Avenues for Strengthening Social Protection Systems

This section briefly enumerates various possible avenues for strengthening social protection systems, with examples from Asian countries. Depending on the context, objectives, financial, fiscal and institutional capacities each Asian country can combine these avenues to structure an appropriate strategy for strengthening its social protection system.

Avenue 1: Modernizing and professionalizing existing formal social security organizations in performing core functions.

Each provident and pension fund must perform five core functions with reasonable degree of competence and efficiency (Ross 2004). These are:

1. reliable collection of contributions, taxes and other receipts (including any loan payments in the security systems);
2. payment of benefits for each of the schemes in a timely and correct way;
3. securing financial management and productive investment of provident and pension fund assets;
4. maintaining an effective communication network, including development of accurate data and record keeping mechanisms to support collection, payment and financial activities; and
5. production of financial statements and reports that are tied to providing effective and reliable governance, fiduciary responsibility, transparency, and accountability.

There are several examples of the initiatives taken by various provident and pension funds in Asia designed to improve the performance with respect to one or more core functions. Countries such as Philippines, Singapore, and Malaysia have been making increasingly sophisticated use of information technology to improve administration and compliance efficiency, and to generate management information systems which are conducive to better decision making.

PRC, Thailand and Malaysia have become more aggressive and professional in investing social security funds. These initiatives could potentially lead to higher returns though the risks are also likely to be greater.¹⁶

Avenue 2: Parametric and/or systemic reforms of some components of existing systems.

Parametric reforms involve changing one or more parameter of the pension system, such as altering the pension benefit formula, increasing the retirement age, and changing pre-retirement withdrawal provisions. A systemic reform involves substantive changes in such areas of the pension system as basic philosophy (such as a shift from social risk pooling to individuals bearing pension risks), or pension methods (such as a shift from a DB to DC method of pensions).

The examples of parametric and or systemic pension reforms include the following:

• Singapore has introduced a deferred annuity scheme called CPF Life to help address longevity risk. CPF Life does not increase the resources available to an individual in retirement but changes the timing of withdrawals, and introduces a private risk-pooling insurance scheme financed by the members themselves.
• New Zealand has introduced a portable, DC scheme called the ‘Kiwi Saver Scheme', to help manage additional resources needed to address longevity risks.
• Several countries such as Japan, Singapore, and Malaysia are encouraging retired individuals to be at least partly active in the labor market through a variety of measures.
• Many countries such as Fiji, Philippines, and India are tightening up on pre-retirement withdrawals from the provident and pension schemes. This will ensure that the power of compound interest is harnessed for a longer period.
• A shift by India's civil service pension scheme from DB to DC method is an example of a systemic reform.

Avenue 3: Introducing or Expanding retirement income transfers which do not entirely depend on formal labor market relationships or entirely on contributions by members.

There is wide variety of retirement income transfers. These include social pensions, and co-contributions by the state. As noted in Section 2, for poverty mitigation, social assistance programs targeted at the poor of all ages may be more appropriate. There are also conditional cash transfers,¹⁷ which may be appropriate in some circumstances.

Examples from Asian countries include:

• Thailand's 30-Baht Scheme (also known as the Universal Coverage Healthcare Scheme), introduced in 2001, has not only been continued but expanded with greater state support, covering nearly 50 million Thai citizens. By 2006, per capita expenditure on this scheme was B1,659 per person, while corresponding expenditure was B1,738 for health benefits under the Social Security Office schemes, and B8,785 under the Civil Servants Medical Benefits Scheme (Iwana 2009).
• In stimulus packages of several countries, such as the PRC and India, there is a significant social assistance and retirement income transfer component.
• In 2007, the Beijing municipal government extended coverage of old-age benefits to all elderly citizens under its jurisdiction. This may be regarded an example of a social pension.
• Korea's 2007 initiative expects to cover 70% of all senior citizens through a basic old-age pension financed by the government.
• Indonesia has provided cash transfers to cushion the burden on low-income people from restructuring its fuel subsidy scheme.

Avenue 4: Other Initiatives

The examples of other initiatives which may contribute to strengthening of the social protection systems in Asia include the following:

• Countries such as PRC, India, Malaysia, Thailand, and Philippines are encouraging occupational private pension plans and/or individual retirement accounts to broaden the sources of retirement financing and risk sharing.
• Countries such as Bangladesh, India, and Indonesia are encouraging linking of pension with microfinance. Policy makers hope that this will also assist in enhancing financial inclusion and strengthen social cohesion.
• Korea and Singapore are experimenting with reverse mortgage schemes to use housing equity for financing retirement.

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