1 THE CHALLENGE OF COVERING THE INFORMAL SECTOR: The Philippine SSS Experience CORAZON S. DE LA PAZ President and CEO Social Security System, Philippines.

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THE CHALLENGE OF COVERING THE INFORMAL SECTOR: The Philippine SSS Experience

CORAZON S. DE LA PAZPresident and CEO

Social Security System, Philippines November 30, 2006

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Introduction

Strong World Economic Growth

Growth in Formal Sector Employment

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Introduction

Rising prosperity and better

opportunities

Many have not shared in the benefits of the progressive world.

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Introduction

Expansion of the Informal Economy: Self-employment Petty trade Domestic service Part-time work Odd jobs without contract

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Introduction

Growth of Informal Sector

Sector where poverty is acute

Extension of social security coverage becomes an even more universal concern

Globalization failed to create enough opportunites

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Philippine Informal Sector

Class of Worker Number ofEmployed (‘000)

Wage and Salary Workers 16,799

Own-Account Workers 12,147

Self-employed 10,847

Employers 1,416

Unpaid Family Workers 3,942

Total Employed 32,888Note: Average of January, April and July 2006 Labor Force Surveys,Philippine National Statistics Office

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Philippine Informal Sector

Distribution of Informal Sector Workers by Industry Group

Services39.1%

Industry5.8%

Agriculture55.1%

Source: July 2006 Labor Force Survey, Philippine NSO

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Philippine Informal Sector

Class of Worker PoorFamilies

Non-poorFamilies

Wage and Salary Workers 35.5 55.8

Own-Account Workers 44.4 34.7

Unpaid Family Workers 20.1 9.5

Total 100.0 100.0Source: Philippine National Statistics Office

(Percent Distribution of Employed Members)

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The Philippine SSS Program

Contingencies covered: Old age Disability Work-related injury Death Sickness Maternity

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The SSS Program Loan Privileges:

• Salary Loans• Housing Loans• Business Loans

Flexi-Fund Program for OFWs• Enrolled 61,070 OFWs as of end-2005• Total member’s equity of US$1.94-M, as of

July 2006

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The SSS Program

Coverage and Membership

Item Number

Registered EE 26,491,399

Covered EE 20,976,613

Self-employed/Voluntary

5,514,786

Registered ER 774,040

As of end-Jun 2006

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The SSS Program

0.0

1.0

2.0

3.0

4.0

5.0

6.0

(In

mill

ions

)

1997 1998 1999 2000 2001 2002 2003 2004 2005 Jun-06

SSS Self-Employed and Voluntary Members

5.6-M

1.7-M

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SSS Membership

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 Jun-06

(In

mill

ions

)

Total SSS Membership

Self-employed/Voluntary Members

The SSS Program

21%8.8%

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The SSS ProgramIssues on Coverage of Informal Sector Willingness to be covered in the first

place Sustainability of member compliance

Enforcement and monitoring of compliance

Irregularity of income flows makes it difficult for workers to meet qualifying conditions for membership or the capacity to sustain monthly contributions

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The SSS ProgramIssues on Coverage of Informal Sector Serious compliance and evasion problem

at SSS Of the total SSS membership only one-

third (8 million) are paying Of the total self-employed less than one-

fifth are paying

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Current Initiatives Branch Tellering

Ability of partner banks to accept payments of SSS SE/VMs is constrained by the bank’s needs to service other and more profitable clients

Designed to facilitate payment of premiums and loan accounts of informal sector workers

Response to the restricted banking hours when SSS payments may be accepted

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Current Initiatives Remittance thru other payment schemes

Self-service facilities like payment kiosks in major SSS branches

“Bayad” Centers or Payment Facilities Collection thru Third Party Agents Payment thru Philpost Payment thru the Internet and ATMs Payment thru SMS (Texting)

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Current Initiatives Payment thru Cooperatives

No employer to act as conduit between the SSS and informal sector workers, hence, more administratively costly

Cooperatives and People’s Organizations play the role of employers for workers in the formal sector

Accreditation of Cooperatives and People’s Organizations

Provide monetary incentives to encourage their members to pay SSS contributions as collecting agents

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Current Initiatives Daily Remittance Scheme

Undertaken in collaboration with the Department of Labor, the Philippine Savings Bank and the Development Bank of the Philippines

Informal sectors are encouraged to make daily deposits in order to cumulate an amount equal to a monthly SSS contribution

Underlying Logic: If given the opportunity, low income households will divert a small level of disposable income from immediate consumption to future expenditure needs

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Current Initiatives Support for Small and Medium Enterprises

SSS supports the development and expansion of the productive capacity of SMEs, export and housing industries, tourism industries and cooperatives

Done thru the: SSS business and social development loans such as

the SME Unified Lending Opportunities for National Growth (SULONG) Program

SSS-GSIS Special Financing Program Financing Program for Tourism Projects Financing Facility for SMEs to support the barangay

micro-business program of the government

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Current Initiatives Quality Service

Additional receiving centers in the metropolis Covenant of Service

Pledge to reduce processing time for benefit claims and loan applications

Bring SSS closer to its long-term vision to deliver “real time” services thru streamlined procedures, effective IT support, and optimal deployment of trained personnel

Substantial reductions in processing time for loans and benefit transactions

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Current Initiatives Increase in Minimum Salary Credit

Higher MSC for SE/VMs from US$20 Objective: To set and maintain a salary

range that is sustainable for contributory social security scheme

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Conclusion

The Challenge of covering the informal sector and

capturing their contributions is formidable.

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Thank You