SOCIAL PROTECTION IN ASEAN

ASEAN Social Protection Paper

19 /5/08

SOCIAL PROTECTION IN ASEAN

ISSUES AND CHALLENGES FOR ASEAN AND ITS MEMBER COUNTRIES

PREPARED FOR

International Council on Social Welfare (ICSW)

South East Asia and Pacific Region (SEAP)

by

PAGUMAN SINGH

ASEAN GO-NGO FORUM

Vietnam

December 2007

DRAFT FOR CONSULTATION

“Governments must develop and implement policies to ensure that all people have adequate economic and social protection during unemployment, ill health, maternity, child rearing, widowhood, disability and old age.”

World Summit on Social Development, Copenhagen, 1995

Table of contents

1.      Executive summary

2.      Background – ASEAN country details and characteristics

2.1       Economic context

2.2       Population

2.3       Literacy

2.4       Health

2.5       Individual and population ageing

2.6       Labour force

3.      Social protection systems – need and design

3.1       The growing need for social protection systems

3.2       First pillar – the social assistance, safety-net tier

3.3       Second pillar – the social insurance tier

3.4       Third pillar – the voluntary, top up tier

4.           Social protection challenges for ASEAN countries

4.1       Economic and social policy go hand in hand – two sides of the one coin

4.2          Challenging demographic, social and economic trends

4.3          Urgency due to long establishment lead times

4.4       ILO long and short term provision categorisation

4.5       Public sector provision far exceeds provision for the general public

5.           Social protection schemes in ASEAN countries

5.1       Brunei

5.2       Myanmar

5.3       Cambodia

5.4       Indonesia

5.5       Laos

5.6       Malaysia

5.7       Philippines

5.8       Singapore

5.9       Thailand

5.10     Vietnam

6.           Old age protection

6.1       Core objectives

6.2       Core functions of social security funds

6.3       An ASEAN model?

6.4       Public sector and private sector provision

7.           Challenges

7.1       Coverage

7.2       Adequacy

7.3       Administrative efficiency

7.4       Independent regulation

7.5       Transparency, accountability & good governance

8.           Conclusions and recommendations

8.1       Commitment to developing the first pillar

8.2       Second pillar issues

8.3          Need for a coordinated approach to social protection

8.4       Need to develop research capacity

8.5       Need to publicise social protection principles

8.6       Need to develop commitment to implementing social safety nets  through the        development plans of the countries

1.      Executive summary

“Governments must develop and implement policies to ensure that all people have adequate economic and social protection during unemployment, ill health, maternity, child rearing, widowhood, disability and old age”

The World Summit on Social Development, Copenhagen 1995.

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Economic and social pressures in ASEAN

ASEAN countries, while developing economically and recovering from the financial institutions crisis of the late 1990’s, are nevertheless generally facing the pressures of globalization and ageing. It is generally accepted that globalization has made social protection safety nets more essential for at least four reasons.

·         cushioning the burden of restructuring;

·         increasing the legitimacy and acceptability of economic reforms;

·         enabling risk taking by individuals and firms through providing a floor level income in the case of losses; and

·         countering the effects of workforce mobility, urbanisation and migration of labour which tend to break down traditional, family and community based social protection systems.

In addition, ageing populations also put pressure on traditional social protection systems as more people in the younger generation are increasingly less able to provide for the greater number of older family and community members.

Developing social security protection systems

In the face of these pressures, developing countries need to carefully examine the design of social security protection systems so as to move, even if slowly over a number of decades, in the right direction.

After examining social protection needs for the next millennium, primarily to ensure the long term sustainability and viability of existing pension and provident funds, the International Labour Organization (1994) recommended the implementation of a multi pillar system of social protection. In line with the accepted definition of social security protection, a three pillar framework for social protection comprises a first pillar of a general, social assistance safety net income protection provided by the government, a second or social insurance pillar comprising mandatory contributions and a third, voluntary, private insurance pillar  supplement the other two.

ILO and World Bank three pillar approach

The first and most important social assistance pillar is the “safety net” pillar which comprises universal rights based programs which are non-contributory being financed from tax revenues. These payments are means tested against income and assets so they are targeted to the most vulnerable and needy. They are publicly managed or administered by the government or its agencies.

The second pillar is the social insurance or saving pillar where individuals contribute a portion of their income into individual or personal accounts for future income protection. There is usually an employer contribution to these accounts as well – especially for public sector employees. The programs provide for income replacement and benefits in kind for the contingencies of unemployment, sickness, maternity, employment injury and pensions for the long term contingencies of old age, invalidity and survivorship.

The third pillar is the individual voluntary, private insurance pillar designed to provide additional coverage to those who can afford the premiums.

Developing social protection systems is urgent because of long lead times

As ASEAN countries have increasingly embraced globalization, it is not surprising that social protection has become an important public policy issue in recent years. However, priority has been given to stability and economic growth and social policies, to address the social consequences, languish a distant second.

These challenges and the problems they create have to be addressed through structural changes and the provision of formal social protection and social security systems. Such systems have a long lead-time before they can provide adequate retirement income support in a sustainable manner and address the short term protection for sickness, maternity and survivorship needs. Hence, there is considerable urgency in initiating the reform process. The traditional view that social security payments are handouts that are inconsistent with the values of Asian society and threaten the family and its support system has to be challenged as it is founded on a lack in the understanding of social security concepts.

Public sector, but not private sector, second pillar protection

Most ASEAN countries, with the exception of Cambodia, have relatively developed, second pillar schemes covering public sector employees. Governments, being the largest employer, have created relatively generous retirement schemes for their public employees and have generally provided them and their families with medical treatment coverage as well. However, the general public does not enjoy similar coverage.

In the main, ASEAN countries do not have first pillar, universal coverage, safety net provisions for the general population despite the fact that all countries have made commitments to extending social protection. However, policies for extending social protection in most ASEAN countries are either weak or vague and lack an integrated view of old age income protection, health and other needs. 

Conclusion

The social protection that is in place throughout ASEAN countries is very limited and is characterised by:

·         fragmented administration with various ministries, departments and organizations providing the protection;

·         coverage limited  to a small proportion of the formal sector; and

·         focused mainly on old age protection.

There are several issues and challenges that emerge from the analysis of social security systems in ASEAN. In each country the local contexts, political, demographic and other conditions differ and hence the challenges and issues also differ. However, there are enough similarities in the prevailing economic and social challenges for ASEAN to take a more determined interest, and perhaps it is the Ministers for Social Welfare and Social Development (or their equivalent) who should lead this process.

ASEAN countries and their governments need to review their present systems and consider what policy changes are necessary to implement better social security protection provisions in each ASEAN country.

Each country will first need to address the limitations of their respective system. 

2.      Background – ASEAN country details and characteristics

2.1         Economic context

ASEAN, the region of enormous potential economic growth in this century, has risen from the Asian financial crises and is developing rapidly. Countries in ASEAN have witnessed remarkable economic growth since 2000 as a result of economic policies that have led to structural changes. Political stability has further enhanced growth in the region. Situated strategically between the newly emerging giant economies of India and China and with strong historical relationships with them, economic growth in the next decade is forecast to be strong.  However as China and India continue to pursue greater integration with the world economy; Southeast Asian countries are facing increased competition for markets, foreign capital and manpower, and simultaneously considerable opportunities in participating in their growth.

2.2       Population

The total population of ASEAN is estimated to be 600 million with a large young population aged between 15 and 60 years.

Table 1:  Population, Life Expectancy and Retirement in ASEAN countries

Country	Total population (millions)	Pop. >65 years (%)	Dependency Ratio	Life Expectancy		Retirement Age
				Male	Female	Male	Female
Brunei	0.3	3.2	48.8	75.0	79.7	55	55
Myanmar	50.5	4.9	52.4	58.9	64.8	-	-
Indonesia	222.7	5.5	51.0	67.0	70.5	55	55
Laos	5.9	3.7	80.1	55.3	57.8	60	60
Malaysia	25.3	4.6	58.7	71.9	76.5	55	55
Philippines	83.0	3.9	64.2	69.5	73.8	60	60
Singapore	4.3	8.5	38.8	77.6	81.3	55	55
Thailand	64.2	7.1	44.7	68.5	75.0	55	55
Vietnam	84.2	5.4	53.8	69.9	73.9	60	55
Cambodia	13.8	3.4		61.0	65.4	na	na

Social Security Programs In Asia and Pacific U.S. Social Security Administration

2.3          Literacy rates

The literacy rate of the young population in Singapore, Malaysia, Brunei, Vietnam is high averaging more then 90%, while that in Thailand and Indonesia is more then 80%. The other countries have relatively high literacy rates and education policies within these countries would bring them to the level of the advanced economies in the near future. Governments in the region have attached importance to education with the provision of free education at the primary and secondary level being available to all children. In Singapore, Malaysia, Brunei and Thailand education has become compulsory. Expenditure on universal education in these countries constitutes a major proportion of the social expenditure. 

2.4          Health

The provision of universal health services to the population is another important  human development program. The health facilities and services provided differ both by country and within the individual countries. The virtual free immunization programs in all these countries have resulted in positive health outcomes. The total fertility rate, defined in terms of children per woman, in 2000-2005 period (medium variant) was higher than the replacement rate of 2.15 in countries like Indonesia (2.37), Malaysia (2.93), Laos and Philippines (3.22); and below in Singapore (1.35) and Thailand (1.93).(Source United Nations Population Statistics, 2005).

Table 2:  Population, Fertility Rate, and Life Expectancy in ASEAN countries

Country	Total Population (Millions)	Fertility Rate
Brunei	0.3	Na
Myanmar	50.5	Na
Indonesia	222.7	2.37
Laos	5.9	3.22
Malaysia	25.3	2.93
Philippines	83.0	3.22
Singapore	4.3	1.35
Thailand	64.2	1.93
Vietnam	84.2
Cambodia	13.8

United Nations Population Statistics: 2005

2.5          Individual and population ageing

Individual ageing refers to increased life expectancy in the period 2000-2005. Life expectancy at birth in ASEAN countries averaged:

Table 3: Individual ageing

Country	Males	Females
Indonesia	64.5	68.6
Malaysia	70.8	75.5
Philippines	68.1	72.4
Thailand	66.0	73.7
Singapore	76.7	80.5
Brunei	75.0	79.7
Laos	55.3	57.8
Vietnam	69.9	73.9

Population ageing on the other hand refers to the proportion of the total population which is aged, i.e. over 60 (or 65) years. In 2005, population over 60 years was low in countries like:

Philippines (6.2 percent), and Malaysia (7 percent).

However, they are relatively high in:

Indonesia (8.4 percent), Thailand (10.25 percent); Singapore (12.2 percent); and Vietnam (7.4).

As women live longer than men on average, but usually have lower exposure to employment in the formal sector and earn wages that are lower than men on average, women become more exposed to the risk of poverty in old age and this issue becomes very important in social security protection.

2.6          Labour force

As ASEAN is developing economically, most of the population is still in rural areas and supported by agriculture. There are issues of urban migration or migration to centres of economic development in most ASEAN countries. As most of the population presently relies on agriculture, this traditionally based economic structure supports the extended family and has generally hindered the growth of national or regional social protection systems. However, Singapore virtually has no agricultural sector while Brunei has a very small agricultural sector. The other member countries rely on the large agricultural sector, which comprises a large portion of the informal sector, to provide economic opportunity to a major section of the population. The labour force employed in this sector is large especially in Indonesia, Thailand, Philippines, Cambodia, Vietnam, Laos and Myanmar. Malaysia has acquired a balance due to economic development in past decades. The informal sector covers a substantial proportion of the economy of many Southeast Asian countries. In 2000, more than half of the labour force was engaged in the informal sector in Thailand (52.6 percent), while in Malaysia and Philippines it was relatively lower at 31.1 percent and 43.4 percent respectively. Singapore’s informal sector is small, and therefore only 13.1 percent of the labour force was engaged in the informal sector. In the other countries especially Laos, Cambodia, Vietnam and Myanmar the rate exceeds 65%.

3.      Social protection systems – need and design

3.1        The growing need for social protection systems

ASEAN countries, while developing economically and recovering from the financial institutions crisis of the late 1990’s, are nevertheless generally facing the pressures of globalization and ageing. It is generally accepted that globalization has made social protection safety nets more essential for at least four reasons.

·         cushioning the burden of restructuring;

·         increasing the legitimacy and acceptability of economic reforms;

·         enabling risk taking by individuals and firms through providing a floor level income in the case of losses; and

·         countering the effects of workforce mobility, urbanisation and migration of labour which tend to break down traditional, family and community based social protection systems.

In addition, ageing populations also put pressure on traditional social protection systems as more people in the younger generation are increasingly less able to provide for the greater number of older family and community members.

In the face of these pressures, developing countries need to carefully examine the design of social security protection systems so as to move, even if slowly over a number of decades, in the right direction.

After examining social protection needs for the next millennium, primarily to ensure the long term sustainability and viability of existing pension and provident funds, the International Labour Organization (1994) recommended the implementation of a multi pillar system of social protection. In line with the accepted definition of social security protection, a three pillar framework for social protection comprises a first pillar of general, safety net income protection provided by the government, a second or social insurance pillar comprising mandatory contributions and a third, voluntary, private insurance pillar  supplement the other two.

The features and principles of the three pillars are set out below.

3.2          First pillar – the social assistance, safety net tier

The first and most important “safety net” pillar comprises universal rights based, social assistance programs which are non-contributory being financed from tax revenues. These payments are means tested against income and assets so they are targeted to the most vulnerable and needy. They are publicly managed or administered by the government or its agencies.

There is no requirement for the individual to contribute for entitlement to the benefit. The programs under this category provide for various types of family allowances and social assistance or social welfare payments for those in financial need such as long-term unemployed and poor people, people with disabilities, single parents or other needy groups. The programs provide income benefits for the time of need to poorer households and vulnerable groups including modest pension payments in retirement or old age.

The programs have means testing before eligibility to benefits. Programs in this pillar are administered by the welfare departments in ASEAN countries and generally target the urban and rural poor as well as the elderly. Such government programs can be, and often are, supplemented by various charities and religious based organizations or systems. 

3.3        Second pillar – the social insurance tier

The second pillar is the social insurance or saving pillar where individuals contribute a portion of their income into individual or personal accounts for future income protection. The programs provide for income replacement and benefits in kind for the contingencies of unemployment, sickness, maternity, employment injury and pensions for the long term contingencies of old age, invalidity and survivorship.

Approaches to financing the benefits vary. Primarily, provision for long-term protection such as to cover old age is generally through some from of Provident Fund. Employers, employees and the government contribute towards a central fund, made up of many individual accounts, which is administered by a semi autonomous government agency to provide the benefits. Schemes providing for old age, survivorship and invalidity are either saving schemes known as provident funds or pension schemes. Coverage for short term contingencies such as health cover is generally provided through separate insurance schemes, the premium for which is set as a percentage of weekly or monthly pay.

These second pillar programs can be delivered through various financial service providers mandatory individual accounts, mandatory occupational pensions or mandatory private insurance accounts, provident funds operated through public entities or employer liability schemes.

·         A mandatory individual account refers to a program where the individual and/or his employer must compulsorily contribute a percentage of the individual’s wages to public or private fund manager. The individual can have a choice of selecting the fund manager.

·         Mandatory occupational pensions are programs that require an employer to finance a pension scheme for employees. The benefit may be paid as a lump sum, annuity or pension.

·         Mandatory private insurance applies to a program where the individual is required by law to purchase insurance from a private insurance company. 

·         The provident fund is a savings system where the employer deducts a set percentage from the employee’s wage and adds the employer share before forwarding it to a public institution managing it. Through investments the institution pays annual dividends and pays the total saving to the employee upon retirement or to the dependants upon death.

Benefits under the second pillar are dependant on eligibility conditions which have to be fulfilled before the benefit is paid. In general, only the formal sector of the economy is covered as the administrative structure required to successfully implement the protection and contribution collection is complex and is already established in the formal sector. Self employed, farmers and fishermen are generally not covered under existing social insurance schemes due to a lack of formal administrative structures to reach such groups.

3.4         Third pillar – the voluntary, top-up tier

The third pillar is the voluntary, private insurance pillar designed to provide additional coverage to those who can afford the premiums. The provision of retirement benefit, disablement, medical coverage and life insurance policies to the population is the private initiative of providers. Policies are often tailored to the needs of the individual and in accordance with their financial capacity. Governments provide the regulatory framework for the efficient administration and monitoring of the companies providing the protection and often also provide tax concessions to encourage and assist people who can afford to take out third pillar additional insurance. A regulatory body generally licenses, oversees and controls the providers through guidelines and reporting requirements.

4.      Social protection challenges for ASEAN countries

4.1         Economic and social policy go hand in hand – two sides of the one coin

As ASEAN countries have increasingly embraced globalization, it is not surprising that social protection has become an important public policy issue in recent years. However, priority has been given to stability and economic growth and social policies, to address the social consequences, languish a distant second. ASEAN governments have adopted the millennium development goals and have implemented poverty reduction programs towards achieving these. Governments have also accepted the commitment to social development from the World Social Forum in Copenhagen in 1995 which issued the declaration:

“Governments must develop and implement policies to ensure that all people have adequate economic and social protection during unemployment, ill health, maternity, child rearing, widowhood, disability and old age”

Despite the acceptance of people based sustainable development at ASEAN forums, governments have nevertheless continued to emphasize economic growth over social policies, seeing these merely as a dividend rather than as an essential contributor to sustainable economic growth. Consequently, the rate of social protection expansion and reform remains rather slow.

Where social protection programs do exist, governments have played the role of regulator rather then as providers of social security protection. As traditionally safety nets have generally been non existent, governments have attempted to provide welfare to the population and workers through the provision of employment in state enterprises in urban areas and state farms in rural areas. In all the ASEAN countries, governments are the largest employers within the economy, while state owned enterprises account for employment of another large proportion of the labour force.  

4.2         Challenging demographic, social and economic trends

The 1997 East Asian financial crisis led governments to rethink the need for adequate social safety nets. In addition, most ASEAN countries are confronted by a number of other serious demographic, economic and social trends:

·         demographic trends manifested in rapid individual and population ageing;

·         globalization and associated changes with challenges to economic structures;

·         urbanization and a move away from agriculture;

·         industrialization where the traditional systems experience downsizing, process change and varied marketing challenges;

·         migration where the reduction of agriculture leads to younger and more educated workers moving to centres of economic development creating new pressures and social consequences in the villages they leave and the cities they move to; and

·         changing family structures with the erosion of the family support system established in agricultural societies and modern changing attitudes away from sharing and caring.

4.3         Urgency due to long establishment lead times

These challenges and the problems they create have to be addressed through structural changes and the provision of formal social protection and social security systems. Such systems have a long lead-time before they can provide adequate retirement income support in a sustainable manner and address the short term protection for sickness, maternity and survivorship needs. Hence, there is considerable urgency in initiating the reform process. The traditional view that social security payments are handouts that are inconsistent with the values of Asian society and threaten the family and its support system has to be challenged as it is founded on a lack in the understanding of social security concepts.

4.4         ILO long and short term provision categorisation

International Labour Organization (ILO) Convention 164 addresses the social security programs that need to be initiated by governments to provide protection against various short and long term contingencies which cause economic or social distress. These measures are classified into five broad categories, the first of which is for long term provision and the remaining four covering provision for shorter term protection:

·         old age, disablement and survivorship (long term provision);

·         sickness and maternity;

·         work injury;

·         unemployment and

·         family allowances.

Old age, disablement and survivorship protection

The provision of old age protection, disablement and survivorship provide long- term benefits to the individual or their dependants and is usually a single administrative arrangement. This provision differs from the other programs in that the period of payment of benefits in the other programs is more short term to meet particular, immediate exigencies.

The protection accorded under the old age program is generally in the form of pension payments upon retirement, death or disablement and in most countries with only second pillar programs, is dependant on the number of contributions paid, the period of such payments and the reference wage for the payment of contributions.

4.5         Public sector provision far exceeds provision for the general public

The extent of social security coverage in any country is determined by diverse factors such as the state of economic development, the nature of the government, the political ideology, administrative capacity and other historical factors. The extent of the coverage of the population is also dependant on the age of the scheme and the administrative commitment and efficiency of the social security institution. Most ASEAN countries, with the exception of Cambodia, have relatively developed, second pillar schemes covering public sector employees. Governments, being the largest employer, have created relatively generous retirement schemes for their public employees and have generally provided them and their families with medical treatment coverage as well. However, the general public does not enjoy similar coverage.

4.6         Limited social protection coverage

In Vietnam, Lao PDR and Thailand, social security protection has a short history.

On the other hand, in Singapore, Malaysia and the Philippines, social security protection has been developing for half a century. Despite this, coverage remains restricted to a small proportion of employees in the formal private sector.

Coverage is also limited geographically (Laos) or by number of employees (Indonesia, Thailand, Philippines and Vietnam). Most importantly, the provision of social protection is mostly limited to second pillar, social insurance schemes for public sector and military personnel.

In the main, ASEAN countries do not have first pillar, universal coverage, safety net provisions for the general population despite the fact that all countries have made commitments to extending social protection. However, policies for extending social protection in most ASEAN countries are either weak or vague and lack an integrated view of old age income protection, health and other needs.  

The social protection that is in place is very limited and is characterised by:

·         fragmented administration with various ministries, departments and organizations providing the protection;

·         coverage limited  to a small proportion of the formal sector; and

·         focused mainly on old age protection.

4.7       Challenges to the viability of existing social protection schemes

Generally, protection during the working life of an employee is provided through labour legislation that places the onus on the employer. In addition to the lump sum payment method adopted for employer liability schemes, the ineffective enforcement of labour laws further reduces the extent of protection available to the labour force.

The civil service and armed forces enjoy special privileges that are not available to private sector employees or the population in general. Pensions available to the civil service are generally generous with high replacement rates however, generally these schemes are not funded in that payments are made, not from a fund but from each year’s budget.  This affects the long term viability of such schemes.

The low pensionable age of 55 years in most of the ASEAN countries except Vietnam, Laos and Philippines (60) with increasing life expectancy in all the countries is another factor that needs attention as this seriously affects the ongoing viability of such schemes. The higher life expectancy of women and their increasing labour force participation adds another dimension to the provision of adequate social protection in most ASEAN countries.

5.      Social protection schemes in each ASEAN country

An examination of the existing social protection schemes in ASEAN countries according to the three pillar framework outlined by the ILO and advocated by the World Bank indicates serious deficiencies in the range and type of social protection provision throughout ASEAN.

Table 5. Contribution rates for social security schemes in ASEAN countries

Country	Old Age, Disability & Survivor. Contribution rate Insured Person	Old Age, Disability & Survivor. Contribution rate Employer	Old Age, Disability & Survivor. Contribution rate Total	Rate of Contribution for other Programs Insured Person	Rate of Contribution for other Programs Employer	Rate of Contribution for other Programs Total
Brunei	5.00	5.00	10.00	-	-	-
Myanmar	-	-	-	1.50	2.50	4.00
Indonesia	2.00	4.00	6.00	2.00	7.00	9.00
Laos	4.5	5.00	9.50	--	-	-
Malaysia	11.00	12.00	23.00	0.50	1.75	2.25
Philippines	3.33	6.07	9.4	4.58	8.32	12.90
Singapore	20.00	13.00	33.00	-	-	-
Thailand	3.44	3.44	6.88	5.00	5.20	10.20
Vietnam	5.00	10.00	15.00	4.00	6.00	10.00
Cambodia	na	na	na	na	na	na

Social Security Programs In Asia and Pacific, U.S. Social Security Administration

5.1       BRUNEI

The provisions that can be grouped under the first tier are the laws relating on Old Age, Disability and Survivorship passed in 1955 and updated in 1992. A Trust Fund was created which provides protection to citizens and those with permanent residence of 30 years -  a lump sum and a universal pension. There is a universal pension payable to citizens at age 60. Government hospitals provide free medical services to all residents while foreigners have to pay for such services. A state welfare system provides a flat rate benefit over and above the free medical treatment available in government hospitals. Brunei, due to the rich resources of the country has provided its citizens with protection.

The second tier is a mix of provident fund and employer liability legislation. The provident fund withdrawals can be made at retirement or at age 50 years. Sickness and maternity is an employer liability where the employer has to pay the medical costs incurred in government hospitals for treatment of employees. Work injury is an employer’s liability and the employee, or the dependants, are paid a lump sum equal to 48 months of wages subject to a maximum of B$ 9,600 and an additional 25% if the employee requires the constant attendance of another person. There is no unemployment benefit available to employees.

Private insurance companies provide protection over and above the state provided protection.

5.2       MYANMA

Myanmar does not have universal coverage of the population and hence the first tier of social protection is non-existent or available to very few. 

The initial law on social security protection forms the core of the second tier and was implemented in 1956. It covers certain employees in state employment, certain categories civil servants and temporary and permanent employees in private enterprises. All employees in private enterprises with five or more employees are covered. These employees are covered only for sickness and work injury and death during work. There is no old age, disability or survivor’s pension.

The country does not have a proper social protection system.

5.3       CAMBODIA

Cambodia still faces the arduous task of economic rebuilding including the re-establishment of a proper civil service. The only component of first pillar of protection is the establishment of health services both in the urban and rural centres. Foreign assistance and aid organizations are providing the poor and needy with aid to a limited extent.

The second pillar component is made up of the Labour Law which was passed in 1990 and contains provisions for social security protection. The Government is making an attempt to introduce a social security system in the country. It will take at least a decade before this system will provide any from of effective protection.

Protection through private insurance is available on a limited scale and is presently provided by one insurance company.

5.4       INDONESIA

The Government provides free health services to the population, which is available even in rural areas. Government expenditure for health services and social services is equal to 3% of GDP. The level and quality of services differ according to the geography of the country. There are hard core poverty programs and the Government provides food aid to  vulnerable groups while for others, rural road projects provide assistance. These are financed by donor countries and by charities. There is no general social assistance program available to the population. However, when the Government reduced fuel subsidies some two years ago, it also introduced a cash compensation system under which cash is distributed directly to the most poor families through the network of post offices. In addition, the Government is now considering the implementation of a system of Conditional Cash Transfers designed to improve the education and health system participation levels of recipient families. This follows the passage of the National Social Security Bill (RUU Jamsosnas) (SJSN Act No. 40/2004), designed to introduce a national, comprehensive, first pillar Social Security protection system, in the Parliament in October 2004. The law aims to apply the social insurance principle on a comprehensive basis. It covers health insurance, work injury, old-age (provident fund), pensions, and death benefits but has yet to be implemented due to administrative problems. The law further stipulates that the Government will develop social assistance programs for the general public. There are however concerns that there is a serious miss-match between the objectives of the law on one hand and financial, institutional, organizational and regulatory capacities to implement the law on the other.

Little progress has been made and the first tier of protection remains not only limited in scope but provides minimal social assistance.

The second pillar is stronger in Indonesia but still very limited. It provides for extensive protection for the Armed Forces and civil servants and some private formal sector coverage governed by different laws providing varied levels of protection to the covered individuals.

The law covering private sector employees was passed in 1992. Private sector employees in establishments employing 10 or more employees or having a total monthly wage bill of  five million Rp are covered by the Social Security Act. The Act provides protection for old age, survivors and disablement in the form of a lump sum payment from a provident fund. Withdrawals can be made if the individual has been unemployed for six months. The protection provided for sickness and maternity is a medical benefit available for the covered employers where the employer pays for the employee who has to pay for the family to be covered. An employer who provides a better form of coverage can seek exemption. Self employed people in the large informal sector - farmers, fishermen etc and employees who are casual or in small enterprises are not covered.

Despite these provisions, SMERU estimates that these schemes cover only about 30% of those in paid, formal sector employment, that is, no more than 10% of all workers and their families in Indonesia, particularly given the very high levels of non=compliance by employers.

Multinational insurance companies operate in Indonesia providing various levels of coverage to those who can afford the additional protection. The growing income gap between rich and poor as well as the upper middle class is a market for such protection.

In late 2004, Indonesia passed a law on establishing a National Social Security System (SJSN Act No. 40/2004). It aims to apply the social insurance principle on a comprehensive basis. It covers health insurance, work injury, old-age (provident fund), pensions, and death benefits. The law has yet to be implemented due to administrative problems. The law further stipulates that the Government will develop social assistance programs for the general public. There are however concerns that there is a serious miss-match between the objectives of the law on one hand and financial, institutional, organizational and regulatory capacities to implement the law on the other.

5.5       LAOS PDR

This former communist country does not have a strong first pillar. The programs are severely under budgeted and local government agencies have to bear the administrative cost resulting in a very small group of the poor and needy getting social assistance. The provision of basic health services and immunization is the only protection available. Social assistance is provided to the very poor but the extent of this protection is not known.

The development of the second pillar began with a social security scheme implemented in 2001 based on a law approved in 1999. The scheme provides comprehensive coverage for old age, disability, survivorship, work injury, sickness and maternity. In the initial period of five years only lump sums are payable for old age and disabilities. Survivors are paid for a year and the amount is proportionate and limited by age of the recipient. The scheme only covers employees in enterprises employing 10 or more workers and is presently implemented in the capital city only. Self employed people (the informal sector) and a major part of the county are not covered by the scheme.

The state of economic development in the country has not encouraged the growth of the third pillar presently.

5.6       MALAYSIA

A social welfare program administered by the Department of Social Welfare provides limited first pillar social assistance to the needy, disabled, single parents and orphans. The general population receives minimal monthly payouts after stringent means tests and this is for only a year. The program is funded from of the Government’s general revenues which are tax based. Eligibility for benefits for a period of time are means tested and the amount provided is well below the official poverty line. The protection under the first tier is supplemented for Muslims by a well organized Islamic system of religious tithes. The Ministry of Health provides comprehensive health services virtually free. The total expenditure on social services as a percentage of the GDP is 8% and is amongst the highest in the region.

The second tier protection programs have been in place since 1951 and provide protection for old age, disability and survivors in the form of savings in the Employees Provident Organization. This is a defined contribution scheme paying a lump sum based on individual accounts. In addition social security insurance covers the contingencies of work injury and invalidity by an Act passed in 1969. Sickness, maternity and unemployment are employer liability schemes with provisions in the Employment Act 1955. Civil servants are covered for retirement pensions and gratuity under the Pension Act 1949 and have a considerably good coverage that includes medical benefits for the family throughout life time. The Armed Forces receive coverage under a special scheme.

The third tier of private insurance is voluntary and provides coverage, in addition to the statutory protection, for those who can afford for any contingency. The insurance schemes cover life, accident and provide for medical coverage at the primary and hospitalization levels. Foreign workers are compulsorily covered under a special insurance scheme operated by insurance companies for employment injury, death and sickness.

5.7       PHILIPPINES

Government expenditure on health and social services in the Philippines is 6% of GDP. However less than one fifth (1/5) of this is devoted to social services. The Government provides health universally to all citizens with emphasis on child and maternal care and immunization. Basic welfare assistance is provided to the disabled and poor. The amount is low and the provision is for a short term generally after natural disasters.

A social insurance based program covers all employees in the private sector below the age of 60 for old age, invalidity and survivor. A voluntary scheme covers all employees employed by foreign based employers. The civil servants and armed forces have a separate coverage. The scheme provides coverage for maternity, sickness and work injury. The administration of the benefit is with two different organizations where the social security system collects the contributions and provides maternity and sickness benefits. The Philippines Health Insurance Corporation collects the contributions for medical benefit and the Department of Health provides medical benefit to employees and their dependants. Work injury is covered by the social security system where the rate of contribution is 1% of gross wages and temporary, permanent  and survivor’s pension is paid to the injured employee. Old age pension is equal to 300 pesos plus 40% of insured average monthly covered earnings for at least 20 years of contribution. In other cases the number of years of contribution determines the rate of pension. A lump sum is paid to those who do not qualify. Survivors receive a pension equal to the old age pension payable to the employee.

The third pillar of private insurance as in other developing ASEAN countries provides the added coverage for life insurance and for health. The growing private health market in the country has fuelled the growth of private coverage for health.

5.8       SINGAPORE

The first tier in Singapore consists of health expenditure for the provision of health services to the population. The poor and disabled are provided services after a means test and all other citizens make use of their medisave savings in the Central provident Fund to pay for hospitalization. The policy of the government has been to create self reliant citizens and hence social assistance is kept to the minimal. There is a special social assistance program to pay for medical costs in approved government hospitals for unemployed persons, disabled and poor based on some means tests.

The second tier is provided by the Central Provident Fund which has increased its scope of benefit provision and compulsory coverage of the self employed. However, the coverage is based on individual savings with no provisions for social insurance. The Central Provident Fund of Singapore operates four types of individual accounts: an ordinary account to finance the purchase of a home, approved investments, insurance and education; a special account principally for old age savings; a Medisave account to pay for the medical treatment, hospital treatment and medical insurance needs; and from age 55 a retirement account to finance periodic payments from age 62. This is mainly a savings scheme which covers all the employed persons and the self employed earning $ 6000/ annually. The payments upon retirement are lump sum payment of the persons saving and survivors also receive the total balances in all the accounts.

The coverage provided by private insurance schemes in Singapore is relatively large as the economy is well developed and internationalized.

5.9       THAILAND

Thailand’s expenditure on health and other social services is 3.5% of the GDP. The medical welfare services scheme covers 25 million or 41.4 % of the population. There are no universally accessible programs covering the population. A scheme for social welfare provides some protection for the poor, disabled and aged. The assistance is short term and limited in scope. Presently, there are some short comings as the first pillar of the social safety net for all is missing.

The second tier of social security protection in Thailand using social insurance principles had reached a fairly comprehensive level by 2004. In that year the Government introduced unemployment coverage in addition to all the other schemes covering old age, disablement, survivors, maternity, sickness, work injury and family allowances. In ASEAN, Thailand has established the process of providing comprehensive security coverage of the population. The process of building the available protection is relatively new and the coverage as a percentage of the total labour force is less then 20%.

Thailand’s private insurance industry is growing after the 1997 crisis and provides coverage for medical services provided by private hospitals. The country has also developed medical tourism and this has supported the growth of private insurance protection for the growing upper middle class.

5.10     VIETNAM

The protection given to invalids and war veterans is comprehensive as well as people affected by Agent Orange. Others categorized as poor have some support from the welfare department. They receive free medical assistance in government hospitals. Social assistance programs are also carried out through state owned enterprises. The organization for the provision of health services to the sick and aged in rural areas is supported by the former communist framework of co-operatives, production teams and brigades existing in the rural sector.  

The social insurance system which is the second tier was introduced in 2002 and covers all employees in the private and government sector who have an employment contract of more then three months. The self employed are excluded from these schemes. As this protection has just started, no pensions will be paid until year 2017 when the minimum qualification of contributions for old age or survivor’s pension is fulfilled. There is coverage for medical benefit and all employees, students, farmers and salt workers are covered while self employed people can voluntarily join the scheme. The scheme provides only medical benefit. However, cash benefits for sickness and maternity are provided to employees with a generous payment of 120 days for maternity and in addition a birth grant. Sickness benefit for workers is provided through government hospitals and the cost is limited to seven million Dong. The administration is according to various groups with some contributions being paid by the Government and the level of benefits is according to the groups. The work injury law which was amended in 2003 includes Government employees and the armed forces. The protection provided is for temporary, permanent disablement and death. The rate of payment is generally generous and in accordance with the groups of disablement while survivors receive 40% - 70% of the worker’s wages as a monthly pension including a lump sum.

Private insurance is at its infancy as the concept is new in a former communist country.

6.      Second pillar - old age protection in ASEAN countries

6.1       Core objectives

This discussion is focused on retirement protection in those ASEAN countries that have had a second pillar old age protection system in place for a period of time. These countries are Singapore, Malaysia, Thailand and Indonesia. Other ASEAN countries have begun schemes (Laos, Vietnam, Brunei) while others are in the process of reforming their schemes. The core objectives of any social security system, for both individuals and government, are to smooth consumption over the lifetime; to provide an insurance particularly against the  risk of outliving accumulated savings; redistribution of income; and poverty relief. However, these have to be balanced with economic growth, labour market efficiency and flexibility, and against other needs like health, education, and infrastructure.

All employees face an individual risk which concerns the probability that accumulated savings and retirement benefits may be inadequate to last until death. In addition there is also the risk concerning the probability that the value of retirement benefits may not be protected against inflation during the retirement period. These risks will have to be addressed by planners who have to balance the contributions paid to be inline with affordability by the individual and also the cost of labour to the employer. This implies that benefits promised must evolve overtime as affordability grows and as the economy prospers.

6.2       Core functions of social security funds

There are four core functions which any social security organization providing effective old age protection must perform  These are:

i)              reliable collection of contributions, taxes and other receipts, including any loan payments; payment of benefits for each of the schemes in a timely and correct way;

ii)             securing financial management and productive investment of provident and pension fund assets;

iii)            maintaining an effective communication network, including development of accurate data and record keeping mechanisms to support collection, payment and financial activities;

iv)           production of financial statements and reports that are tied to providing effective and reliable governance, fiduciary responsibility, transparency, and accountability.

Organizational reforms need to be aimed at performing the above four tasks in a more professional and effective manner. Most schemes in ASEAN countries do not provide adequate protection either in terms of coverage or the range of risks covered. The schemes are mainly provident funds as in Malaysia, Brunei, Singapore and Indonesia. The contribution rate ranges from 33% in Singapore to 6% in Indonesia. In Thailand, Vietnam, Laos and Philippines where the pension schemes are in their early stages, replacement rates and rates of contribution are low.

6.3       An ASEAN model?

There has been considerable discussion and exchange of experience with social security in ASEAN countries. However, no single idea, system or model has emerged. There has however been appreciation that from a practical policy point of view, a multi-tier framework is better able to address various social security risks than reliance on a single tier.

The World Bank’s report in 1994 suggested a three pillar/tier framework, however, accumulated evidence and re-thinking since then has led the Bank to suggest a five pillar/tier framework for old age retirement. However on a macro level, the ILO three tier framework is most relevant.  Recognition should be given to the following in the design of the social protection system for old age:-

i)              That different target groups require different combination of pillars; and that basic pension or at least social assistance financed from general budgetary revenues, the basic Pillar, is essential for the lifetime poor and other groups that may be affected by economic down turns. This group may constitute as much as 30 percent of the total in some developing countries. However, successful poverty eradication strategies may reduce this figure.

ii)             That private management, investment allocation over a wide variety of physical and financial asset classes, along with international diversification may not be suitable for all countries.

iii)            That  the role of family, community, physical assets (such as housing) and labour market activity after retirement should also receive emphasis.

iv)           That, in the final analysis the contextual aspects of each country especially its state of economic and social development, and its cultural and political sensitivities must be given substantive consideration in the type of pension or provident fund design, administration, monitoring and governance.

6.4       Public sector and private sector provision

ASEAN countries exhibit considerable differences in their social security protection systems. The common ground is that each country has a separate pension and provident fund organization for the private and government sector respectively. The systems for these two sectors are not integrated. The nature of the formal social security systems is historical and with changes and modifications in the last decade.

Among the ASEAN countries, Singapore and Malaysia essentially rely on a single, mandatory savings pillar for retirement financing. In these two countries civil service pensions are of defined-benefit type based on a formula incorporating years of service, salary level, and other factors. Their pensions are adjusted from time to time and there is no consistent policy. In Singapore, only top civil servants are covered by the pension scheme, while in Malaysia all civil servants are covered. Malaysia’s method of financing its civil service pensions is through the budget and with increases in the salary scales of the civil service is likely to come under strain unless funding is provided. Malaysia and Singapore however do not accept defined benefit and social risk pooling method for private sector employees. The mandatory savings pillar provides individual with some form of savings and leaves individuals open to longevity and inflation risks.

Philippines and Thailand have accepted the principle of social insurance and defined benefit method for both the private sector and the government employees. In 2004, Indonesia passed a law on establishing a National Social Security System (SJSN Act No. 40/2004). It aims to apply the social insurance principle on a comprehensive basis. It covers health insurance, work injury, old-age (provident fund), pensions, and death benefits. The law has yet to be implemented due to administrative problems. The law further stipulates that the Government will develop social assistance programs for the general public. There are however concerns that there is a serious miss-match between the objectives of the law on one hand and financial, institutional, organizational and regulatory capacities to implement the law on the other.

In the Philippines, the Social Security System (SSS) and the Government Service Insurance System (GSIS) provide a comprehensive set of benefits to covered workers. However the coverage is generally low.

Thailand decided to introduce social insurance based pensions for private sector workers in the midst of the 1997 crisis. The first pensions to private sector employees however will not be paid until 2013. Thailand has scaled its system keeping affordability in mind. In addition to unfunded defined benefit pensions, civil servants in Thailand also compulsorily belong to a provident fund called Government Pension Fund (GPF). Under the 1987 Act, Thailand requires all firms listed on the stock exchange to operate provident funds but does not require employees to join. Thailand’s Social Security Organization (SSO) provides comprehensive coverage of various short-term and long-term risks including old age pension, disability, sickness and maternity, work injury, health benefits, survivors’ benefits and unemployment. Since 2004, Thailand has also introduced unemployment insurance. Thailand is unusual in providing such an array of benefits under a single organization, i.e. SSO. Among the countries in ASEAN, Thailand therefore has made relatively more progress towards a multi-pillar system than other countries.

Laos PDR has introduced a social security pension system in a small geographical area the coverage and acceptance is low. The inability to enforce the law by the social security has reduced the coverage by the scheme.

Vietnam has introduced comprehensive social security coverage and the pension scheme will mature in 2017. Vietnam also suffers the problem of enforcement and consequently low coverage. 

7.           Challenges

Social security arrangements in ASEAN face many challenges. These may be grouped under coverage, adequacy, administrative efficiency, regulation, transparency, and good governance.

7.1       Coverage

The rate or extent of coverage has been relatively low (about a quarter of the labour force) in countries such as The Philippines, Indonesia and Thailand, where the formal sector is relatively small. In Malaysia, the Employees Provident Fund (EPF) covers one in two workers. In Singapore, three fourths of the labour force is covered. But as about a quarter of the labour force is foreign, and these workers are statutorily not included in the Central Provident Fund (CPF), the coverage may be regarded as high. In Indonesia, Laos and Vietnam the enforcement mechanism has prevented the coverage of the formal sector. The figures of coverage in Indonesia are (8%), Laos (15%) and Vietnam (15%).

Labour force coverage by social security old age schemes

Country	% of labour force covered
Malaysia	50
Singapore	75
Indonesia	8
Laos PDR	15
Vietnam	16

The table above suggests that in any employer-employee relationship based systems, the level of formal sector employment acts as a constraint on coverage. Two implications emerge:

1.         Formal sector employment needs to be increased with the law being clear about who is covered.

Good management systems should be developed to ensure that wages reported are consistent with actual wages paid to members. Formal sector coverage can also be expanded through improved administration and compliance. A unique identification number for the members and strong IT support are essential.

2.         The needs of informal sector workers must be addressed. This however poses difficult challenges, particularly as such workers are found in both urban and rural areas, and the sector is very heterogeneous in terms of income levels, occupations, and a willingness to be covered. Therefore, it is more difficult to cover as there is a weak administrative structure to reach and to enforce the provisions and consequently there are high administrative costs.

Initial steps need to be taken to provide coverage at least to those where there is some form of formal structure. In most countries there are identifiable occupations which employ large numbers of people. These may include fisherman from a particular area, small tobacco growers, and handicraft workers concentrated in a small area.

Equality of treatment of foreign workers.

Coverage of workers employed in foreign countries is also an important issue. Philippines, Thailand, Vietnam, Cambodia and Myanmar are major labour-exporting countries. Malaysia, Brunei and Thailand, along with Singapore are major importers of foreign labour from the region. There is generally no equality of treatment of foreign workers in the ASEAN countries. The issue is more complex as many foreign workers have entered the county illegally or stayed to work after being allowed in on social or student visas. Addressing the social security needs of these workers therefore requires a regional agreement. ASEAN Social Security Association (ASSA), formed in 1998, might be an appropriate forum to discuss the possibility of a regional agreement on minimum coverage standards and reciprocal arrangements.

7.2       Adequacy

A pension system needs to address not only poverty alleviation in old age, but also the maintenance of the accustomed standard of living, adjusted to age. It should be stressed that the protection could be from many sources and replacement rates from pensions could be supplemented from different pillars, family support, savings, assets, insurance.

The dual nature of social security systems in ASEAN has meant that, in general, civil servants (including armed forces personnel) have obtained reasonably high replacement rates, with longevity and inflation risk protection. This provides an additional attraction to many to join the civil service. Thus in Malaysia, when government salaries are revised, a similar revision is also undertaken for the pensions of the retired civil servants. This suggests that the main challenge of adequacy concerns private sector employees as studies have shown that 82% of retirees exhaust their savings in three years.

A weak first tier financed from the budget

Social assistance or basic pensions financed through the budget are essential for the lifetime poor both urban and rural. In none of the ASEAN countries, does the first-pillar play a significant role. With the exception of the Philippines, Myanmar, Laos, Cambodia and Vietnam the fiscal position of other countries is comfortable. Thus, the fiscal constraint is not a factor in application of the first-pillar in these countries. The main constraint is the current socio-political norms which do not regard provision of a floor level of income as an essential element of a good society. In none of the ASEAN countries does a first pillar involving a social pension financed from budgetary revenues exist. For the lifetime poor, this is the most important pillar. As mentioned under the country analysis, in affluent Singapore, social assistance is deliberately kept at below even the bare subsistence level. To receive even this meagre amount, extremely stringent criteria are applied. In Malaysia, the provision of welfare assistance is limited for a short time period and there are stringent tests before approval is given. The amount given is small and is not sufficient to be useful.

7.3       Administrative efficiency

In Malaysia and Singapore, private sector workers are covered under the mandatory savings schemes. There are two phases in such schemes, the accumulation phase and the payout phase. In the accumulation phase the balances at retirement depend on:

·         the contribution rate,

·         the wage base,

·         the extent of pre-retirement withdrawals,

·         the real interest rate credited to member’s accounts.

At the time of retirement, arrangements must be made for a phased payout.  This is because a lump sum payment is not consistent with the primary rationale of providing old age protection. In Malaysia and Singapore, substantial pre-retirement withdrawals have tended to severely impact on the accumulation of balances, even though contribution rates and wage growth have been high.  Such withdrawals, as a proportion of contributions, averaged around 40 percent in Malaysia, and around 70 percent in Singapore for a prolonged period

As provident funds grow they pose new problems to the economy. In Malaysia, the EPF balances are wholly invested domestically. Some consideration is, however, being given to investing abroad as at current accumulation rates, the EPF balances will soon outstrip stock market capitalization. The risks of overseas investment need to be considered in the light of inexperience and the higher volatility and risk of global investment. The EPF investments are well-diversified among domestic asset classes. It is particularly noteworthy that since 1991, the share of Malaysian Government Securities has declined significantly and is now mandated at 40% while the share of equity investments has correspondingly increased and is 25% of the total. The size of domestic capital markets is acting as an increasing constraint on EPF investments. The Malaysian Government has permitted EPF to invest up to RM 1 billion out of total balances of nearly RM 250 billion abroad. The EPF is in the process of operationalizing such investments.

In Philippines and Thailand, provident and pension fund assets are currently wholly domestically invested. As of September 2003, the SSS in the Philippines had total assets of P 171.3 billion, and total investments of P 155.4 billion. The allocation was: 29.1 percent in equities; 26.3 percent housing loans; 19.6 percent salary loans and 5.0 percent real estate. As at June 30, 2003, GSIS had total assets of P 245.9 billion, substantially higher than for the SSS. The SSS membership as of September 30, 2003 was 24.9 million. In contrast, the GSIS membership was 1.4 million. For the January-September 2003 period, the average monthly pension paid by the SSS was P 2526 (USD 45), about half of per capita income.

In Thailand, in 2003, the GPF’s portfolio of Baht 230 billion (US$ 5.5 billion) was 80 percent in fixed income instruments; 15 percent in equities; 3 percent in real estate, and 2 percent others. There has been considerable pressure on the GPF under the current Government to support the Thai stock market and invest in projects deemed of national importance by the Government. Thailand is considering investing a small proportion of GPF balances abroad. In the case of Singapore, the CPF balance sheet shows that all the balances are invested in non-marketable government securities. The interest on these securities is determined retrospectively as a weighted average of one year fixed deposit rates and savings account rates of the four domestic banks.

Another issue and challenge is the need for high levels of administrative and compliance efficiency for the following reasons:

·         Any real cost savings in administration translate into higher rates of return to members. Similar savings in compliance costs to employers and employees result in a positive impact on labour markets as these reduce the real burden of statutory levies.

·         Compliance costs may affect the default rate by employers, and the willingness of employees to cooperate in circumventing statutory provident and pension fund contributions. These indirectly impact on the effective coverage of social security schemes.

·         High degree of administrative and compliance efficiency is essential for sustaining the legitimacy of social security arrangements. The design of provident and pension fund schemes has an important bearing on administrative costs.

The importance of good governance in both private and public sector organizations has been increasingly recognized. In the case of provident and pension funds, the relevant areas are:

·         the composition of the Board and its access to expertise;

·         fiduciary responsibility, transparency and accountability;

·         disclosure norms; and

·         actuarial analysis.

Individual account based savings schemes, whether mandatory or voluntary, require a sophisticated regulatory regime and financial and capital markets.

Provident and pension funds require Board members who are independent minded and competent. They should be highly conscious of their fiduciary responsibilities. The relevant laws and regulations should give high priority to such responsibilities.

There should be tripartite representation on the Board (government, employees, and employers), and provision for experts.

However, provident and pension fund organizations tend to be closely tied to the respective ministries.

·         In Malaysia, the EPF is under the Ministry of Finance;

·         Singapore’s CPF is under the Ministry of Manpower;

·         the SSS and the GSIS in The Philippines are under the Office of the President; and

·         Thailand’s SSO is under the Ministry of Labor and Welfare, while the GPF is under the Ministry of Finance.

Board appointments tend to be made by the Minister (or the President). Given the political economy prevailing in these countries it has been a major challenge to find Board members who are both competent and independent-minded. In these countries, the requirement that Board members must give high priority to their fiduciary responsibilities towards members is fairly weak. The governance structure of the CPF, including its Board composition (and investment policies), reflect these characteristics. In The Philippines, the leadership and policies of the SSS and the GSIS have

 been closely tied to the prevailing political power structure. Thailand’s SSS and GPF operate within the governmental structure. GPF aspires to be a professional organization with good governance practices but its autonomy is constrained by governmental goals and objectives. In Malaysia, the investment panel of the Employees’ Provident Fund (EPF) is separate from the Board and reports directly to the Minister of Finance. While this permits introduction of outside expertise in investment decisions, it also dilutes the Board’s authority and autonomy. In Indonesia the appointment of Board members for JAMSOSTEK has been a problem and a tax on the profits from investments is paid to the Government thus reducing the amount available to members. The appointment of Board members in Vietnam, Laos, and Brunei is political, based on employer and employee representatives being selected from associations and unions that support the political system.

7.4       Independent regulation

In none of the ASEAN countries is there an independent regulator for provident and pension funds. The auditor general is the only authority that keeps an eye on the investments and expenditure of social security organizations. Actuarial studies by the SSS of the Philippines estimate that at current levels of contribution rates, benefits and investment income, the SSS will become insolvent by 2015. But there is no requirement for authorities, whether the Congress, the President’s office, the SSS Board or any other agency to act on this publicly available information. In any social insurance scheme, matching of assets and liabilities is an essential part of good governance. Thai law does not indicate what the fiduciary duties of the Provident Fund Committee are. It also does not have a Trust Law. The lack of a regulator also hampers gaining a system-wide perspective of the social security systems in these countries. There is considerable room for improvement in the timeliness and accessibility of data concerning the operations of provident and pension funds in ASEAN countries. The transparency and accountability levels therefore need to be improved. Again, a regulator would be better able to enforce guidelines concerning these aspects.

7.5       Transparency, accountability & good governance

The transparency and accountability of civil service schemes are especially low in all the countries. There are no published statistics on the number of government employees, the number of pensioners, dependants and the month amount of the pension.  It is strongly suggested that the civil service schemes in ASEAN countries be subjected to regular actuarial evaluation and that these be made publicly available to all the stakeholders. Although the government carries out such reviews they are not available to the public.

At a future date, these schemes should also come under the purview of a pensions regulator. It should be stressed that in developing countries, pension regulators also need to play a developmental role. This involves enhancing pension economics literacy among the policymakers as well as the general public; and facilitating orderly development of different components of the pensions industry. Co-ordination between the pensions regulator, the insurance industry regulator, and the stock market regulator is essential.

8.      Conclusion and recommendations

There are several issues and challenges that emerge from the analysis of social security systems in ASEAN. In each country the local contexts, political, demographic and other conditions differ and hence the challenges and issues also differ. However, there are enough similarities in the prevailing economic and social challenges for ASEAN to take a more determined interest, and perhaps it is the Ministers for Social Welfare and Social Development (or their equivalent) who should lead this process.

ASEAN countries and their governments need to review their present systems and consider what policy changes are necessary to implement better social security protection provisions in each ASEAN country.

Each country will first need to address the limitations of their respective system.  

8.1       Commitment to developing the first pillar

The first concerns the need for a multi-tier social security system. The need for multi-pillar system is particularly relevant for Malaysia and Singapore, Brunei, and to a lesser extent The Philippines. Thailand, Laos PDR, Vietnam, Myanmar and The Philippines need to strengthen the first-pillar of social assistance or flat rate universal income support financed from the budget. The non existence of the first pillar and safety nets will affect poverty eradication programs in the future due to challenges imposed by economic changes.  Indonesia needs to carefully consider how to translate ambitious goals incorporated in the 2004 law into effective outcomes.

8.2       Second pillar issues

The second concerns the need for professionalism in designing and managing the second pillar, providing protection for short term and the long term contingencies. There is a need to upgrade the administration of all the social security organizations including provident and pension fund organizations.

i)              The primary objective of any provident or pension fund is to provide maximum retirement income security for members. Trying to provide for too many needs makes the design and the administration requirements more complex and leads to a much greater need for highly professional staff.

ii)             Governments need to establish a sound governance structure, and in particular to spell out clearly the fiduciary responsibilities of staff and Boards in the current socio-political environment.

iii)            The importance of maintaining quality of administration and ensuring a high level of compliance by employers, employees and the government in the provision of protection cannot be understated. Governments need to ensure that the social security implementing authority has the powers to implement enforcement.

iv)           The financial guidelines implemented by the various ministries of finance need to ensure that provident and pension funds need to utilise modern portfolio management principles and practices to perform the investment function properly. The investment function will become increasingly complex and appropriate strategies, including international diversification may need to be considered. The availability of experienced, honest and reliable investment managers is another area of concern in ASEAN countries. Strategies to reduce or prevent political interference directly or indirectly in the investment of the funds need to be given priority.

v)            Another aspect of professionalism concerns transparency, accountability, and timeliness of information provision to the stakeholders and other relevant parties. The management of social security organizations, provident and pension fund organizations in these countries should appoint reliable outside advisory committees. Their role would be to convey current stock of knowledge and relevant market realities to the Board, thus improving policy making and practices. These committees may be particularly helpful in facilitating the investment function and identifying the direction of changing social needs.

8.3        Need for a coordinated approach to social protection

The third concerns the need for a coordinated approach to social protection. In the path of progress towards a multi-pillar system, it will be essential to ensure that:-

i)              There is inter-ministerial, departmental and organizational coordination. This is relevant as there are different agencies enforcing the provisions, others making cash payments and others providing services.

ii)             Currently, different rules and standards apply to private sector schemes on the one hand and civil service schemes on the other. Often the same provident or pension fund organization acts as a service provider as well as supervisor or regulator of the exempted provident and pension fund plans.

iii)            The responsibility for different elements of a social security system is diffused with little coordination. There is therefore a strong case for considering establishing a regulator for the pension sector. The regulator should not only require professionalism from all social security organizations, provident and pension fund organizations, whether public or private, but also ensure that progress towards a multi-pillar system proceeds in a rational and sustainable manner. This will not be an easy task and political economy considerations will undoubtedly play an important role.

8.4          Need to develop research capabilities

The fourth concern is the urgent need to develop research capabilities in the area of social security. In none of the ASEAN countries is there an institution of higher learning providing specialized courses in social security protection.

8.5       Need to publicise the principles of social protection

The fifth is the need to publicise the principles of social protection and their importance to the general population. There is an apparent lack of knowledge in the general public of:-

·         The protection systems available to them;

·         The mechanism by which these systems work; and

·         The long term benefits of such systems

An ineffective and inefficient administration tends to create bad will and an atmosphere of fear in the general population who in turn either reject the protection or become indifferent. There is a need for public education on their rights to social protection.

8.6       Commitment to implementing social safety nets through the development plans of the countries

Finally, the commitment to implementing social safety nets and social security systems needs to be shown through the development plans of the countries. Long term political commitment to consistently develop and upgrade systems of social protection is the need of the times and can be achieved alongside economic development. Social protection cannot be postponed for it is the protection of the future developed from today.

References

Asher, M.G., “Southeast Asia’s Social Security Systems: Need for a System-wide

Perspective and Professionalism”, International Social Security Review, 55, 4 (2002): 71-88.

Asher, M.G. and A. Nandy, “Governance and Regulation of Provident and Pension

Schemes in Asia” in M. Ramesh and Michael Howlett (Eds.), De-regulation and its

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