% Accrual rate 2.2% without floor/ceiling Parastatal/privatePPF20% of members salary Accrual rate 2.0% with floor/ceiling Private/ParastatalNSSF20% of members salary Accrual rate 2% for the first 15 years and 1.5% for every additional 12 months with floor and ceilings Health Mandatory mainly Civil Servant NHIF6% of the salaryAll illness which are treated in the hospitals registered and accredited by the Ministry and the Fund Health VoluntaryCHFs – district funds Flat amountLimited within District administration.

Tanzania dedicates a limited % of GDP to social assistance

Main Issues and Challenges Narrow coverage The existing SSS cover less than a million people out million Tanzanians i.e., The covered population represent 6.5% of the effective labour force estimated at million people Fragmented Legal and Regulatory framework sustainability of current mandatory social security schemes Different benefits packages although CR = 20% Lack of indexation Limited areas of investments Limited Fiscal Space for Social Protection program. Low levels of awareness by members of the public on social security issues Large informal sector – unpredictable incomes, unorganized, informal saving mechanisms

CHALLENGES, LIMITED COVERAGE The self- employed in agriculture and elsewhere account for about 93.5% Public-sector and other formal-sector employees account for about 6.5% of total employment Public mandatory social security/ protection arrangements. (Institutions are NSSF, PPF, LAPF, PSPF, GEPF, GPS (Treasury department), NHIF and Employment contract incentives) Formal Sector 6.5% of workforce Informal Sector 93.5% of Workforce Private schemes which are not community based. The coverage is insignificant

To address challenges SSRA has taken following steps… Review of Legal and regulatory framework Development of a reform Program Comprehensive Actuarial Valuation Comprehensive Portfolio review Preparation of regulations “A sustainable social security system that contributes to economic growth and prosperity for all Tanzanians Vision

Improving adequacy & extending coverage in a contest of limited resources In Practical terms SSRA is focusing extension of social security system in two dimensions, so as Tanzania can realise both benefit adequacy in amounts and coverage of needs, and on population covered to the extent of full realisation of international and national guaranteed rights

Long term Perspective Reforms are divided into 3 phases; 1. Extension & Harmonisation 2. Stabilisation 3. Growth & Prosperity

Challenges facing BA ; Partnership needed with other stakeholders

Challenges Facing Benefit Adequacy Funding Assets / liabilities mismatch Global Financial Crisis affected both adequacy & affordability Traditional investments-alternative investments shift (Diversification) Low coverage DB-DC shift Compliance issues, Long TAT Disconnect between recent growth and poverty outcomes in sub- Saharan Africa Not only the funding but Adequacy and focus on outcomes is an essential part of delivering efficient/ effective Social security

General responsibilities Partnership needed Social Security Institutions Management and Product / Service quality assurance Efficient IT Data Bases and Information flow processes Fraud control and client orientation; effective controls Internal performance based HRD for appropriate incentives Ensure Density of contribution, (compliance and Return on Investment) Good governance & adminstrative excellence Financial literacy & awareness Donors and development partners Promotion of international labour standards Knowledge sharing Ensuring permanent knowledge generation and sharing with all national constituents Technical Co-operation and advice Diagnostic assessment of national policies and higher level social security policies Financing SPF Capacity building Reinforcement of national capacity from the high level managers to the professionals in the key administrative and managerial areas and tripartite members of governing bodies

General Responsibility of the State: Effective competition, cost containment, investment in real economy Financing Effective information Financing of and maintenance of social security rights Strengthen the value of tax incentives for mid to low income people; tax credits or matching contributions instead of tax deductions By Alejandro BONILLA-GARCIA

Policy Framework to Promote Adequacy should focus on Extension of coverage (efforts made in Rwanda, Ghana SNIIT informal, Kenya, TZS GEPF-VSRS, NHIF &NSSF health insurance ) Enhance collection of contributions (compliance) the use of M-Money Risk management Fund management with Alternative investments &Tax incentives to improve adequacy Good governance and administrative excellence Public awareness programs(TZ -SSW) Contribution rates linked to age….

Policy Questions What is the appropriate level of contribution rate that matches with benefit adequacy? Are private pensions fulfilling their complementary role in providing for adequate benefits? How should one ensure right balance btn AB and extension of coverage? How to increase effectiveness of SSI in adequacy of benefits? For adequate benefits Should one maintain quantitative investment limits or apply prudent investor rule?

Prepared by Irene Isaka ASANTE SANA

Social Security Regulatory Authority New Bagamoyo Road P.O.Box Dar-es-Salaam Tanzania Tel: /4 Tel:+255 Web: