1. ILO SPECIALIST ON SOCIAL SECURITY
The Effects of the Crisis in Social Security Systems REGIONAL WORKSHOP STRENGTHENING TRADE UNION NETWORKS IN SOCIAL PROTECTION IN LATIN AMERICA LIMA, 16 tol 20 of MARCH 2009
Fabio Durán Valverde
ILO SPECIALIST ON SOCIAL SECURITY
- March, 2009-

2. Contents The crisis: implications
The crisis and social security systems
ILO Recommendations for the crisis
Elements for discussion: ILO vision
The Role of the State on the impact of the crisis in social security systems

3. Implications of the crisis
Lower rates of economic growth
Recession in various countries
Increase in unemployment and underemployment rates
Less employment opportunities
Probable increases in situations of precarious work
Impact on social security systems
Other impacts: poverty, inequality, social conflict, etc.

4. Impact on employment
ILO: forecasts of about 50 million unemployed people in 2009
ILO: Latin America, Work Panorama 2008: “the end of a five-year cycle of sustainable growth with a reduction of unemployment and poverty.”
ILO: year 2009: 1.5 and 2.4 million of new unemployed people in Latin America.

5. ILO Recommendations for the Crisis (LA 2009)
Fiscal and monetary policies
Specific assistance to SMEs
Strengthen social protection in the midst of the crisis
Introduce emergency employment programmes
Modify salary increases, aiming at maintaining purchasing power
Ensure monitoring of basic labour rights and foster social dialogue

6. Impact on social security systems
Reduction in the level of funds of systems that work under collective and individual capitalization
Increase in contributory evasion and delinquency – easy escape valve for enterprises
Contraction of affiliation to social security in the formal and informal economy
Contraction of collection
Reduction of substitution rates systems of individual accounts – between 10% and 30%, depending on the type of fund
Reduction of the real cost of health – social security institutions – effects of quality and quantity of attention given

7. Elements for discussion and analysis – an ILO position
Distribution and capitalization: demographic risk versus financial risk
Systems of capitalization, of public and private administration, depends more on capitalization to guarantee certain levels of benefits. The crisis affects those systems that are most capitalized.
Social Security as a human right: Universal Declaration of Human Rights. Philadelphia Declaration. Nature and object of an instrument for protection. It is not about conventional financial instruments. They are not savings accounts.

8. Elements for discussion and analysis – an ILO position (continuation)
Public nature of social security systems, independently from how they are financed and managed.
The system’s mission: provide protection. ILO’s position: “benefits must be secure and non- discriminatory”. The instruments must guarantee not only solidarity but SECURITY as well.
If individuals are obliged to forecast through contributions, the State must ensure the security of funds. The position of the ILO: ILC The State is the ultimate financial guarantor. To whom do we demand that the benefits are secure?

9. Conclusion 13, International Labour Conference of the ILO, 2001
"In the pension system with defined benefits based on the distribution, the risk is assumed collectively. In systems of individual savings accounts, by contrast, are those people who take the risk. While this is an alternative that exists, this should not weaken solidarity, in which the risk is shared between all members of the scheme.”

10. The effects of the crisis: a change of expectations in profitability and substitution rates, principally in systems of individual capitalization
A change of expectations in profitability. Market regulations, equalization of rates of return on an international level in the long term. The European Experience: European Commission of Financial Analysts = 4%. Has more than years of experience in the topic.
Change of expectations in substitution rates. Implies the beginning of considerations of substitution rates being realistic agreements with a focus on long-term profitability.
Lack of information = uncertainty.
The crisis has not altered the long-term forecast conditions by the ILO, but it does affect the level of short-term benefits.

11. Net discount rates commonly used in the calculation of pension plans “European Consultative Group of Financial Analysts”

12. The most important social security problem is low coverage…the crisis can decrease contributory coverage (%)

13. In facing the crisis, the state must play an important role
In facing the crisis, the state must play an important role ... and in facing with the structural problems of social security
The State as the ultimate financial guarantor.
Responsibility of the State and of its administrators, respect to transparency in providing information to members. Prohibit misleading information: rates of return and substitution rates. Responsibility of the institutions of regulation and supervision (Superintendents). The State must assume responsibility of minimal profitability for soon-to-be retirees and those people that dealt with changes in their retirement expectation, be it in in either in pension amounts and retirement age .
Implement a means of ensuring a minimum return over the long term, collective and individual: guaranteed minimum return and minimum benefits.

14. In facing the crisis, the State must assume an important role… (…continuation)
Eliminate or regulate the instruments that compromise the security of benefits: “programmed rent”, “high-risk funds”, etc.
Strengthen the pressure to combat tax evasion and improve coverage to pay ... or at least maintain the level of coverage during the crisis
Facilitate the access and duration to unemployment benefits (where they exist)
Minimize the impact on poverty. The crisis will greatly effect those whom do not have social protection. Basic floor for social protection - strengthen systems aimed to the poorest – creation or strengthening of assistance programmes.

15. Thank you very much!