Chapter IV. Form and rate of benefit

I. Form of benefit

128. The main objective of any system of old-age protection is to guarantee protected persons who have reached a certain age reasonable means of subsistence for the rest of their lives. Seen from this angle, the most useful form of old-age benefit from the point of view of social security is a periodical payment. In general, a lump-sum payment is unlikely to meet the real needs of beneficiaries upon retiring and cannot fully provide for their old age. This is why the vast majority of old-age protection schemes provide benefit in the form of periodical payments, in accordance with Article 28 of Convention No. 102 and Article 17 of Convention No. 128. An exception to this, however, as we have seen above, is the benefit provided under certain provident funds in which a lump sum is paid; although such funds are certainly useful in developing countries, payment of a lump sum does not meet the above-mentioned requirements laid down by Conventions Nos. 102 and 128.

II. Rate and calculation of benefit

1. International standards

129. Unlike the social security Conventions adopted before the war, Convention No. 102 prescribes the minimum rate for the various benefits it provides for. This is certainly one of the most innovative aspects of this instrument. Convention No. 128 largely reproduces the provisions of Convention No. 102 as regards the calculation of benefit, although it prescribes a higher rate of benefit.

Rate of benefit

130. Under the schedule appended to Part XI of Convention No. 102, concerning periodical payments, old-age benefit for a standard beneficiary -- a man with a wife of pensionable age (Endnote 1) -- should amount to 40 per cent of a reference wage. (Endnote 2) The percentage is increased to 45 per cent in the schedule appended to Part V of Convention No. 128. These percentages may, however, be reduced by up to ten points if the benefit is secured at least to protected persons who have completed a qualifying period of less than 30 years of contribution or employment or 20 years of residence normally taken into account by the Conventions (paragraphs 1, 3 and 4 of Article 29 of Convention No. 102 and paragraphs 1, 3 and 4 of Article 18 of Convention No. 128). Paragraph 22 of Recommendation No. 131 advocates a rate of 55 per cent; (Endnote 3) moreover, Paragraph 23 recommends that national legislation fix minimum amounts of old-age benefit so as to ensure a minimum standard of living.

131. Recommendation No. 131 also provides that the amount of old-age benefit should be increased in certain circumstances. Paragraph 18 of the Recommendation, as we have seen in Chapter III, advocates an increase in benefit in the event of deferred retirement. In addition, under Paragraph 25, increments in benefits or supplementary or special benefits should be provided, under prescribed conditions, for pensioners requiring the constant help of another person.

Methods of calculation

132. Conventions Nos. 102 and 128 provide for three formulas to ensure that the rate of benefit reaches the level they prescribe. These three formulas take into account the methods for calculation of benefit adopted by different States: (a) the amount of benefit is based on the previous earnings of the beneficiary (Article 65 of Convention No. 102 and Article 26 of Convention No. 128); or (b) a uniform rate of benefit or one which includes a prescribed minimum amount, compared in the Convention to the wage of an ordinary adult male labourer (Article 66 of Convention No. 102 and Article 27 of Convention No. 128); or (c) a uniform rate of benefit is fixed as in the preceding case, but the amount may be reduced to the extent by which the other means of the beneficiary's family during the contingency exceed a prescribed amount (Article 67 of Convention No 102 and Article 28 of Convention No. 128).

133. As the Committee stressed in its general survey carried out in 1961, these various formulas were considered to provide reasonable equivalence in the obligations arising under the instruments. (Endnote 4) The decision as to which of these formulas to use will depend, in principle, on the method of determining the extent of national coverage. Article 28 of Convention No. 102 and Article 17 of Convention No 128 provide that old-age benefit shall be calculated according to formulas (a) or (b) above where classes of employees or classes of the economically active population are protected, and according to formula (c) above, where all residents or residents whose means during the contingency do not exceed prescribed limits are protected. In a country where the social security system as a whole allows all of the requirements as to scope laid down by these instruments to be met, it should be possible, in principle, to apply any one of the above three formulas in the calculation of benefit; the choice will depend on the method of calculation of benefit under the scheme concerned. (Endnote 5)

134. It should be noted that in a country where, in addition to the old-age benefits awarded within a general scheme, benefits are provided under supplementary schemes, whether compulsory or voluntary, the sum of these various benefits may be used for purposes of calculation of benefit in so far as they meet the other requirements laid down by the instrument, particularly as regards coverage and conditions of entitlement. (Endnote 6) Thus, a State where a scheme combines a non-means tested flat-rate benefit and a graduated supplementary benefit which is related to earnings, can use either its basic benefit scheme for all residents by applying Article 67 of Convention No. 102 (Article 28 of Convention No. 128) or its combined benefit scheme for employees or classes of the economically active population by applying either Article 65 or Article 66 of Convention No. 102 (either Article 26 or Article 27 of Convention No. 128). (Endnote 7)

135. Where Article 65 of Convention No. 102 or Article 26 of Convention No. 128 is applied, the rate of old-age benefit plus any family allowances (Endnote 8) must amount to the percentage required by the instruments (40 per cent and 45 per cent respectively) of the beneficiary's previous earnings, including any family allowances. Under paragraph 2 of these Articles, previous earnings are calculated according to rules which are "prescribed" by or in virtue of national legislation, which allows for a wide margin of flexibility. In systems where the persons protected are arranged in classes according to their earnings, their previous earnings may be calculated from the basic earnings of the classes to which they belonged.

136. Most national systems place a ceiling on the amount of benefit or on the earnings taken into account for the calculation of benefit. In order to ensure that this upper limit is not too low, reducing the extent of protection in practice, both Conventions stipulate that the maximum limit prescribed by national legislation should be fixed in such a way that the percentages required by the instruments are attained where the previous earnings of the beneficiary or his bread-winner are equal to or lower than the wage of a skilled manual male employee (paragraph 3 of Article 65 of Convention No. 102 and of Article 26 of Convention No. 128). The Conventions contain provisions defining a skilled male manual employee (Endnote 9) as well as his wage, (Endnote 10) which must be calculated on the same time basis as his previous earnings, the benefit and any family allowances. In order to obtain comparable statistical data, the Committee of Experts expressed the wish that governments use the wage before deduction of taxes and social insurance contributions as the reference wage when communicating the statistical information required for the calculation of benefit. (Endnote 11)

137. According to Article 66 of Convention No. 102 and Article 27 of Convention No. 128, the rate of benefit, increased by the amount of any family allowances, must attain, for the standard beneficiary, the percentage of the wage of an ordinary adult male labourer required by the instruments. (Endnote 12) As we have said, this formula applies in particular to systems under which benefits are awarded at a uniform rate irrespective of the beneficiary's previous earnings. This method may also be used where benefits, although based on the beneficiary's previous earnings, include a minimum rate guaranteed to all beneficiaries, which is often the case as will be seen below in the examination of national situations. The minimum guaranteed rate may thus be considered as benefit which is fixed at a uniform rate.

138. The formula provided for by Article 67 of Convention No. 102 and Article 22 of Convention No. 128 is designed to allow for systems which cover all residents, by definition, and under which benefits may be reduced or suspended depending on the beneficiary's other means. The rate of the benefits normally awarded under such systems should be fixed according to a prescribed scale and may only be reduced if the other means of the beneficiary's family exceed prescribed amounts. The Conventions do not specify these amounts, leaving them to be determined by legislation and the competent authorities, bearing in mind that such amounts must be "substantial" in order for a reduction to be allowed. The total of the benefit and any other means for which a deduction is allowed by the Conventions should be sufficient to maintain the family of the beneficiary in health and decency. Moreover, in order to provide a basis for comparison with the international standard, this total amount should not be less than the amount of benefit calculated in accordance with the requirements of Article 66 of Convention No. 102 (Article 27 of Convention No. 128). In addition, subparagraph (d) of Article 67 of Convention No. 102 and of Article 28 of Convention No. 128 allows governments which so wish the option of an overall evaluation of the benefits paid under their schemes. This subparagraph provides that the rate of benefit shall be considered to have been attained if the total amount of benefits paid under the scheme concerned exceeds by at least 30 per cent the total amount of benefits which would be obtained if the benefits, calculated in accordance with Article 66 of Convention No. 102 or Article 27 of Convention No. 128, had been awarded under a scheme covering 20 per cent of all residents, in the case of Convention No. 102, and 75 per cent of the economically active population in the case of Convention No. 128. Obviously, such a calculation presupposes an estimate of the number of beneficiaries to whom benefits would be paid under suh a hypothetical system (an estimate of the "beneficiaries/insured persons" ratio). (Endnote 13) This flexibility clause allows governments considerable leeway in fixing the amount of benefit awarded individually, provided that the overall evaluation of benefit meets the requirements of these instruments under subparagraph (d) of Article 67 of Convention No. 102 and Article 28 of Convention No. 128. (Endnote 14)

139. It should be recalled that the provisions of the instruments under consideration are not intended to oblige States to adhere to a certain method of calculating the rate of benefit provided for by national legislation; States are allowed to adopt their own rules and methods for calculating the rate of benefit paid under their national schemes, provided that the result of their calculations meets the requirements as to amount of benefit laid down by the instruments. The three formulas outlined above and the parameters they apply, such as "wage of the skilled manual male employee" and the "wage of the ordinary adult male labourer" are intended only to provide a basis for comparison between national situations and the requirements of the Conventions. Therefore, contrary to what some governments appear to believe, (Endnote 15) any State for which these Conventions are in force may avail itself of any one of these formulas for purposes of international comparison, without, however, being obliged to introduce them in its national legislation or practice.

Length of the period to be taken into account in the calculation of the benefit

140. Under the terms of Article 29, paragraph 1(a), of Convention No. 102 and Article 18, paragraph 1(a), of Convention No. 128, the percentages required by these instruments should be secured to a person protected who has completed in accordance with "prescribed rules" (Endnote 16) a qualifying period of contribution, employment or residence. The qualifying period should not exceed 30 years of contribution or employment (Endnote 17) or 20 years of residence.

141. Article 29, paragraph 1(b), of Convention No. 102 and Article 19, paragraph 1(b), of Convention No. 128, however, provide for more flexible rules "where, in principle, all economically active persons are protected". (Endnote 18) In this case, benefits should be secured after a prescribed qualifying period of contribution has been completed and a prescribed yearly average number of contributions has been paid while the person concerned was of working age. (Endnote 19)

142. As we have seen in paragraph 130 above, Conventions Nos. 102 and 128 allow the rate of old-age benefit to be reduced where benefit is secured to protected persons who have completed a shorter qualifying period than that provided for in paragraph 1(a) of Article 29 of Convention No. 102 and of Article 18 of Convention No. 128 (30 years of contribution or employment or 20 years of residence). Under paragraph 3 of these Articles, the requirements as to rate of benefit laid down in Conventions Nos. 102 and 128 will be deemed to be satisfied where a benefit amounting to 30 per cent of the reference wage (under Convention No. 102) and 35 per cent (under Convention No. 128) for the standard beneficiary is secured at least to a person protected who has completed a qualifying period not exceeding either ten years of contribution or employment or five years of residence. (Endnote 20)

2. National situations

143. In an attempt to achieve a more orderly presentation of national situations, earnings-related and flat-rate benefits will be examined separately, followed by the closely related topic of minimum and maximum pensions, as well as pension increments.

Earnings-related benefit

144. In many countries, the rate of pension is a percentage of the beneficiary's previous earnings. Very often, this rate is determined without taking the amount of the previous wage into account. In other words, the relation between the amount of pension and the previous remuneration remains constant (subject to a ceiling if one is fixed by national legislation) irrespective of the amount of remuneration, but it usually varies according to the period of insurance or employment. This is the most widespread method of calculation. (Endnote 21) Thus, the legislation of some of these countries provides for an annual rate of accumulation of the pension for each year of insurance, the amount of pension being equal to the amount of the reference wage multiplied by such accumulation rate and the number of years of insurance. (Endnote 22) In other countries, pension consists of a base component equal to a certain percentage of the reference wage, to which a supplement (also a percentage of the wage) is added for each additional period. (Endnote 23) In still other countries, pension is calculated on the basis of a percentage of the reference wage divided by the number of years required for entitlement to a full pension, multiplied by the number of years of insurance. (Endnote 24)

145. A second formula for calculating pensions on the basis of earnings discriminates in favour of lower-paid workers. Thus, in some schemes, pension is calculated on a degressive scale based on the level of previous earnings so that the higher the earnings taken into account, the lower the ratio of pension to wage. (Endnote 25) In other countries, pensions consist of a base component unrelated to earnings, plus a supplement which is proportional to the beneficiary's previous earnings and the period of insurance. (Endnote 26) Other schemes apply more complicated calculation methods also aimed at insuring that the higher the previous wage, the lower the rate of pension. (Endnote 27)

146. In addition to these two formulas, some countries, including a few French-speaking African countries, have adopted what is known as the pension points method. According to this method, an insured person acquires a certain number of points each year, based on the contributions paid. The retirement pension is equal to the number of contribution points acquired at the time of award of pension, multiplied by the value of the benefit point; the value of the contribution point or the benefit point is fixed annually by the competent authority on the basis of the technical and financial requirements of the schemes. (Endnote 28) A points system based on the same principle but applying slightly different methods is also used by other countries in their supplementary schemes, whether they are occupational (Endnote 29) or statutory. (Endnote 30)

147. Moreover, in several countries (Endnote 31) protected persons are classified according to earnings in different wage classes each with its own minimum and maximum rates. (Endnote 32) A base remuneration is attributed to each class, and the rate of pension is often determined with reference to the base remuneration. Thus, in principle, the rate of pension is identical for all workers in the same wage class if they have completed the same period of contribution or employment.

148. Under the schemes linking benefit to previous earnings, the rate of pension depends on the length of the period of insurance or employment. As we have seen in paragraph 113 above, national legislation often treats other periods as periods of employment or insurance; these may include periods during which the insured person received compensation under social security, performed military service, studied, etc.

149. The amount of the wage or earnings taken into account in calculating pension is one of the essential elements determining the rate of benefit. The amount of the reference wage depends, on the one hand, on the wage components taken into consideration and, on the other, on the period taken into account. The definition of earnings varies from one country to another. In some cases, it is very broad, covering all of the wage components, including overtime, bonuses and annual gratuities, while in others, only the fixed component of remuneration is taken into account. As regards the period taken into consideration, in some schemes it covers all or nearly all of the period of insurance or the insured person's working life, (Endnote 33) although low-income years may be excluded from calculation in some cases. (Endnote 34) Often, however, the period taken into consideration is shorter, consisting in some schemes of the last years of employment or insurance (usually one to ten years). (Endnote 35) Instead of the last years of insurance or employment, the average wage may be calculated on the basis of the "most favourable" years; (Endnote 36) sometimes these must be consecutive (Endnote 37) or must fall within a prescribed period. (Endnote 38) In some countries the legislation provides for an alternative method of calculating the period to be taken into account, either stipulating that the most favourable method applies, or leaving the choice to the beneficiary. (Endnote 39)

150. Where the reference period is long or remote, there is a risk, due to inflation, that the earliest registered nominal earnings no longer correspond to the range of earnings obtaining at the time pension is claimed; this is why many countries have adopted measures to adjust the earnings taken into consideration in calculating pensions.

151. Lastly, most schemes set a ceiling above which earnings are no longer taken into account in the calculation of benefit. This ceiling is very often an absolute figure, but in some cases it is based on criteria such as the minimum wage. (Endnote 40) In some schemes the legislation also provides that the amount of earnings taken into account cannot fall below a prescribed minimum. (Endnote 41)

Uniform rates of benefit

152. As we have already seen, uniform rates of pension are awarded under the schemes applicable to all residents. (Endnote 42) In most cases, a person is entitled to pension if he has completed the minimum qualifying period, consisting of a period of residence. (Endnote 43) Some schemes also require completion of a longer period (usually 40 years) for entitlement to full pension. (Endnote 44) Some of these countries also provide for an additional pension, or a pension supplement, which is linked to earnings, in addition to the uniform rate of benefit paid to all residents. (Endnote 45) It is worth noting that these two systems are often closely inter-related, even constituting, in some countries, a single national insurance scheme awarding a single pension consisting of a uniform base rate and an earnings-related supplement. (Endnote 46)

153. Under some schemes, universal pensions may be reduced on the basis of the beneficiary's means. (Endnote 47) In some cases, the means requirement only applies to the pension supplements which are often awarded in addition to minimum benefits. (Endnote 48) In one country, benefits awarded to all residents are subject to a means requirement only up to a prescribed age (70 years), after which benefits are paid without reduction, irrespective of the beneficiary's means. (Endnote 49)

154. Flat-rate pensions are also awarded, although more rarely, under insurance schemes. (Endnote 50) They are often supplemented by additional benefits linked to previous earnings. (Endnote 51)

Minimum pensions

155. Often pensions are fixed in such a way as to ensure that they do not fall below a certain minimum. As we have seen, some schemes fix a minimum amount for the earnings taken into consideration in calculating pension: thus, the pension is automatically calculated on the basis of this minimum figure if the reference wage falls below it. (Endnote 52) In addition, many schemes provide that the amount of pension cannot fall below a prescribed rate. In most of them, the minimum pension is fixed in monetary terms. (Endnote 53) In others, the minimum is fixed according to parameters such as the minimum wage, (Endnote 54) pensionable earnings (Endnote 55) or other criteria. (Endnote 56) Many governments have stated in their reports that this minimum amount is fixed in such a way as to ensure a minimum standard of living, as advocated in Paragraph 23 of Recommendation No. 131. (Endnote 57)

Maximum pensions

156. As already pointed out, in most schemes in which the amount of pension is based directly on the beneficiary's previous earnings, the amount of pension is limited by placing a ceiling on the earnings on which the calculation of benefit is based. (Endnote 58) Irrespective of this ceiling, the legislation often provides for a maximum rate for the pension itself; (Endnote 59) this maximum amount is often expressed in monetary terms. Moreover, the legislation adopted in a number of countries provides that pension shall not exceed a certain percentage or all of the pensionable earnings. (Endnote 60)

Pension increments

157. The legislation in many countries provides for pension increments under certain conditions; these are mainly awarded in respect of dependants. Many schemes award pension supplements in respect of a spouse (Endnote 61) or dependent children. (Endnote 62) The dependant's increment may be paid at a flat rate or as an additional percentage of the pension, depending on the case. Moreover, in the schemes covering residents, each spouse of pensionable age is usually entitled to a pension if he or she meets the conditions laid down in the legislation; however, the rate sometimes depends on the marital status of the beneficiary, so that the rate for a married couple is less than double the rate for single persons. (Endnote 63) Moreover, if the beneficiary's spouse does not meet certain conditions for entitlement to pension, such as pensionable age, the beneficiary often receives a supplement in this respect. (Endnote 64) It should also be borne in mind that, in many countries, family allowances continue to be paid to pensioners.

158. In accordance with Paragraph 25 of Recommendation No. 131, supplementary benefit is often awarded to persons requiring the help of another person. These increments are most often awarded under invalidity protection schemes and occupational injury compensation schemes, although some systems also award them to recipients of old-age benefit. (Endnote 65)

159. Some countries have adopted special provisions concerning the calculation of benefit for persons engaged in particularly arduous, unhealthy or difficult occupations. Thus, some schemes classify jobs for purposes of old-age pension in different groups according to factors including the arduous, hazardous or unhealthy nature of the work, with the accumulation rate varying according to the job category in which the worker is classified. (Endnote 66) Other countries fix a higher rate for workers employed underground or in unhealthy work or in workplaces with a particularly high temperature, (Endnote 67) as well as in the health-care and postal services, the railways, and mines. (Endnote 68) In other countries, workers employed on jobs considered to be as unhealthy are covered by a complementary insurance scheme. (Endnote 69) Lastly, it should be noted that still other countries have special schemes covering particular categories of workers, such as mineworkers and seafarers.

3. Evaluation

160. With the exception of particular cases in which the Committee has requested additional information on the method of calculating benefit, including statistics on the rate of benefit and the reference wage, the great majority of countries for which Part V of Convention No. 102 is in force have achieved the rate of benefit prescribed by this instrument, i.e. 40 per cent of the reference wage for a standard beneficiary with a wife of pensionable age. The same is true of the countries which have accepted Part III of Convention No. 128, which fixes the rate of old-age benefit at 45 per cent of the reference wage. From the statistics communicated by governments, it appears that in these countries the rate of old-age benefit calculated in accordance with the provisions of these instruments varies between 40 and 95 per cent of the reference wage. In most cases, the percentage is at least as high as that prescribed by Convention No. 128.

161. In most of the cases mentioned above the prescribed rate of old-age benefit is attained after completion of a qualifying period which is shorter than that provided for in Article 29, paragraph 1(a), of Convention No. 102 and Article 18, paragraph 1(a), of Convention No. 128 (either 30 years of contribution or employment or 20 years of residence). However, one government which accepted Part III of Convention No. 128 (Endnote 70) has availed itself of Article 18, paragraph 1(b) of this instrument. (Endnote 71)

162. In the countries for which neither the part of Convention No. 102 which relates to old-age benefit nor that of Convention No. 128 is in force, the rate of benefit as provided for by the legislation generally varies between 40 and 95 per cent of the reference earnings, most often equalling between 55 and 60 per cent of such earnings. The vast majority of the schemes studied award benefits which are proportional, at least in part, to the beneficiary's previous earnings. It should be pointed out, however, that many of these schemes base the calculation of pension only on wages which do not exceed a certain ceiling (Endnote 72) and/or provide that the pension itself must not exceed a certain upper limit. While the instruments do allow, as we have seen, a ceiling to be placed both on pensionable remuneration and on the rate of benefit, they require that, in this case, the rate of benefit which they prescribe be attained at least for a standard beneficiary whose wage is equal to or less than that of a skilled manual male employee. In order to assess whether this requirement is met, it is necessary to have the statistical information requested in the report forms adopted by the Governing Body under article 19 of the Constitution on the wage of the skilled manual male employee and the rate of old-age benefit such a worker would receive after completing the qualifying period provided for by the Conventions. However, the reports sent by governments do not usually contain statistical information which could enable the Committee to assess how far the ceiling fixed by the legislation in many countries would cause old-age benefit to fall below that required of the Conventions. It is true that, according to the available information, some schemes do not appear to place an upper limit either on the rate of benefit or on the amount of pensionable earnings. (Endnote 73) Moreover, some other schemes provide for a reduced rate of pension if the wage exceeds a certain amount, but even this reduced rate still meets the requirements as to rate of benefit laid down by Conventions Nos. 102 and 128. (Endnote 74) Another government stated that workers whose base remuneration exceeds the ceiling fixed by legislation may join a supplementary pension scheme. (Endnote 75) Still another government stated that it had adopted measures to adjust the ceiling on pensionable earnings, so that the level required by Convention No. 128 would also be attained in the case of a skilled manual male employee. (Endnote 76)

163. It should also be pointed out that in many developing countries the rate of replacement of previous earnings provided for by legislation after a given number of years of insurance has not yet been attained, either because their scheme has been set up only recently or because its coverage has been gradually extended. Thus even the workers protected since the scheme came into force have still not been able to complete 30 years of insurance. Convention No. 102 (paragraph 5 of Article 29) and Recommendation No. 131 (Paragraph 8) therefore provide for the adoption of transitional provisions in order to secure reduced benefit for workers who are advanced in age when a scheme comes into force; such measures have in fact been adopted in many countries. (Endnote 77)

164. The information communicated under article 19 of the Constitution by countries where flat-rate benefits are paid has not always been sufficient to enable the Committee to assess how far effect is given to the provisions on old-age benefit of the instruments under consideration; this is due mainly to the lack of statistics on the wage of the ordinary adult male labourer, to which such benefit must be compared under Article 66 of Convention No. 122 and Article 27 of Convention No. 128. (Endnote 78) Having said this, the available information shows that in one country the rate of old-age benefit exceeds, for the time being, the percentage required by Convention No. 102. (Endnote 79) In another country old-age benefit paid to workers in the rural sector is equal to 50 per cent of the highest minimum wage, which it has not been possible, however, to compare to the wage of the ordinary adult male labourer. (Endnote 80) It should also be recalled that in the case of systems where the rate of benefit is calculated on the basis of previous earnings, Article 66 of Convention No. 102 or Article 27 of Convention No. 128 may be applied where a minimum benefit is guaranteed. The statistics sent by some governments show that the percentage of the ordinary adult male labourer's wage represented by the minimum old-age benefit is more or less equal to the rate prescribed by Convention No. 128 (Endnote 81) or even exceeds it. (Endnote 82) However, not enough governments have supplied information on this subject for a broader generalisation to be made.

165. In the systems applicable to all residents whose means during the contingency exceed a prescribed amount, the conditions laid down in Article 67, subparagraphs (a) and (b) of Convention No. 102 and Article 28, subparagraphs (a) and (b) of Convention No. 128 appear to be generally met in so far as benefits can only be reduced if the other means of the beneficiary's family "exceed prescribed substantial amounts or substantial amounts fixed by the competent public authority in conformity with the prescribed rules". This does not appear to be the case in one country, however, where old-age benefit is automatically reduced by the total amount of the beneficiary's other means. (Endnote 83) As regards the rate of benefit, the statistical information supplied by one government indicates that the base component of benefit plus the means-tested supplement is at least equal to the rate required by Convention No. 102. (Endnote 84) One other government stated that the amount of old-age pension paid to a retired couple corresponds to approximately 49 per cent of the average weekly wage of an adult male unskilled labourer. (Endnote 85) Lastly, one government stated that the net rate of old-age benefit for a married couple is equal to 80 per cent of the average ordinary time weekly wage after tax, established by quarterly employment surveys; it adds that this rate is not linked either to the previous wage or to the wage for a particular occupation. (Endnote 86)

166. The Committee cannot overemphasise the fact that the reference period chosen for the calculation of the base remuneration is a key factor in systems under which benefits are based on the beneficiary's previous earnings. The longer or the more remote the reference period, the greater the risk that the earliest registered remuneration would no longer correspond to the general income level at the time the pension is granted, which would inevitably have a considerable impact on the real value of the pension. This is why many schemes provide for an adjustment of pensionable earnings (Endnote 87) although this is not expressly stipulated by the Conventions. The need to adjust the pensionable remuneration arises primarily in schemes where the reference period spans the beneficiary's entire career. However, one wonders whether this practice should not be introduced more widely in countries with a high inflation rate, even if a shorter period is taken in calculating the reference wage.

167. From the study of the national situations it is clear that there are three main methods for fixing the amount of old-age benefit. The first links the amount of pension to the beneficiary's previous earnings, and thus to the protected person's previous standard of living. Under the second method, a uniform rate of benefit is applied to all beneficiaries, irrespective of their earnings, which should at least ensure that the necessary minimum is reached. Under the third method, the conditions for the grant of benefit and the amount thereof are subject to a means requirement. However, the current trend appears to be to combine these methods: on the one hand, earnings-linked pension schemes often pay minimum benefits, and on the other, under schemes in which flat-rate benefits are granted, the base rate is often supplemented by additional earnings-linked benefit. However, as flat-rate and minimum benefits are often insufficient to provide a livelihood for pensioners, they are supplemented in several countries by benefits subject to a means requirement.

168. It should also be pointed out that the standards concerning the amount and calculation of benefit laid down in Convention No. 102 are flexible enough to be met in very many countries, at least as regards the general social security schemes, on which governments have supplied the most detailed information. The same can be said of Convention No. 128, though to a lesser extent, as it prescribes a slightly higher rate of old-age benefit. (Endnote 88) However, in the case of systems in which benefits are linked to the beneficiary's previous earnings, it is often necessary to have additional information in order to assess the effect of the upper limit placed on earnings or benefits by national legislation. When the ceiling is too low, it may prevent the percentage prescribed in the Conventions from being reached in the case of a standard beneficiary whose wage is equal to or lower than that of a skilled male manual worker, which may be the case for a great many beneficiaries. The risk is even greater in countries with a high inflation rate, unless such ceilings are reviewed regularly. This is why, in the Committee's view, it is essential that the competent authorities periodically review the ceilings fixed in order to ensure that they continue to meet the workers' real needs, and that such reviews be carried out independently of the systems for adjusting benefit rates to changes in the cost of living, which will be discussed in Chapter V.

Endnotes

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Endnote 50

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Cross references
Constitution: Article 19
Constitution: Article 22
Constitution: Article 35