Pensions

Given the importance placed by ILO constituents on the issues related to ageing population, at its 310th Session (March 2011), the ILO’s Governing Body placed for general discussion an item on “employment and social protection in the new demographic context” on the agenda of the 102nd Session (June 2013) of the International Labour Conference. The conclusions adopted by the ILC Committee on Employment and Social Protection in the New Demographic Context at the 102 session in 2013, emphasize the need for a long-term policy vision to address the employment and social protection needs of people of all ages and to promote shared responsibility and solidarity between generations.

While the world’s population is growing quickly, the number and proportion of those in old age is growing even more rapidly. The need to ensure that they have a reasonable income and livelihood – and hence access to social inclusion – is both obvious and ever more urgent.

Ageing impacts on workers in a wide variety of ways. The ILO has been engaged since long in addressing the relevant challenges, and has sought to do so in an integrated way. Within the Decent Work agenda, the workplace needs of those among the elderly who choose or are obliged to continue in work form one field of activity, while the other field of activity concerns their social protection needs for pension, health care and through the other branches of social security. The latter field of activity is of primary concern to the ILO’s Social Protection Department.

The trend of the increasing old-age “dependency ratio” – which translates into the decrease in the average number of active workers whose output can be shared with each elderly person – has placed increasing strains on the finances of the pension systems in most, if not all, countries globally, and sets a challenging context for the advice which the Social Protection Department is asked to provide. Many countries are facing financial resource constraints, especially due to the ongoing financial and economic crisis, with the result that “fiscal space” for allocations to social protection is limited. It has become urgent to decide on whether pension amounts or contribution rates should be adjusted, or whether the “normal” age of retirement from active work, and of drawing pensions, should be increased. It is natural that, among the ILO’s tripartite constituency, opinions will differ as to the optimal way forward, and it is an important aspect of the Department’s advisory role to provide technical analysis, both qualitative and quantitative, through which to promote national discussions in this regard. At the same time, there are major challenges to be addressed in organizing effective pension provisions in circumstances where, increasingly, informality of both the economy and modes of work prevails.

The ILO naturally participates in international discussions on all aspects of ageing, notably a series of important events organized at both regional and global levels. There have been, to date, two World Assemblies on Ageing (WAA), held in Vienna in 1982 and Madrid in 2002, and work continues, in particular in the format of an Open Ended Working Group, to coordinate the activities of the various agencies concerned under the auspices of UN-DESA.

Up to date figures from the World Bank show that over 1.2 billion people are living on an income of less than US$ 1.25 per day, the figure below which they may be categorized as living in extreme poverty. Of these, around one tenth may now be older than 60 years. The situation of this group is bleak; they have very few opportunities for paid employment, and can rarely access even those limited means of ad hoc livelihood support available to younger members of society, such as subsistence farming, selling of assets, and small-scale business in the informal economy, nor, typically, can they think of training to acquire the new skills through which they might become employable. Those who have the responsibilities as family breadwinners (perhaps, for example, as guardians of AIDS orphans) may be severely tempted to send younger children to work, rather than to school. In these circumstances it is obvious that the provision of income by way of pensions, even if at modest levels, is crucial.

The payment of such modest, basic pensions can have both direct benefits, in preventing or alleviating poverty for the beneficiaries, but is likely also to have indirect, but no less significant, advantages. Notably, studies – firstly in South Africa (Large Cash Transfers to the Elderly in South Africa, Case and Deaton, 1998) but subsequently in other countries - have shown that the cash income to a family by way of social pensions paid to elderly members is typically used to support the family as a whole, with significant, measurable benefits in terms, for example, of the health and developmental indicators of younger children and their school attendance rates.

There are significant advantages to the provision of such social pensions to the elderly on a universal basis. Administrative costs can be minimized (if there is no need for complex or unreliable means testing), and “fairness” in terms of social solidarity maximized. Moreover, studies by, for example, the ILO’s Social Security Department provide strong indications that the costs of social pension provision at a rate sufficient to alleviate extreme poverty – very broadly in the range of 1 per cent of GDP - should be sustainable in the long term even for the least well-off countries, and their implementation feasible within a reasonable period, perhaps with modest donor support in the interim. The recent adoption in 2012 of the ILO’s Recommendation No. 202 on National Floors of Social Protection, should provide a practical and effective framework within which virtually all countries may review and strengthen, specifically, their pension systems, but within the broader objective of adequate social protection throughout the life cycle.