Poverty and Financial Security of the Elderly in Thailand

Transcription

1 Ageing Int (2009) 33:50 61 DOI /s y Poverty and Financial Security of the Elderly in Thailand Worawet Suwanrada Published online: 5 March 2009 # Springer Science + Business Media, LLC 2009 Abstract Currently, Thailand is facing serious demographic changes. The percentage of the elderly population (60 years of age and older) is increasing gradually and will exceed 20% of the total population in Presently, the family, especially children, is still the most important source of financial security for the elderly in old-age. Nevertheless, a decrease in the potential support ratio reflects the fact that informal financial support from the family is going to decrease whereas the demand for formal financial security will increase., The Thai government currently provides a range of programs as a part of social safety net for guaranteeing a certain income level in old-age. Among employed persons, approximately one-third of them has been financially insured in the old-age life stage under mandatory schemes such as the Social Security Fund (for private employees) and the Government Pension Fund (for government officers). Two-third of employed persons, mostly informal sector workers, have not been covered under a compulsory scheme. For the uninsured and underprivileged elderly, the mean-tasted old-age allowance system provides minimal support. This paper presents issues relating to pension debate in Thailand, which is mainly focused on broadening coverage. Three policy options are raised and discussed: (1) the promotion of the establishment of a community-based social welfare fund; (2) the expansion of the coverage of the old-age allowance system; and (3) the establishment of national pension system, which covers employed persons who do not currently receive coverage. Keywords Poverty. Financial security. Elderly. Thailand. Aging society Introduction Thailand is currently facing significant demographic changes, the most important being that we are heading toward becoming an aging society (Wongboonsin 2003). W. Suwanrada (*) Faculty of Economics, Chulalongkorn University, Phayathai Road, Pathumwan, Bangkok, Thailand worawet@gmail.com

2 Ageing Int (2009) 33: The aging dependency ratio (i.e., elderly (60+ years of age)/total population) has increased from 10.7% in 1994, to 14.3% in 2002 and to 16.0% in 2007 (Report on the 2007 Survey of Older Person in Thailand, Bureau of Socio-Economic and Opinion I 2008). In addition, the potential support ratio (i.e., those in the labour force who support at least one elderly relative/person), has decreased from 9.3 in 1994 to 6.3 in The National Economic and Social Development Board (NESDB) projected that the percentage of the elderly population will increase gradually and exceed 20% in 2023, and the potential support ratio will drop to 2.52 in 2030 (NESDB 2007). The Thai value of reciprocity to one s parents and family influences children to take care of the financial, medical and mental health needs of their older parents. However, given the projected demographic changes, of an increasing dependency ratio and a decreasing support ratio, the burden on family members caring for their elderly relatives will increase significantly in the near future. Thai society is also facing a fertility decline (Foundation of TGRI 2008), implying that, in the future there will be some families without any children to provide financial, health or mental health support. In an aging society that is also facing a decline in fertility, the financial security of an elderly person is a critical factor. The government can play a role in securing a safer financial situation for the elderly by providing old-age income security, in addition to whatever individual saving has occurred. The Thai government provides a range of social safety net programs designed to guarantee certain income levels for the elderly including both mandatory and voluntary systems, and contributory and non-contributory systems. The objective of this paper is to explore the poverty and financial security of the elderly in Thailand by assessing the old-age income maintenance programs provided by the government and communities. We explore some of the key situations influencing poverty and financial security of the elderly in Thailand, explain the oldage income maintenance systems, review the emergence of the community-based welfare fund in Thai society in recent years, and consider the next step for the future financial security of the elderly in Thailand. Key Situations Affecting Poverty and Financial Security of the Elderly In this section, we will explore some key situations affecting poverty and the financial security of the elderly in Thailand. At the macro level, the percentage of personal saving on GDP (gross domestic product) is 3.5 8%. Microlevel indicators show reasons for concern regarding the present and future financial security of the elderly (National Economic and Social Development Board 2009). There are some elderly who are not secure in terms of living arrangement and/or financial situation. Elderly still have to depend on family support in their old-age. According to the Survey of the Older Persons in Thailand in 1994 and 2002, the proportion of the elderly population who lives alone increased from 3.6% to 6.3%. In the most recent 2007 survey (7.02 million elderly persons), the elderly population living alone increased to 7.7%. Some43.3% of those living along face problems or obstacles such as financial difficulties (15.7%). Among all elderly, 31.3% do not have savings or any financial assets, and 34.1% have an annual income of less than

3 52 Ageing Int (2009) 33: ,000 baht. (Note: the 2007 poverty line in Thailand was 1,443 baht per head per month (NESDB 2008a). At present, the elderly population in Thailand still depends heavily on family support; the main income source for 52.3% of the elderly population in 2007 is financial support from their children, followed by income from working (28.9%), financial support from their spouses (6.1%), pension or savings (4.4%), and income from savings or property (2.9%). As the potential support ratio decreases over time, a heavier burden will be placed on future generations to support the elderly. For the future elderly population, individual saving is one key income source. However, some empirical data related to the saving behaviour of employed persons points to the problems with individual saving. According to the analysis of saving behaviour of presentlyemployed persons 39% do not save, 26% have balanced earning and expenditure, 9% need to borrow in order to make ends meet and 3% have the capability to save but do not (NESDB 2008b). In Thai society, the objectives of saving are for lifecycle usage (e.g., marriage, housing down-payment, children s education), emergency preparedness and family heritage (i.e., gifts for family); saving for old-age life or retirement is not a high priority. Workers in formal sectors (i.e., employed persons who participate in any government s social protection schemes; includes central, regional and local government officials, public enterprise employees, private school teachers and headmasters and private employees who are the members of Social Security Fund) turn out to be long-term savers, and save for their retirement with insurance companies and private financial institutions. In summary, the elderly who are in underprivileged situations, and some employed persons, particularly those in an informal sector (workers not in the formal sectors mentioned above), are most at risk. Any government-provided pension/policy should focus on those groups (Pananiramai 2003; Patamasiriwat 2007). Formal Old-Age Income Maintenance System Thailand currently has various types of formal income maintenance systems for providing financial support to the elderly, including compulsory and voluntary systems and contributory and non-contributory systems (Chandoeywit 2006; Chandoeywit et al. 2008). Each system has different target groups and public financing methods. Only private and public employees in formal sectors are in the safety net of old-age income maintenance systems. Those systems are the Social Security Fund (private employees; contributory system), Government Pension Scheme (for central and regional government officers; it is comprised of two parts, a national budget financed part and contributory part) Local Government Officers Pension Scheme (local authorities; non-contributory system), Private School Teachers and Headmasters Mutual Fund (private school teachers and headmasters; contributory system) and Public Enterprise Employees Pension Scheme (public enterprise employees; mostly contributory system in the form of a provident fund employees are required to save a certain percentage of monthly wages and the employers contribute equally or less on top of that). Individuals not covered by the above-mentioned schemes must depend on their own savings or family support. The Old-Age Allowance System, based on meanstesting, supports the unprivileged elderly.

4 Ageing Int (2009) 33: Social Security Fund The social security system is a mandatory and contributory social insurance system which requires participation by all employees in businesses which employ more than one employee. It insures against unknown contingencies such as illness, childbirth, disability, old-age, assistance for the family, death and unemployment. Employees must contribute 5% of their wages to the fund. This contribution will be compounded at the monthly rate of 1.5% for benefits related to illness, death, disability and childbirth; 3% for old-age benefits and childbirth, and 1% for unemployment compensation. Employers and the government co-contribute according to the fund according to rates shown in Table 1. Wages used to calculate the monthly employee contribution are capped at 15,000 baht per month. Members are eligible for old-age benefits if they have contributed to the fund for a total of 180 months (15 years) and are 55 years of age. The monthly pension level s calculated as 20% of the average monthly income for the last 60 months before retirement. Moreover, if the insured member has contributed for more than 180 months, an additional rate of 1% will be applied on top of the 20% for every 12-month contribution. In the case where the insured member s contribution period is shorter than 180 months but longer than 12 months, he/she can attain a lump sum retirement allowance equal to his/her lifetime contribution and its financial returns, which is calculated by applying rate of returns determined by the Social Security Fund. If the insured member s contribution period is shorter than 12 months, he or she attains his or her contributions back without any financial returns. There were 9,182,170 insured persons at the end of year 2007 is persons. Of the total reserve fund of 538,053 million baht, 307,931 million baht were for the old-age benefits (Social Security Fund 2007). Government Officers Pension System There are two types of pension systems for central and regional government officers. They are pensions financed from the national budget and the Government Pension Fund (GPF). Before the establishment of the Government Pension Fund in 1996, government officers received a pension upon retirement financed from national budget. The level of pension depended on the level of income in the last month Table 1 Employee, employer and government contribution rates to the social security fund Benefits Insured employees Employers Government Illness, death, disability and childbirth 1.5% 1.5% 1.5% Old-age benefits and child allowance 3% 3% 1% Unemployment compensation 0.5% 0.5% 0.25% Total 5% 5% 2.75% Source: Social Security Office (

5 54 Ageing Int (2009) 33:50 61 before retirement and the length of time working as government officials (numbers of years). The formula used for calculating the monthly pension is (1/50) (the level of income in the last month before retirement the number of years working as a government official). After the establishment of the GPF system (i.e., the provident fund on the basis of a fully-funded pension system with an individual account, as shown in Table 2), government official who were employed before March 7, 1997, were required to choose to be the member of GPF system or to choose the pension scheme mentioned above. The government officials who were employed after March 7, 1997, were required to choose to this pension fund. The government officials contribute 3% of monthly wages and the government contributes 3% of monthly wages. After retirement, the members receive a traditional pension (the formula is partially revised) together with a lump sum retirement allowance from the GPF, as follows: & & Traditional Pension from the National Budget=(1/50) (average income 60 months before retirement the number of years working as government officials), with the pension not exceeding 70% of average income. Lump Sum Benefits from GPF: This benefit is comprised of five components. They are (1) the government officer contribution, (2) the government contribution, (3) 2% of monthly income will be additionally contributed by the government in addition to (2) (paid only to the retired government officer who chooses to receive annuities in the traditional pension part), (4) lump sum endowment fund (incentive scheme for person who were employed prior to March 27, 1997 and chose to participate in the GPF) and (5) financial returns. Government officers who were employed prior to March 23, 1997 and choose not to participate in the GPF will receive annuities calculated by the traditional benefit formula. Employees hired after March 24, 1997 must participate in the GPF scheme. As of September 2008, there were 1,186,691 GPF members. Table 2 Government pension scheme Employment period Pre-March 7, 1997 Post-March 7, 1997 Pension schemes Required to choose between Option I or Option II Option I: Choosing Traditional Pension financed by National Budget Formula: (1/50) (the level of income in the last month before retirement the number of years working as government officials). Option II: Becoming a member of GPF and receiving two parts of pensions Traditional Pension financed by National Budget Formula (1/50) (average income 60 months before retirement the number of years working as a government official), with the pension not exceeding 70% of average income Lump Sum Benefits from GPF (five components) Required to choose only option II Source: Government Pension Fund (2008) compiled by the author

6 Ageing Int (2009) 33: Old-Age Allowance System The old-age allowance system was established in 1993 by the Public Welfare Department to provide financial assistance to the unprivileged elderly, defined as a person at least 60 years of age with inadequate income to meet expenses, or unable to work. In the beginning, as the representative of the central government, the villages public welfare assistance committee had to identify eligible elderly; initially, the number of recipients was only 20,000 (Suwanrada and Kamwachirapitak 2007). The allowance was using a cap of 200 baht per head per month. Through a decentralization process beginning in 2005, the tasks of identifying clients and defining allowance payments were delegated to local authorities through grants from the central government, namely, the Department of Local Administration (DOLA), Ministry of Interior. The definition of unprivileged elderly was maintained as before. However, elderly with several difficulties and/or inhabiting remote area with minimal public services were prioritized. The targeting process occurs cooperatively between local authorities and the prachakom (community council). See Fig. 1. The elderly in the new applicants list and the waiting list (from previous fiscal year) will be ranked by the community. The community councils uses a range of method for ranking, i.e., ranking by age of the elderly, using the majority voting mechanism, adopting the community committee system, ranking by regarding various characteristics of the elderly, allocating allowance to all elderly (Suwanrada 2007). Benefits have been increased to 500 baht per head per month. In addition, local authorities with an adequately strong fiscal resources can use their own funding to, New Applicants Waiting List from Last Year Name List of the eligible elderly Ranking by Community Ranked Name List Examination Opposition Public Announcement 15 days No Opposition Exclusion from Name List Certified by Head of LA NEW Waiting List Ministry of Interior Interior Approved Recipients Name List Source: compiled by the author Fig. 1 Old-age allowance system targeting process

7 56 Ageing Int (2009) 33:50 61 can increase allowances (must not exceed 1,000 baht per month) or increase the number of qualified recipients. After fiscal year 2005, the number of recipients increased sharply. In fiscal year 2009, the number of recipients is approximately 2.3 million, with 0.5 million elderly receiving allowance financed by the local authorities. Voluntary Old-Age Income Maintenance System Thailand also has a formal old-age income maintenance system provided voluntarily by employers. It is the provident fund system, which provides lump sum old-age income to the employees in addition to the social security benefits In 2008, there 8,949 employers provide the provident fund to their 2,011,127 employees. Among these employers, 53 employers are public enterprises (Statistics of Thai Provident Fund; The Emergence of Community-based Social Welfare In order to address the inadequacy of publicly provided social welfare services, particularly pension coverage, in many provinces of Thailand (e.g., Songkhla, Lampang, Trat, Khonkaen, Bangkok), a large number of communities have voluntarily initiated the a community-based social welfare fund. These funds provide many types of welfare through the lifespan of the community members. Benefits often include family support (maternity fee), educational loan, community business loan, subsidy for medical expenses, subsidy for funeral expenses, etc. In some groups, pension is also one of the special-feature benefits. The communitybased social welfare fund in Songkhla province in southern Thailand is one. Community-based Social Welfare Fund: A Case Study of Songkhla The community-based social welfare fund in Songkhla province is known as One Baht Daily Contractual Saving Group (OBDCSG) because each member has to contribute one baht per day to the fund. OBDCSG was first established in Namkhao Sub-district, Jana City, Songkhla Province under the leadership of a former school teacher, Mr. Chob Yodkaew in The OBDCSG idea was subsequently introduced throughout Songkhla Province under the financial support of the National Health Foundation of Thailand and United Nations Development Program (UNDP). Many groups were initiated by respected community leaders or the heads of local administrative organizations in in many communities of Songkhla. These independent groups conformed to the Songkhla Province Community-Based Social Security Fund Network. As of July 2008 there were 105 OBDCSG groups (107,617 members)located in all cities in Songkhla province. These groups are administered under one unified rule but they are financially independent. The biggest group has 4,650 members, while the smallest one has 120 members (Suwanrada 2007). All members have to pay one baht as a contribution to his/her affiliated group each day; in practice, the member pays once a month at a predetermined date. Thus

8 Ageing Int (2009) 33: one member contributes 365 bahts per year. Each baht of contribution is allocated to three sub-funds: 20% to a reserve fund, 30% to a fund for community business loans, and 50% to a revolving fund for nine types of benefits. In addition, all members have to pay an additional one baht per month to support the administrative expenses of the network. After contributing for 180 days, members are eligible for eight types of benefits, excluding pension. Any members who contribution continuously for 180 months and are older than 60 years of age are eligible for a pension. The details of nine benefits are shown in Table 3. Pros and Cons of the Community-based Social Welfare Fund The community-based social welfare system is friendly even to the poor because of its low contribution rates and its accessibility. Moreover, the package covers basic benefits including old-age income guarantees, which even the government cannot provide universally. Additionally, a portion of the fund is allocated for local business loans. However, there are limitations to the community-based social welfare fund, particularly related to pension benefits. Because each group is administrated under a unified rule but is financially independent without any cross-subsidization across Table 3 OBDCSG benefits Types Details Maternity pay For newborn baby: 500 baht per birth (limited to 1,000 baht/year) For mother: medical expenses subsidy 100 baht /nights (limited five nights/birth) Medical expenses subsidy 100 baht/night (limited to ten nights per year) Education loan 30% of educational expenses Funeral expenses subsidy 2,500 30,000 baht (according to contribution periods) 180 days 2,500 baht 1,460 days 15,000 baht 365 days 5,000 baht 2,920 days 20,000 baht 730 days 10,000 baht 5,840 days 30,000 baht Debt clearing for the death Maximum 30,000 baht (limited only to debt of local/community saving organization and continuously and punctually repaid debt) Saving reward for the death Reward 50% of saving of the death (limited to 15,000 baht and local/community saving organization account/100 baht monthly paid to the surviving family) The needy Fund will pay contribution as his/her representative Contribution collector compensation 130 baht/time (30 baht is used as daily contributions) Pension 300 1,200 baht/month (according to contribution periods) 15 years 300 baht/month 40 years 800 baht/month 20 years 400 baht/month 45 years 900 baht/month 25 years 500 baht/month 50 years 1,000 baht/month 30 years 600 baht/month 55 years 1,100 baht/month 35 years 700 baht/month 60 years 1,200 baht/month Source: Worawet Suwanrada (2007) p

9 58 Ageing Int (2009) 33:50 61 communities, there is no interregional insurance function. Also, since this type of fund is a partially funded pension system, the financial sustainability of the fund depends on the internal situation of the communities as follows (Suwanrada 2008a). The financial sustainability of partially-funded pension system depends not only on the number of members or the balance between contribution and benefits, but also on the returns of the fund and the age structure of the members. For the purpose of recruiting new members broadly, the OBDCSG structured low contribution rates compared to benefits paid out. In addition, the fund is conservatively deposited at a commercial bank or community-saving organization with a low interest rate. Moreover, the age structure of each group is inconsistent because participation is voluntary (Suwanrada 2007). There are a large proportion of elderly as members in some places due to the attractiveness of the subsidy for funeral expenses and pension. There is no guarantee that young generations will participate voluntarily in such areas, potentially harming the financial sustainability of the fund in the long run. Lastly, although the Songkhla community-based social welfare fund is administered under unified rules, there are no financial linkages among communities. There is solidarity within a community but not among communities. Assuming that the OBDCSG program could recruit the entire population in each province to become members, there would still be financial sustainability differences among the provinces because of the difference in the number of elderly in each province (Suwanrada 2008b) as shown in Fig. 2. Future of Financial Security for the Elderly: Which Directions Should We Aim Toward? Only one-third of the million employed population in 2007 (Suwanrada 2008b), has been financially insured for old-age. Two-third of employed persons will Fig. 2 Difference in proportion of the provincial elderly population percentage of the elderly population in province in 2020 (%) percentage of the elderly population in province in 2008 (%) Source: NESDB, compiled by the author

10 Ageing Int (2009) 33: reach old age without publicly-provided financial security, except for the old-age allowance system. In the future, the numbers of formally financially uninsured elderly person will increase rapidly along with the increase of the number of the elderly. How we can expand the financial security for the elderly to be as broad as possible. According to Ministry of Finance (2006) and Parichat Klingthong (2008), the Ministry of Finance has already planned the establishment of a National Pension Fund which aims to force employees who have already been secured under the Social Security Fund or the Government Pension Fund. This plan ignores the compulsory scheme for the uncovered persons. The pension debate focuses on two highlights, namely, contributory system or non-contributory system, compulsory system or voluntary system; and pension system at which levels (community or national) for the uncovered persons. There are several policy options; they give weight to each point differently. The first option is the promotion of the establishment of the community-based social welfare fund. This option is voluntary, contributory and community-based. The pros of this option is the simplicity of implementation, however, issues relating to the long-run financial sustainability of such a program should be addressed. Moreover, a community-based program such as the OBDCSG depends on the strength of social capital, and there are no guarantees that such a program could grow autonomously in any area of the country. The second option is the expansion of the coverage of the old-age allowance system. This option would change the mean-tested old-age allowance system to universal coverage. At present, the mean-tested old-age allowance system itself is struggling. Decentralized local authorities are addressing problems without any moderate guidance from central government. Differences exist in interpretation of eligibility qualifications, the different definition of community council, the targeting method, the level strictness in the targeting process, etc. Therefore, some supporters suggest making the old-age allowance universal for all elderly. In this case, the expansion of national budget and fiscal sustainability because of inflation adjustment against allowance devaluation or political abuse (for example, to increase the amount of allowance for the popularity of political parties without concerns of fiscal capability) will become the issues that should be taken in an account in long run. The third option is the establishment of the national pension system, which covers the currently uncovered employed persons. This option is compulsory, contributory and nationwide. It will benefit both the elderly s financial security as well as the macro economy and productivity of the country. Because it is a contributory system, it is not in practise friendly to the current elderly because they cannot begin to contribute, or their contribution periods are too short to attain an adequate pension. Thus, this third option must be accompanied with an old-age allowance system so that the current elderly can obtain support before the national pension system itself matures. This compulsory system covers the informal sector s employees. From the point of view of pension fund s administration, the national government should cooperate with the local authorities and communities as partners especially for acting as contribution collectors and pension payments office. The public platform for pension debate and the preparation for the establishment of a National Pension System for the Elderly has been formally assigned to a

11 60 Ageing Int (2009) 33:50 61 committee. The chairman of this committee is the permanent secretary of the Ministry of Finance. For the financial preparation for an aging society, we come to crossroads at both the macro and micro levels. How should Thai society make decisions for the future of pension policy? This question is quite difficult to answer because it is actually as philosophical issue. State, family or community, compulsory or voluntary, current elderly or future generation, market fundamentalism or social solidarity...are diversified and complicated dimensions that we need to address as we develop new public policies. References Bureau of Socio-Economic and Opinion I (2008). Report on the 2007 Survey of the Older Persons in Thailand. Bangkok: National Statistical Office. Chandoeywit, W. (2006). Income maintenance system for the elderly and poverty in Thailand. Bangkok: TDRI. Chandoeywit, W., et al. (2008). Income maintenance system for the elderly in Thailand, research report. Bangkok: TDRI. Foundation of Thai Gerontology Research and Development Institute (2008). The current situation of the elderly in Thailand Bangkok: TGRI under the support of the Elderly Fund. Government Pension Fund. (2008). 10 years of the government pension fund. downloadable ebook. Klingthong, P. (2008). National Pension Fund Project: Impacts and preparation. In: Proceeding of FPO Symposium 2008, Fiscal Policy Office, Ministry of Finance, Thailand, pp Ministry of Finance. (2006). The implementation of National Pension Fund Project, MOF News 28/2549 (March 29, 2006), Public Relations Division, Office of the Secretary, Ministry of Finance. National Economic and Social Development Board (2007). Population projections for Thailand , Office of the National Economic and Social Development Board, October National Economic and Social Development Board (2008a). Data and index on poverty and income distribution , Office of the National Economic and Social Development Board, June National Economic and Social Development Board. (2008b). The study on saving promotion for employed persons group. Research Report under the Umbrella Project A Study of Implementation of Moving Forward on the Strategic Development in the tenth National Economic and Social Development Plan, National Economic and Social Development Board and Chula Unisearch, Chulalongkorn University. National Economic and Social Development Board (2009). National income of Thailand Office of National Economic and Social Development Board. Pananiramai, M. (2003). The establishment of income maintenance system for the elderly in Thailand. In: Social protection system and quality of life in Thailand: The reflections of socio-economic development. Bangkok: Faculty of Economics, Thammasat University. Patamasiriwat, D. (2007). The proposal of fiscal policy for society and well-being and countermeasures for the elderly, under the support of Thai Health Promotion Foundation and National Health Foundation, Duantula Press. Social Security Office (2007). Annual report Bangkok: Ministry of Labor. Suwanrada, W. (2007). Community-based welfare system: A case study of Songkhla and Lampang Provinces, under the support of Thai Health Promotion Foundation and National Health Foundation, Duantula Press. Suwanrada, W. (2008a). Model for forecasting financial sustainability of community-based pension scheme. Research Report submitted to the Health Promotion Fund. Suwanrada, W. (2008b). National Pension System, Research Book No.8, Textbook Development Project, Document Services Center, Faculty of Economics, Chulalongkorn University, March Suwanrada, W., & Kamwachirapitak, A. (2007). Current situation analysis of the old-age allowances system in Thailand. Research Report submitted to Thailand Research Fund (Project Number: PDG ), August 2007.

12 Ageing Int (2009) 33: Wongboonsin, K. (2003). Demographic dividend contributed by in Thailand, Documents Number 295, May 2003, College of Population Studies, Chulalongkorn University. Dr. Worawet Suwanrada is Assistant Professor at the Faculty of Economics, Chulalongkorn University. Dr. Worawet s teaching and research interests lie mainly in public economics, public finance, government spending, social security system, especially financing pension and long term care and economic impacts of ageing society issues. His publications can be found in academic journals like Chulalongkorn Journal of Economics, Quarterly Journal of International Agriculture, The Asian Economy and Social Environment and others.