Social Security: Key Issues for Trade Unions

Social Security: Key Issues for Trade Unions

Social protection for all is the goal and part of Decent Work agenda - & also one of the important elements of GJP Global economic crisis increases the urgency of SS reform as SS is essential for social cohesion and political legitimacy. For TUs, social security is not just about pensions, etc but it is a vision of a society, an essential element of human rights & social justice, and a means for human & economic development and social stability.

Challenge for Indonesia Population aged 60+ will grow from 8.3% to about 25% by 2050! (about 74 m out of total estimated population of about 297 m in 2050) Given the low incomes and vast informal economy, providing health care and old age income support is a major public policy challenge before Indonesia

Social Security: Indonesian Scenario Law (No 40/2004), but uncoordinated & inadequate implementation some progress in health care (117 m people covered), but hardly any progress in regard to pensions (except for government employees) - less than 20% of the estimated 110 m workforce covered for pensions Multiple schemes for pensions & health care being implemented by different depts, no coordination - administrative costs high. Annual spending on health care & social protection about 3% - not enough to provide quality care or decent benefits Viability of current schemes in doubt - even the civil servants pensions, unless there is extra-budgetary support from Govt or contributions are raised

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Contribution Rates for SS Programs in selected Asian countries 2008 (%) 40.0 29.0 36.1 34.5 22.4 11.0 13.8 20.0 China India Singapore 25.5 25.3 25.0 14.5 13.1 13.8 12.4 11.5 Japan Malaysia Vietnam 18.0 16.1 12.9 10.2 8.5 8.3 9.5 9.0 7.0 5.2 5.0 7.0 7.6 4.6 5.0 4.5 2.0 South Korea Philippines Thailand Laos Indonesia Insured Person Employer Total

JAMSOSTEK Low contributions & even lower benefits total provident fund contributions 5.7% of salary of a worker (3.7% by employer, 2% by worker) Contributions not credited to individual accounts, go to general account which no particular individual can claim. This is a weakness which needs to be addressed Very little coverage of workers in informal sector workers reluctant to contribute when both incomes & benefits perceived are low & uncertain, Mechanism for collection of contributions & delivery of benefits weak Other problems participants views

Reforms in Pension systems are needed BUT often become controversial Governments concern: - Expected rise in the number of pensioners (as proportion of workforce) - Viability of Pension scheme can the scheme pay tomorrow what it promises the workers today? Employers concern: Costs Workers concern: contributions & future adequacy of pension benefits, coverage, delivery & certainty of benefits (especially for those working in informal economy)

What changes are being introduced? Reduce publicly funded part of pension benefits & encourage private contributory schemes Shift to defined contribution (from defined benefits) system Privatization - shift away from national system to private schemes - private management of pension funds Increase in retirement age lengthening the period over which wages & salaries are averaged for purposes of calculating benefits

Defined Benefits v/s Defined Contribution Schemes Defined benefits (DB) pension schemes are financed on a pay as you go basis while Defined contribution (DC) pension schemes are pre-funded by participant & benefits depend on what she/he contributes Shift toward DC schemes - to avoid fiscal burden on the governments in view of aging populations, increasing life expectancies & number of pensioners estimated in future as also rising health care costs & falling investment returns Under DC scheme people are expected to retire later and contribute for longer period. This policy also expects people to save for their retirement and expected to bring in also self employed.

Defined Benefits v/s Defined Contribution Schemes Shift towards DC schemes also accompanied by privatization which is expected to raise the rate of return on investments of pension funds. But what has happened since this shift? - reduced income security in old age - future benefits became unpredictable - high admn costs of privately managed pension schemes - coverage reduced (woman, poor, part time & other workers in precarious employment - private pension funds have not benefited national economy (neither increased national savings nor developed capital markets - WB).

Assumptions behind Pension Schemes Existence of employer-employee relationship, Wage earner/employee status of workers Worker earns a certain level of income throughout their entire career (unemployment periods not taken into account in the design of the schemes) For full pension benefit: contribution of 33 40 years, depending on the country s retirement age before being eligible for full retirement pension. But what is the reality of job market in recent years?

Changing labour market Flexible labour markets most workers will not have many years of contribution & hence will not get full pension benefits. Changing nature of employment: contractual - where the employment is offered not as appointment but as assignment (as in a client-supplier relationship) denial of employer-employee relationship & hence no employer contributions to social security. Informal economy: Most social security programmes not designed to take account of employment relationships in informal economy where employer- workers relationship is often disguised & where it exists, it is temporary

Social Security & Gender Reforms in pension schemes affect all workers but women more adversely affected due to the nature of their participation in labour market & employment opportunities. lower paid jobs, part time employment, interrupted & shorter employment record, undeclared forms of work lesser contributions & therefore lower pension benefits Under defined contributions system, increase in retirement age can mean women either get lower pensions or work longer years, even then may not get equal pensions

Social Security: key Challenges Social Security as a human right? Or is it individual responsibility? PayGo Systems v/s individually funded systems: demographic risk versus financial risk - Role of State? the State as the ultimate financial guarantor (of benefits). Coverage how to extend SS to all? The Financing Challenge Tax v/s Contributions? Adequacy & Quality of benefits & services especially for low income workers Investment policies & performance for protection of funds assets and to finance future benefits role of state Governance and management operational performance, transparency, communications with stake holders tripartite management? Role and Capacities of workers representatives?

Social Security: key Challenges Education Challenge: Needed at all levels, Low Awareness/ Understanding of rights, entitlements, social insurance, etc, especially among the excluded groups need to develop a broad education efforts customised to the various contexts and target groups funding? Who will fund this? Public V/s Private what role? The partnership Challenge: Role of Government v/s Public & Private Insurance Companies for providing social protection (pensions, health care, etc) operate in competitive environment, profit motive, no experience of working with poor, low income groups, no experience of tripartite regulation

THE ADMN CHALLENGE EXTEND THE COVERAGE OF EXISTING FORMAL SYSTEMS? BETTER BE PREPARED FOR A VERY BIG LEAP (MILLIONS OF PEOPLE TO BE ADDED) ESTABLISH BRAND NEW SOCIAL SECURITY SYSTEMS? HOW LONG WILL IT TAKE TO GET THERE? TRIPARTITE BOARDS? SEE THE WELFARE FUNDS EXPERIENCE (INDIA AND NEPAL) A SEPARATE ENTITY TO RUN EACH NEW EXTENDED SCHEME? THIS WILL COME AT A HIGH COST RELY ON INSURANCE COMPANIES? WHAT ABOUT THE PROFIT SEEKING APPROACH?... PARTNER WITH COMMUNITY-BASED ORGANIZATIONS? SHARING THE SAME SOCIAL GOALS?...

THE EQUITY CHALLENGE: NEED TO SHARE THE BURDEN FORMAL ECONOMY WORKERS Large contribution resources: Contributions from W, E & G Administrative costs borne by Govt full allocation of resources to benefits payments benefits higher INFORMAL ECONOMY WORKERS Limited contribution resources: Workers left alone to pay for their social protection Administrative Costs borne by the Schemes reduction of resources allocated to benefits payments benefits lower

Social Security System: Issues Is social security system a cost to economy or an investment? Social security entitlement: mainly employee based What kind of system should be there? - National? Company based?, - Public? Private? - Insurance based? Tax based? Who should pay? Addressing exclusion & discrimination & improving coverage (women, casual workers, informal workers) Collecting contributions & delivering benefits how? Maintaining purchasing power of pensions or living standards of pensioners? Data: No reliable data for quality research, and for price discovery of retirement products

Social Security System: Issues Maintenance of living standards in retirement: Only for those in fulltime paid employment? Or also for those who experience spells of unemployment & for people (usually women) who leave the labour force temporarily to bear & raise young children role for cross subsidization (not of earnings related programs BUT through DB plans & publicly administered plans) Role of workers representatives/representatives of pension plan members - in governance of the schemes, in investment decisions of pension funds - & this will require also training of union representatives & education of membership Need to raise awareness of Youth - pension is not just about old people need to promote life course perspective & cross generational solidarity

Should pension systems & its reforms be decided on the basis of - - technical necessities alone? OR - should the choice be made on the basis of political choices reflecting what workers /society wants than what only the rich/those in power want? Ex: Sustainability debate about the future of public pension programs - if tax increases are required by current arrangements, then they are considered unsustainable WHY?

«THERE IS IS NO ADVOCACY WITHOUT EVIDENCE» FROM KNOWLEDGE DEVELOPMENT TO ADVOCACY ADVOCACY NEED TO INCREASE THE ACTIVE SUPPORT OF POLICY MAKERS UNDER THE NATIONAL SOLIDARITY PRINCIPLE CAPACITY BUILDING KNOWLEDGE DEVELOPMENT NEED TO ENHANCE THE TECHNICAL CAPACITIES OF THE VARIOUS ACTORS INVOLVED IN THE MANAGEMENT OF SOCIAL PROTECTION SCHEMES NEED TO DEVELOP STRONGER EVIDENCE ON SOCIAL PROTECTION BEST PRACTICES AT THE GRASSROOTS LEVEL

What Else? Participants views? Union vision for universal social security in the 21st century?

Conventions key conventions on social security/protection C 102 - Social Security (Minimum Standards) Convention, 1952 C 121 - Employment Injury Benefits Convention, 1964 C 128 - Invalidity, Old-Age & Survivors Benefits Convention, 1967 C 130 - Medical Care and Sickness Benefits Convention, 1969 C 168 - Employment Promotion and Protection against Unemployment Convention, 1988 C 183 - Maternity Protection Convention, 2000 C 118 - Equality of Treatment (Social Security) Convention, 1962 C 157 - Maintenance of Social Security Rights Convention, 1982 Major Recommendations R 67 - Income Security Recommeendation, 1944 (No. 67) R 69 - Medical Care Recommendation, 1944 (No. 69) Which of the conventions has your countries ratified?

C 102 - Social Security (Minimum Standards) Convention, 1952 1) Establishes the aims that must be met instead of describing the techniques that are to be applied 2) C 102 provides for 9 contingencies Health care/insurance Sickness Old age Invalidity Unemployment Employment injury Maternity Family responsibilities Death/survivors 3) Flexibilities provided States ratifying C102 can chose any 3 contingencies (incl. one long-term or unemployment benefit) to provide for & progress as its capacities increase 4) Workers participation in the management of social security

Govts & Employers Arguments against C 102 Covers very few people & that too only in organized formal sector needs of women and workers in informal economy not reflected. Benefits level too high for tax financed universal schemes not easy for developing countries to provide Needs of workers in developing countries excluded (such as water, santitation,needs of children, minimum nutrition & role of public distribution, etc) & therefore need for new standard that can provide social protection floor for all. But is this true? -------------------------------------------------------------------------- C.102 can be used as an instrument for the provision of a social floor if countries are guided in choosing all the different elements that would constitute such a social floor from among the 9 benefits that C102 provides for.

ILC 2001: THE NEED TO COMPLEMENT THE EXISTING MECHANISMS THE CONSTITUENTS IDENTIFIED 4 STRATEGIC WAYS THAT COULD CONTRIBUTE TO THE EXTENSION OF SOCIAL SECURITY TO ALL EXTENSION OF SOCIAL INSURANCE (CONTRIBUTORY SYSTEMS) PROMOTION OR DEVELOPMENT OF SOCIAL ASSISTANCE PROGRAMS (TAX-FINANCED) INTRODUCTION OF UNIVERSAL BENEFITS SYSTEMS (TAX- FINANCED) ENCOURAGEMENT OF MICRO-INSURANCE SCHEMES (community based)

SOCIAL SECURITY EXTENSION: THE MECHANISMS UNIVERSAL BENEFITS SOCIAL ASSISTANCE SOCIAL INSURANCE MICRO- INSURANCE TAX TAX CONTRIBUTIONS CONTRIBUTIONS WORKER + EMPLOYER + GOVERNMENT (?) MEMBER ALONE?

Campaign for extension of coverage the year 2009 vision 1. Basic coverage for all, universal but not necessarily uniform coverage (accepting pluralism) 2. Responsibility of the state but delivery can be shared with private sector & communities where feasible 3. Rights based Everyone has the right to social security (Article 22 of the Universal Declaration of Human Rights) 4. Social outcomes in terms of adequate benefit levels have to be reached, independent of the organization. ILO conventions are important as global safeguards and benefit benchmarks.

Basic social package Social Security Floor A new instrument in the making proposal: 1) Universal basic essential health care for all - through a public health service funded by taxes, social and private insurance and micro-insurance systems 2) Basic child benefits aimed to facilitate access to basic social services - nutrition, education, housing 3) Income support access to basic means tested/self targeting social assistance for the poor and the unemployed in active age groups 4) Income security for people in old age, invalidity and survivors through basic pensions

The campaign strategy: the social security development staircase Voluntary participation Contributory social security Semi-contributory social security SP Floor (non contributory) Family benefits Unemployment insurance & minimum revenue Social pensions, old age and special needs Access to health care and essential services