1. International Labour Office Legal Considerations for Actuaries Ursula Kulke, Co-ordinator for Standards, Social Security Department, ILO, Geneva Lausanne, 26 November 2008

2. International Labour Office 2 The UN Mandate in the field of social security  Universal Declaration of Human Rights: – Article 22: Everyone, as a member of society, has the right to social security – Article 25: Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family  International Covenant on Economic, Social and Cultural Rights: – Article 9: The States Parties to the present Covenant recognize the right of everyone to social security, including social insurance

3. International Labour Office 3 The ILO Mandate in the field of social security  The ILO Mission: – Preamble to the ILO Constitution: …to improve conditions of labour, inter alia, through the «prevention of unemployment, …the protection of the worker against sickness, disease, and injury arising out of his employment, the protection of children, young persons and women, provision for old-age and injury » – Declaration of Philadelphia1944: to pursue …«the extension of social security measures to provide a basic income to all in need of such protection and comprehensive medical care » – ILC 2001: Conclusions of the ILC 2001 confirmed ILO Mandate in social security and requested the ILO to launch a global campaign for the extension of social security for all (launched in 2003) – ILC 2008: ILO Declaration on Social Justice for a Fair Globalization: « recognizes that the ILO has the solemn obligation to further among the nations of the world programmes which will achieve the objectives of … the extension of social security measures to provide a basic income to all in need along with all the other objectives set out in the Declaration of Philadelphia »

4. International Labour Office 4 ILO’s main tools for pursuing its mandate International Labour Standards  The ILO is the only international organization which is charged by its constituents with the setting of international labour standards  International labour standards take the form of either Conventions or Recommendations  Conventions and Recommendations are adopted by the International Labour Conference of the ILO by 2/3 majority of ILO constituents  Conventions (188): Are open to ratification and when ratified,they become legal obligations, if not ratified, they represent goals for national policy making  Recommendations (199): Are not open to ratification, they provide technical guidelines for the implementation of Conventions at national level

5. International Labour Office 5 Supervision of ILO Conventions  The effectiveness of the international labour standards is guaranteed by the ILO supervisory bodies which monitor the application of the standards by national law and practice  ILO's regular supervisory system responsible for ensuring application of Conventions  Unique at the international level  Help to ensure that countries implement Conventions  4 different supervisory mechanisms  Once adopted, a convention normally comes into force 12 months after obtaining 2 ratifications  Once it has ratified a convention, a country has reporting obligations  Regular supervision (Art. 19 & 22)  Representations (Art. 24) and Complaints (Art. 26)  Declaration (Art. 19)  Special procedure on Freedom of Association (Preamble to Constitution)

6. International Labour Office 6 Supervision of ILO Conventions  Regular supervision (Art. 22)  Once a country has ratified an ILO convention, it is obliged to report regularly on measures it has taken to implement the ratified Convention (Art. 22, ILO Constitution)  Every 2 years for fundamental and priority conventions  Every 5 years, for all other conventions  Governments are required to submit copies of their reports to employers’ and workers’ organizations, who may comment on them and may send their observations to the ILO  Committee of Experts:  Set up in 1926; Composed of 20 eminent jurists appointed by GB for 3-year terms; Experts come from different geographic regions, legal systems and cultures; Role: to provide an impartial and technical evaluation of the state of application of ILS in Member States; Comments and observations are communicated to the Government concerned (and published) for action to be taken  Conference Committee  Conference Plenary

7. International Labour Office 7 ILO’s up-to-date social security Standards  Conventions  C. 102 on Social Security (Minimum Standards)  C. 121 on Employment Injury Benefits  C. 128 on Old-Age, Invalidity and Survivors’ Benefits  C. 130 on Medical Care Benefits  C. 168 on Unemployment Benefits  C. 183 on Maternity Benefits  C. 118 on Equality of Treatment in Social Security  C. 157 on Maintenance of Migrant Workers Rights  Major Recommendations  R. 67 on Income Security  R. 69 on Medical care

8. International Labour Office 8 Social Security (Minimum Standards) Convention, 1952 (No. 102) Flagship Convention No. 102  Defines 9 branches of social security  Medical care benefit, sickness benefit, unemployment benefit, old-age benefit, employment injury benefits, maternity benefit, family benefit, Invalidity benefit, survivors’ benefit  Sets minimum standards for these nine branches  Is based on commonly agreed social security principle  Is built upon the basis that there is no right model for social security and it reflects countries’ social and cultural values, their history, their institutions and their level of economic development  It thus includes several flexibility clauses to allow as many countries as possible to fulfill its provisions (e.g. ratification of 3 out of the 9 branches, coverage of a certain percentage of worker or the population, etc.)

9. International Labour Office 9 Social Security (Minimum Standards) Convention, 1952 (No. 102) Flagship Convention  Sets minimum standards for the nine branches  Minimum percentage of personal coverage  Minimum level of benefits  Maximum qualifying period for the entitlement to benefits  Minimum duration of benefits

10. International Labour Office 10 Social Security (Minimum Standards) Convention, 1952 (No. 102) Minimum Standards Branches C. No. 102 C. No. 102 C. No. 102 C. No. 102 Benefit Conditions Duration of Benefit Coverage of persons Sickness Benefit 45 % To preclude abuse 26 weeks (each case sickness) 50% of all employees or 20% of all residents, or all residents whose means do not exceed certain limits Unemployment Benefit 45 % To preclude abuse 13 weeks in period of 12 months 50% of all employees, or all residents whose means do not exceed certain limits Old-Age Benefit 40 % 30 years Throughout the contingency 50% of all employees or 20% of all residents, or all residents whose means do not exceed certain limits Employment Injury Benefits Short term disability Permanent disability Death of the breadwinner 50 % No qualifying Throughout the contingency 50 % period allowed 40% 50% of all employees, and their widows and children in case of death of the breadwinner through an employment injury Family Benefit 3% or 1,5% To preclude abuse Throughout the contingency 50% of all employees or 20% of all residents, or all residents whose means do not exceed certain limits Maternity Benefit 45 % T o preclude abuse Minimum of 12 weeks Women of classes of employees constituting not less than 50% of all employees or 20% of all residents, Invalidity Benefit 40 % 15 years Throughout the contingency or until old – age pension is paid 50% of all employees or 20% of all residents, or all residents whose means do not exceed certain limits Survivors ’ Benefit 40 % 15 years Throughout the contingency Wives and children of 50% of all employees, or 20% of all residents, or all resident wives and children whose means do not exceed limits

11. International Labour Office 11 Social Security (Minimum Standards) Convention, 1952 (No. 102) Basic social security principles  Defines basic social security principles  Guaranteed, defined benefits  Participation of protected persons in administration  General responsibility of the Governments for  provision of benefits, and  proper administration of schemes, e.g. through regular actuarial reviews  Collective financing  Adjustment of pensions  Right of appeal  Equality of treatment

12. International Labour Office 12 Social security schemes to comply with Convention No. 102  Social insurance schemes  with earnings-related components, or  flat rate components, or  Combination of both  Universal schemes  Social assistance schemes Social security administrations to comply with Convention No. 102  Public social security schemes  Private social security schemes, if in compliance with minimum standards and basic principles

13. International Labour Office 13 Flexibility of Convention No. 102 to facilitate its ratification/application for member States  Offers flexibility, as it takes into account socio- economic levels within different countries by providing for specific temporary exception by covering at least 50% of all employees working at industrial establishments of 20 persons or more  Offers possibility of ratifying initially 3 social security branches and offers possibility of ratifying at a later stage, according to the socio-economic situation in the country, further social security branches

14. International Labour Office 14 Benefits when ratifying/applying Convention No. 102  When Convention No. 102 is ratified, State parties will benefit on a priority basis from ILO experience in the field of social protection and from technical assistance, including policy advice and actuarial studies, collection of data, drafting of legislation, etc.  Commitment to apply Convention No. 102 will guarantee a sustainable and well established social security and it will also guarantee the provision of regular and sustainable benefits,  Thus ratification and application of Convention No. 102 will enhance the confidence of insured persons in the scheme and in the national social security administration in general

15. International Labour Office 15 Ratification map of Convention No. 102 (44 ratifications as of 2008)

16. International Labour Office 16 Ratification chart of Convention No. 102 Albania (2006) Austria (1969) Barbados (1972) Belgium (1959) Bolivia (1977) Bosnia and Herzegovina (1993) Bulgaria (2008) Democratic Rep. of the Congo (1987) Costa Rica (1972) Croatia (1991) Cyprus (1991) Czech Rep. (1993) Denmark (1955) Ecuador (1974) France (1974) Germany (1958) Greece (1955) Iceland (1961) Ireland (1968) Israel (1955) Italy (1956) Japan (1976) Libya (1975) Luxembourg (1964) Macedonia (1991) Mauritania (1968) Mexico (1961) Montenegro (2006) Netherlands (1962) Niger (1966) Norway (1954) Peru (1961) Poland (2003) Portugal (1994) Senegal (1962) Serbia (2000) Slovakia (1993) Slovenia (1992) Spain (1988) Sweden (1953) Switzerland (1977) Turkey (1975) United Kingdom (1954) Venezuela (1982)

17. International Labour Office 17 The relevance of ILO social security Conventions, and particularly Convention No. 102, on … Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights ILO social security standards as main reference for interpretation and definition of the right to social security and implementation guidance Regional human rights and social security instruments - In the European Social Charter: reference for establishing the minimum level of social security in line with C. 102 (Art. 12 of EC), - European Code of Social Security: modelled after Convention No. 102, - CARICOM Agreement on Social Security and SADC Code on Social Security make reference to Convention No. 102 National social security systems - Important impact on social security legislation all over the world  An examination of the country cases where the CEACR has observed non- compliance with ratified social security Conventions shows that, in most cases (in 75 cases since 1964), the national law and practice has been brought in conformity with the requirements of the Convention by ratifying States following the recommendations of the CEACR  The standards have substantial influence at the international, regional and national level

18. International Labour Office 18 Why is there need for regulation of private social security schemes?  Rapid growth of private pension systems worldwide  Answer to problems of Government pension schemes, by playing complementary role with the objective to  Fill the gap between what is covered the Government pension schemes and reasonable level of replacement of income  Increase level of advanced funding of future pension liabilities  Increase efficiency

19. International Labour Office 19 Why is there need for regulation of private social security schemes?  To avoid risks to which private systems are exposed, by guaranteeing  Beneficiaries protection (e.g. non- discriminatory eligibility, vesting of rights and adequacy of benefits)  Soundness of pension systems (e.g. employer’s insolvency, underfunding, investment risks, changes in inflation and interest-rates and fraud)  Stability of the economy as a whole

20. International Labour Office 20 Regulation Principles  General considerations  As smaller the first pillar as more important a strict regulation of the second pillar  Regulations must take complexity of private systems into account and be flexible  Regulations must be considered in comprehensive manner, taking into account regulatory and financial developments of Government pension system  Regulations must be dynamic and evolve along with the sector  Regulations must take into account sectoral and national features 1 Adopted by the INPRS and OECD

21. International Labour Office 21 Regulation Principles  Principles guaranteeing the rights of beneficiaries  Non-discriminatory access to the schemes or entitlement to benefits (no exclusion based on age, salary, gender, period of service, term of employment and civil status)  Protection of vested rights, de jure and de facto  Implementation of appropriate regulation for early departure and portability when professional mobility is required  Protection against inflation (indexation of benefits)  Adequacy of benefits in relation to a minimum standard of living and/or comparable to that which was enjoyed prior to the retirement, to the balance between benefits and contributions, and to what was promised under the scheme  Appropriate regulation of benefits modalities (annuity/capital) and of costs/charges

22. International Labour Office 22 Regulation Principles  Principles guaranteeing the financial security of the schemes (1)  Strict enforcement of an institutional and functional licensing system on the basis of adequate legal, accounting, technical, financial and managerial (competence and honourability) criteria  Legal separation of the fund from its sponsors or, at least, requirement of appropriate guarantees (e.g. reinsurance or insolvency insurance)  Prohibition of private unfunded pay-as-you-go schemes at company level  Favourable tax treatment of over-funding/surplus

23. International Labour Office 23 Regulation Principles  Principles guaranteeing the financial security of the schemes (2)  Establishment of minimum funding rules  Appropriate valuation and funding calculation methods, incl.actuarial techniques and amortisation rules  Transparent accounting methods based on comparable standards  Enhancement of ongoing supervision of the funds, including through the transmission of information to the authorities  Strict limitations on self investments, unless appropriate safeguards exist  Liberalisation of investments abroad, subject to prudent management principles

24. International Labour Office 24 Regulation Principles  Principles guaranteeing the financial security of the schemes (3)  Adequate regulation of insurance coverage of the fund (through group insurance or reinsurance)  Setting up standards for adequate information and disclosure to the beneficiaries  Promotion of self-regulatory practices for fund managers  Granting of priority rights to the fund in the event of employer’s winding up  Assessment of the role of insolvency insurance and other guarantee schemes  Leveling of the playing field among operators.

25. International Labour Office 25 Country Example Poland (2.Pillar Public Pensions) Main characteristics  2nd pillar pension funds (PTES) are regulated by Pension Fund Supervision Office (UNFE)  Licences granted for 21 insurance companies  Obligation to diversify their investment risk with limits set for the maximum which they may invest in particular types of asset: 40% max. in quoted stock  Members will be allowed to invest in only one fund to increase overall return  Charges vary from minimum of 7.9% to maximum of 11%, with promise of reduction of charges in future  “Security through Diversity”, risk reduction benefits of balanced mixture between pay-as-you-go and funded systems

26. International Labour Office 26 THANK YOU