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.
-----------------------------------------------------------------------------------------------------------------
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.
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