1. Social Security for Older Persons in Developing Countries Aris Ananta Institute of Southeast Asian Studies Singapore Presented at the ”Eleventh ASEAN Gerontology Course”, jointly organized by INIA-SAGE ASEAN Centre on Aging (ISACA), the International Institute on Ageing, United Nations – Malta (INIA), and the Singapore Action Group of Elders (SAGE) in Singapore, 26 July – 3 August 2010

2. Outline Current systems What Do People Want When They Are Old? Sources of Financial Support Alternative Approaches Concluding Remarks

3. Now, What Do People Want When They Are Old?

4. What Are They Doing?  Some older persons have to work very hard simply to survive  Some have to work because they want to be active and contributing to the society  Some do not work at all, “enjoying” their old age

5. Which one is “better”: the older persons who do not do anything or the one who has to work to earn money to survive? the older persons who do not do anything or the one who has to work to earn money to survive?

6. The deeper question is …… In essence, what kind of life should the older persons have? Or, deeper, what kind of life do people want, not only during the old ages, but the whole life? What is the purpose of life?

7. Income, Accumulated Saving, and Transfer Payment

8.  Earning: wage, salary  One must “work” to earn money— use their labour  Rent  Interest  Profit

9.  “under the pillow”  in financial institutions  in “commodity” and/ or property  in “government”

10.  from spouses  from parents  from children/ grand children  from neighbours/ friends  from society in general  from government

11. The only source of financial support that needs “work” No Work, No Earning

12. Particularly in Poor Societies without Adequate Welfare System

13. After retirement age, people may have additional difficulties in labour market: rigidity of the labour market, out of date skills, discrimination against older persons, and norms for working older persons, in addition to deteriorating health

14.  If the older persons cannot work, either because of their education/ health and/ or others, they must have financial support from non-earning.  They can have financial support from interest, rent, and profit if they are wealthy, having business.

15.  If they themselves are not wealthy, they should depend on their own accumulated saving and/ or transfer of payment

16.  Insurance and saving are not the source financing older persons.  Inflation is high, no use for saving.  Labour force participation rate for older persons is high

17.  Type of benefit  Defined benefit  Defined contribution  Financing mechanism  PAYG (pay as you go)  Individually funded account

18.  The benefit is defined by a certain formula— not by the return on investment  For example, the pension is paid as a fraction of monthly salary in last several months of working.  The pension does not depend on the contribution made by the retirees when they were working.

19.  Each individual pays to an individual account.  The money is invested by a third party, which can be the government or market.  The money paid to the retired individual will depend on the return from the investment  The contribution is known, but the benefit is not known

20.  The retirees receive money contributed by those who are currently working.  With the shrinking number and percentage of working population and rising number and percentage of older, not working, population,  the PAYG can be unsustainable, as one productive person must pay an increasingly larger number of unproductive persons

21.  Mostly done by the US, Australia, Western European countries, and Japan  However, Japan spends the least for welfare. Labour force participation rate among the older persons is the highest.

22.  The retirees receive what they saved when they were working.  Those who saved very little will receive very little too when they are old  This system does not guarantee income security for the older persons

23.  The government does not provide pension for the older persons  The older persons must save when they were working  The saving is compulsory and invested by the government. It is returned with interest when they are old, “retired”.

24.  A system that guarantees old-age income security for everyone and ensure that everyone is above the international poverty line or any other socially acceptable minimum standard  It is not easy, but it should be made a minimum target of development

25.  This is important particularly for countries with large informal sectors  Mathematically, this scheme is affordable even for poor countries,  Politically, it may not be feasible because of the many internal conflict of interest  This is a defined benefit system

26.  This is targeted at a wage-replacement level for formal sectors  This is defined contribution and benefit system

27.  This is intended for the relatively affluent groups of the society  They can choose their own market driven financial institutions to invest their money for retirement  This is a defined contribution system

28.  All countries in Southeast Asia have attempted to apply the Second and Third Pillars of the UN model  However, the second pillar has not included a target of wage replacement level.  They have not started the first pillar of the UN model, basic minimum for everyone, particularly for those in the informal sectors

29. Alternative Approaches to Income Security

30. PROMOTE Active Ageing  Promotive Programs are Cheaper than Curative Programs  Being Healthy and Independent Reduce Health Expenditure  Being Healthy and Independent Allow Older Persons to Contribute to the Society, regardless the monetary reward

31. Let Older Persons Work

32. No Compulsory Retirement Age People in poor economies have never retired Extend the tradition to non-poor economies As long as they can contribute, they should be allowed to work Abolish discrimination against age, young or old

33. CREATE OLDER-PERSONS INTENSIVE INDUSTRIES

34. Recognize Voluntary Work Give non-monetary rewards to those who work for the society without money This is not only for older persons, but for everybody, regardless the ages

35. Government Intervention

36. Decide the Standard Minimum Welfare by Age If a person cannot reach that minimum, the state must help fill in the gap, regardless the age A person who is lazy to work cannot claim for subsidy (There should be a stricter examination before having a subsidy. This is stricter than receiving unemployment benefit in the US, for example)

37. Lower Inflation Rate, Raise Interest Rate for Saving, particularly for the Poor Calculate Inflation Rates for Various Income Groups Provide Higher Interest Rates for Saving from Lower Income Groups

38. Heavily Invest in Public Infrastructure Clean water, clean air Affordable and safe public transportation Availability of affordable and continuous supply of electricity Availability of affordable communication systems

39. Older Persons Friendly Infrastructure This will make older persons more independent and reduce the cost of taking care of the older persons This benefit not only older persons, but also other vulnerable groups, regardless the ages

40. Non-governmental Support

41. Encourage Philanthropic Contribution This is not only for older persons, but particularly for older persons The monetary contribution should be made tax-deductable The tax deduction should be higher if it is from children, grand-children, spouses, parents, and other relatives.

42. Invest the Saving in non-Earning Activities By doing this, the older persons do not have to work. They may put the money in commercial financial market, with all of the risks They can put the money into business and reap the devidend They may rent their properties

43. Promote Transfer of Payment from Families and Friends From Children, Grand-children From Nephews From Brothers and Sisters From Friends The contribution should be tax deductable, with higher deduction from relatives.

44. Summary of Policies It is applicable to all ages, Not only to older persons

45. Summary of Suggested Policies (1) Self-finance from Working –Promote Active Ageing and –Let People Work as Long as They can Self-finance from Rent, Interest, and Profit

46. Summary of Suggested Policies (2) Transfer Payment for those who cannot self-finance or the income is below what they “need’ –From the government –From family (spouse, children, grand-children, brothers, sisters, nephews etc..) –From society

47. Summary of Suggested Policies (3) From the government – social assistance – macro-economic policies, including builing age-friendly infrastructure

48. Conclusion: Beyond Social Security

49. Ageing Related Policies: For all Ages

50. The Recommended Policy Package: 1.Market Mechanism 2.Government and Society 3.Government

51. Market Mechanism Labour Market Financial Market

52. Labour Market Abolish age discrimination Recruit, Pay, and Fire according the performance, capability, not age – no more seniority and juniority systems Abolish compulsory retirement age Let people choose to retire or work for money.

53. Financial Market Lower interest rate, particularly for poor people Promote financial literacy Criminalize bulking/ cheating by financial industries Reduce risk in financial market

54. Government and Society Active Ageing

55. Use Life cycle approach Enhance Social and intergenerational solidarity Promote and Acknowledge Working not for money—social work Promote and Acknowledge Philanthropic Work Create Health Promotion Program

56. Active Ageing: some expected results 1.Lower Cost and Higher Income for Older Persons 2.Smaller Burdens for the Younger Population and the Government 3.Happier Older Persons and the Whole Population

57. Government Create Older Persons Intensive Job Opportunities Create Older Persons/ Vulnerable Persons Friendly Infrastructure Create a Just and Sustainable Security System for the Whole Population, Regardless the Age, including the Older Persons

58. Sustainable and Just Social Security System Along with all mentioned policies For those who are really sick and cannot afford, the government must help To lower the cost, use more generic medicine and treatment To lower the cost, strongly encourage health promotion program Create innovations such that this program is attractive to business persons