Improving Adequacy of Benefits The Role of Social Security Presented during Regional Social Security Forum for Africa, Arusha -Tanzania, 05-07 December.

Improving Adequacy of Benefits

The Role of Social SecurityPresented during Regional Social Security Forum for Africa, Arusha -Tanzania, 05-07 December 2011Irene IsakaDirector General- SSRA

Social Security

The ILO has traditionally defined social security as a set of public measures that address three types of contingencies:

1. The need of medical care,2. The loss or substantial reduction of earnings

due to different lifecycle events, sickness, maternity, employment injury, old age, invalidity, death of breadwinner or unemployment,

3. The cost associated with raising children

The Right to Social Security …• Article 22 of the

Universal Declaration of Human Rights states: “Everyone, as a member of society, has the right to social security”

• United Republic of Tanzania Constitution• Article 9, 11, and

general article 29 provides the basis for the realisation of Social Protection as Human Right.

• At the ILO Conference last June, “the ISSA expressed its full support on social protection floor initiative of the ILO, which calls on governments to provide basic social protection guarantees for the whole population and at the same time , to promote higher levels of income security and health protection through contributory coverage” by Errol Frank Stoove’ – President ISSA -

Guiding principles• Equality national and

non nationals men& women

• Solidarity –individual right to social security protection for all human beings

• Compulsory affiliation(compulsory vs voluntary coverage)

• General responsibility of the state derived from human nature of ss &democratic management-financing through contributions

Solidarity •Applies to financing techniques irrespective of the approach (full, partial, pay-as-you go, taxation or combination of those). •Collective financing is indispensable to ensure that the most vulnerable categories enjoy real access to social protection they require

Policy framework for adequate social security for all

• Universality – formal and informal sector should be provided with an opportunity to participate in social security schemes

• Progressiveness - provision of basic benefit package should progressively be improved as national resources allows

• Pluralism • Outcome focus

General government

User fees

Financing Mode;Financing principles with institutional implications

Benefit Principle

Low High

Vertical Cross-

subsidy

Low

High General tax

General tax

Earmarked tax

Earmarked tax

Mandatory insurance

Mandatory insurance

Private insurance

Private insurance

INCREASING willingness to payINCREASING willingness to pay

Public entity Regulated Private agent

Delivery mechanisms

Tier/pillar 1Tier/pillar 1 Tier/pillar 2Tier/pillar 2 Tier/pillar 3

Social security benefits may be considered adequate if:

• they help to achieve expected social policy outcomes (e.g. meeting the needs of people who have to cope with life’s essential risks) listed in slide2

• the relationship between benefit levels and taxes and/or contributions paid during a working life is considered to be “fair” (social adequacy);

• they work in synergy with employment instruments and fiscal and other economic policies, and do not result in unwanted economic consequences (economic adequacy).

• Should be sustainable and robust enough to withstand shocks. It Must offer beneficiaries security of adequacy even during periods of

economic and financial fluctuations

Adequacy of social security benefits is linked to the quality of public services

Comprehensiveness & adequacy• Collective “actuarial equivalence” of contributions

and benefit levels:

• minimum benefit replacement rate • minimum rate of return in case of savings

schemes, • must adequately reflect the overall level of

the contributions , such minimum levels should be effectively guaranteed, preferably by the State.

• Timely payments of benefits

Comprehensiveness & adequacy

• Sound financing: financing method that ensures long-term financial sustainability,

• maintenance of adequate fiscal space for the entire national social security systems

• Responsibility for governance: The Government as the ultimate guarantor of social security rights

• contributors and beneficiaries participate in the governance of schemes and programmes.

Poverty Reduction

Benefits adequacy•shares the benefits of economic growth.•Makes any economic reform programme more pro-poor.•Increases the likelihood of success of the reforms.•Improve nutrition health, and education outcomes.•Protects people from shocks and directly supports well-being.•Protects assets.•Enables economy to better with stand shocks.•Provide economic automatic stabilizer.•Strengthens bond between state and people.

Social security

adequacy

Human Capital

Livelihood

Risk Management

Economic Resilience

Economic reform

Multi-dimensional impact of social security benefits adequacy

Situation in Africa• There are 55 countries in Africa with a combined population• of over 1 billion people, with over 850 million living in sub-Saharan

Africa.• In 2011, the global population reached 7 billion and will reach 10 billion

by 2083. Much of this future increase will occur in 58 high-fertility countries, 39 of which are in Africa.

• Africa’s population represents 15 per cent of the world’s current population; by 2050, it will represent 24 per cent.

• In 2011, 40 per cent of Africa’s population lives in urban areas, an increase of over 110 per cent since 1990.

• The number of Africans aged 60 or older is estimated to be around 56 million, which equates to around 6 per cent of the total population.

• Approximately 50 per cent of Africa’s population is younger than age 20.• In low-income African countries, social security coverage ranges from 5

to 10 per cent of the population.

• Source :ISSA policy Highlights 21

Situation in Africa• Since mid -1990, many sub-Saharan African (SSA) countries have

experienced a marked acceleration in economic growth. Whereas region-wide real GDP growth averaged some 2.25 percent between 1980 and 1995, since 1995 growth has averaged more than 5 percent and a higher still 5.5 percent from 2000 to 2010

• Progress on poverty reduction, however, looks to have been much limited. Region-wide estimates, which are available only through 2005, show that the proportion of people living below the poverty line (US$1.25 a day) declined only modestly from 59 percent in 1996 to 51 in 2005. And when one looks at the link between per capita growth and poverty reduction in a sample of SSA countries that incudes more recent data points, the relationship is a weak one.

• Source :IMF World Economic and Financial Survey Oct 2011

•

18.0

14.1

9.0

11.0

9.9

7.1

7.6

3.6

2.8

5.7

7.1

4.8

7.0

2.5

3.6

3.1

2.2

1.7

2.5

2.7

0 5 10 15 20 25 30

Western Europe

Central and Eastern Europe

North America

North Africa

CIS

Latin America and the …

Middle East

Asia and the Pacific

Sub-Saharan Africa

Total

Percentage of GDP

Total public social protection in percentage of GDP - regional estimatesWeighted by population

Public social security expenditure (excluding health)

Public health expenditure

8.4

13.6

13.5

10.2

9.8

5.3

5.3

25.1

18.9

16.0

…Level of Resources dedicated to Social security show there is catching up to do on mobilizing resources and financing..

Luis Frota – Presentation; Nov 2011

Efforts made in Africa• Efforts made include;• Initiatives made by NHIF/CHFS, NSSF on health insurance and

GEPF Voluntary saving Retirement scheme• Rwanda on health and informal sector• SNIIT informal in Ghana• Gabon NSSF coverage on health(prevention of occupational

diseases)• Mauritania and Mali –prevention measure in health care prov.• Mauritius (Transition unemployment Benefits)• Kenya social protection programs with as support from DFID• Senegal – social protection initiative• Morocco- National Sickness Insurance Agency(prevention

program on long-term illness)

Current situation in Tanzania

• Levels of contributions and benefits do not match across the schemes

Sector Scheme Contribution Benefit factor/formula

Civil Service/Government employees

PSPF/LAPF

GEPF – DC

20% of members salary25%

Accrual rate 2.2% without floor/ceiling

Parastatal/private PPF 20% of members salary

Accrual rate 2.0% with floor/ceiling

Private/Parastatal NSSF 20% of members salary

Accrual rate 2% for the first 15 years and 1.5% for every additional 12 months with floor and ceilings

Health Mandatory mainly Civil Servant

NHIF 6% of the salary All illness which are treated in the hospitals registered and accredited by the Ministry and the Fund

Health Voluntary CHFs – district funds

Flat amount Limited within District administration.

Tanzania dedicates a limited % of GDP to social assistance

Main Issues and Challenges• Narrow coverage The existing SSS cover less than a

million people out 41.89 million Tanzanians i.e., The covered population represent 6.5% of the effective labour force estimated at 20.94 million people

• Fragmented Legal and Regulatory framework• sustainability of current mandatory social security

schemes• Different benefits packages although CR = 20% • Lack of indexation• Limited areas of investments• Limited Fiscal Space for Social Protection program. • Low levels of awareness by members of the public on

social security issues• Large informal sector – unpredictable incomes,

unorganized, informal saving mechanisms

CHALLENGES, LIMITED COVERAGEThe self-

employed in agriculture

and elsewhere account for

about 93.5%

Public-sector and other formal-sector employees account for about 6.5% of total employmentPublic mandatory social security/

protection arrangements.(Institutions are NSSF, PPF, LAPF, PSPF, GEPF, GPS

(Treasury department), NHIF and Employment

contract incentives)

Formal Sector 6.5% of workforce

Informal Sector93.5% of Workforce

Private schemes which are not

community based. The coverage is

insignificant

To address challenges SSRA has taken following steps…• Review of Legal and

regulatory framework• Development of a

reform Program• Comprehensive

Actuarial Valuation• Comprehensive

Portfolio review• Preparation of

regulations

“A sustainable social security system that

contributes to economic growth and prosperity

for all Tanzanians

Improving adequacy & extending coverage in a contest of limited resources In Practical terms SSRA is focusing extension of social security system in two dimensions, so as Tanzania can realise both benefit adequacy in amounts and coverage of needs, and on population covered to the extent of full realisation of international and national guaranteed rights

100% Full

benefit coverage

Intermediate benefit

coverage

Be

ne

fit

co

ve

ra

ge

Basic benefit coverage

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em

plo

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Priv

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es

Info

rm

al

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on

om

y

No

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mp

loyed

Wo

rk

ing

ag

e

No

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mp

loyed

Ch

ild

re

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No

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mp

loyed

Eld

erly

Population coverage by groups

Long term PerspectiveReforms are divided into 3 phases;

1. Extension & Harmonisation

2. Stabilisation

3. Growth & Prosperity

Challenges facing BA ; Partnership needed with

other stakeholders

Challenges Facing Benefit Adequacy• Funding

• Assets / liabilities mismatch• Global Financial Crisis affected both adequacy &

affordability• Traditional investments-alternative investments shift

(Diversification)

• Low coverage• DB-DC shift• Compliance issues, Long TAT• Disconnect between recent growth and poverty

outcomes in sub- Saharan Africa

Not only the funding but Adequacy and focus on outcomes is an

essential part of delivering efficient/ effective Social security

General responsibilities Partnership

needed

Social Security Institutions

• Management and Product / Service quality assurance

• Efficient IT Data Bases and Information flow processes

• Fraud control and client orientation; effective controls

• Internal performance based HRD for appropriate incentives

• Ensure Density of contribution, (compliance and Return on Investment)

• Good governance & adminstrative excellence

• Financial literacy & awareness

Donors and development partners

• Promotion of international labour standards

• Knowledge sharing Ensuring permanent knowledge generation and sharing with all national constituents

• Technical Co-operation and advice Diagnostic assessment of national policies and higher level social security policies

• Financing SPF• Capacity building Reinforcement

of national capacity from the high level managers to the professionals in the key administrative and managerial areas and tripartite members of governing bodies

General Responsibility of the State:• Effective competition, • cost containment, • investment in real

economy• Financing• Effective information• Financing of and

maintenance of social security rights

• Strengthen the value of tax incentives for mid to low income people; tax credits or matching contributions instead of tax deductions

• By Alejandro BONILLA-GARCIA

Policy Framework to Promote Adequacy should focus on

• Extension of coverage (efforts made in Rwanda, Ghana SNIIT informal, Kenya, TZS GEPF-VSRS, NHIF &NSSF health insurance )

• Enhance collection of contributions (compliance) the use of M-Money

• Risk management• Fund management with Alternative investments

&Tax incentives to improve adequacy• Good governance and administrative excellence• Public awareness programs(TZ -SSW)• Contribution rates linked to age….

Policy Questions• What is the appropriate level of contribution

rate that matches with benefit adequacy?• Are private pensions fulfilling their

complementary role in providing for adequate benefits?

• How should one ensure right balance btn AB and extension of coverage?

• How to increase effectiveness of SSI in adequacy of benefits?

• For adequate benefits Should one maintain quantitative investment limits or apply prudent investor rule?

Pre

pa

red

by

Ire

ne

Is

aka

ASANTE SANA

• Social Security Regulatory Authority• New Bagamoyo Road

• P.O.Box 31846• Dar-es-Salaam

• Tanzania• Tel:+255 22 276 1683/4• Web: www.ssra.go.tz