Strengthening Income Support for older Mongolians N.Oyut-Erdene /Mongolian State University of Education/ Social Security Sector of Mongolia
The Mongolian government is aware of Rapid demographic changes The risk of increasing poverty due to the greater vulnerability to poverty of the older population Need for pension system reform Need for social welfare system reform Change in population demographics Source: NSO. Mongolia Population projection 2010-2040
Table 1: Increasing importance of Older Population in Mongolia, 1950-2050 Source: UNDESA (2009) 1950-1975 1975-2000 2000-2025 2025-2050 Average annual rate of increase in total population (%) Average annual rate of increase in older population (%) Increase in older population as % of increase in total population Increase in number of older persons (000) 2.6 2.0 1.1 0.4 2.0 2.5 4.0 3.7 3.8 6.2 28.0 163.0 26 58 209 502 INCREASE IN LIFE EXPECTANCY By sex, at retirement age
Income vs Poverty Growth in mining sector brings favorable economic conditions. GDP yearly average growth is 9% Per capita income is increased recent years Poverty rate 36.1% in 2005 32.2% in 2006 28,9% in 2011 But : Not reaching MDG goal (1): Poverty rate - 18% from 36% ASSURING INCOME SECURITY IN OLD AGE: VIEWS OF THE MONGOLIAN ELDERLY Ghazy Mujahid, Oyut-Erdene Namdaldagva, Oyun Banzragch (2009) Part of the Regional level study on the impact of social pensions by UNFPA APRO (CST-Bangkok) The elderly reported satisfaction receiving social pension even though not adequate for living Their appraisals: do not encounter difficulties in the process ofapplication for pension and receiving, spending on their own, and contributing family income. More than 70 per cent of older people reported getting pension loans (contributory pension recipients). It demonstrated social pension is not sufficient for elderly care, medical treatment, and services. Family found to be supporting factor for older people wellbeing. The elderly who live with their children face fewer difficulties in comparison with those living on the pension only.
Contributing factors for poverty in old age Lack of assets Out-migration and unemployment Poor health Lack of access to credit Lack of pension Inflation especially food inflation (44% increase vs 16% non food goods inflation) Recipients of contributory pensions Spend 60 % of their pension on food items 40 per cent on their children or grandchildren, utility charges, and other things including partial payment for their health expenses
Contributory Social Insurance system Administered by State Social Insurance General Office of Mongolia Contributory pension system aimed at ensuring social well-being of the aged workers and provides retirement cash payments, disability pensions, widow benefits, temporary disability pensions and funeral benefits to the insured. Mongolia s pension system Prior 1995 1995 1999 1 State provision of pension 2 Contributory pension system by employer & worker 3 Notional Defined Contribution scheme Old system PAY AS YOU GO SYSTEM Partial funding
Social insurance contribution rate According to Social Insurance Law Insurance type Contribution percent Employer Worker Voluntary contribution Pension insurance 7.0 7.0 10.0 Social assistance ins 0.8 0.8 1.0 Accidental injury, hazardous work insurance Unemployment insurance 1.0, 2.0, 3.0 1.0 0.2 0.2 Health insurance 2.0 2.0 ТOTAL 11.0, 12.0, 13.0 10.0 12.0 OlD AGE PENSION PARAMETERS Legal basis Minimum pension Vesting requirement Defined benefit pension scheme (before 1960 cohorts) Old age insurance Law on Social Insurance, Law on Pensions and Benefits by SI Fund (1995 ) 75% of minimum wage Notional Defined contribution scheme (after 1960 cohorts) Law on Individual Pension Insurance Contribution Accounts (1999) 20% of national average wage + 0,5% of average wage additional yrs 20 years 15 years Age eligibility Man 60, woman 55 Man 60, woman 55 Indexation Number of pensioners Ad hoc Pension adjustment index due inflation rate 218,7 thousand Start receiving in 2015
Social Pension System Administered by General Office of Social Welfare Services of Mongolia Non-contributory pension does not depend on any past contributions, Non-contributory pensions are either universal or means-tested. A universal pension is based on age and paid to all older persons reaching that age. A means-tested pension is given to those who meet a certain criterion, mostly income level and sometimes family status or health condition. Social pension Social welfare pension is a monthly cash payment from the Pension Scheme of the Social Welfare Fund allocated for those older people who are not entitled to receive a contributory retirement pension under the Law on Social Insurance. It is paid to those who are extremely poor and do not have any children and/or relatives to care for them, and whose legal guardian or caregiver is an older person or a person with disability.
Income support through employment Administered by Labor Exchange Office of Mongolia under the Ministry of Labor Training and Employment program for older workers Organization of public work National Networking of Retired professionals Grant program Social Welfare Reform From categorical programs to more targeted More efficient services From universal to well defined needy population Community based services Increased role of Livelihood Support Council in each local community
PENSION POLICY REFORM Goals set in 2012-2016 agenda of the Mongolian government: To ensure social protection of older people by introducing multiple tier pension system Proposed agenda by the Mongolian government during the 2012-2016 term Тo redesign policy frameworks for pension reform making a phased transition from the current distributive system to partial funded system To improve legal basis of introducing multiple tier pension system by revising social insurance regulations. To establish pension insurance fund and programs to attract herders, private enterpreneurs, and informal sector workers. To take steps to build legal environment toward establishing Pension reserve fund
PENSION INSURANCE FUND INCOME, EXPENSES, NUMBER OF PENSIONERS 2011 2012 2013 Pension insurance fund income /trillion.mnt/ Total income 532.8 764.7 882.2 100% Employer 180.8 263.4 318.5 36% Insurer 159.5 221.6 299.2 34% Gov Subsidy 187.9 272.7 264.6 30% Pension insurance fund expenditure /trillion MNT/ Total expenditure 450.2 722.5 821.7 100% Old Age 328.7 516.7 594.0 72% Dependents pension 53.5 87.9 98.6 12% Disability 28.0 43.0 45.7 6% Army personnel 30.6 61.8 72.4 9% 2011 2012 2013 Number of retirees receiving pension /OOO person/ Total number 295.1 300.3 309.5 100% Old age 205.0 210.7 218.7 71% Disability 50.8 50.6 51.8 17% Dependents pension 25.0 24.1 23.3 8% Army personnel 14.3 14.8 15.7 5% Problems in the current pension system Minimum pension provisions create weak incentives for wage reporting and contribute to the long run deficit of about 3 percent of GDP Inadequate pension coverage Low credibility Low level of income replacement in retirement Politics involved
Problem: Increase in Pension fund deficit Deficit in pension insurance fund, as of percentage in GDP Factors affected: - Contribution rate fell from 19% to 14% - Number of beneficiaries increased - Average years receiving pension increase Source: 2013 PROST projections Problem: Reduction of pension of NDS pension recipients Pension recipient born before 1960 (DB): RR 50%-68% Pension recipient born after 1960 (NDC): RR 30% MAN WOMAN Source: 2013 PROST projections
Problem: Inadequate pension coverage Solutions for existing problems 1. Тo gradually increase retirement age (same retirement age for both men and women- 60 y.o) 2. To eliminate early retirement conditions 3. To increase contribution rate (reinstate 19%) 4. To refine indexation and benefit formula 5. To redesign the linkage of minimum pension and minimum wage (to link to minimum subsistence level) 6. To define average wage based on work history rather than chosen 5 consecutive years. 7. To reduce accrual rate and increase vesting age for pension entitlement
Reduce coverage gaps involving voluntary occupational and individual pensions savings arrangements To plan to introduce mandatory contribution to herders, self employed, and informal sector workers. Reform approach: Three tier approach to old age income protection I. Targeted social pension II. Mandatory contributory pension III. Supplimental occupational and individual savings arrangements References General Office of Social Welfare Services (2013). Social Welfare Reform training handout. Government of Mongolia (2011). The Millennium Development Goals Implementation, National 4 th report. 2011. Government of Mongolia & UNDP (2011). Mongolia Human development report. Ghazy Mujahid, Oyut-Erdene Namdaldagva, Oyun Banzragch (2009). Assuring income security in old age: Views of the Mongolian Elderly. Ulaanbaatar World Bank (2008). Mongolia: Pension policy challenges and reform options. July 28, 2008. Human Development Unit. East Asia and Pacific Region. World Bank (2012). Mongolia: Policy options for pension reform Report No.68526-MN. January 20,2012. Human Development Unit. East Asia and Pacific Region.