Pension financialization and collective risk sharing in Canada and Finland

This article contributes to the debate concerning pension financialization and how countries are adapting their pension systems to respond to demographic ageing. We do so by examining the statutory pension systems of Canada and Finland, which diverge interestingly from current international trends. The Canadian and Finnish public pension schemes reflect two tendencies often associated with pension financialization: an increasing reliance on financial markets and an investment policy with a diversified asset allocation. However, unlike in many other countries, this has not resulted in heightened individual risks in old-age income security caused by a shift from defined benefit to defined contribution pensions – an otherwise common trend internationally.     

Lessons from China on different approaches to pension coverage extension

Achieving universal pension coverage is both an aspiration and a challenge for many developing economies. Traditional contributory schemes are less effective in extending pension coverage to workers who are not in the formal sectors of the economy. As an alternative, non‐contributory schemes have gained popularity in recent years. China’s pension reforms mirror this global trend. The introduction of a contribution‐based pension scheme for urban employees (Employees’ Pension) was followed by a scheme for rural and urban residents (Residents’ Pension), which is partly government financed and partly contributory, with multiple options for premium payment. This study uses nationally representative survey data collected in 2016 to compare the inclusiveness of the two schemes. It finds that access to the Residents’ Pension scheme is more equal than the Employees’ Pension. Lower status workers in terms of education, employment, income and hukou‐migration are more likely to participate in the Residents’ Pension as opposed to the Employees’ Pension, compared with higher status workers. The Chinese experience suggests that a workable solution for pension extension in low‐ and middle‐income countries is to have a scheme that is flexible, affordable and responsive to the diverse needs of the population.     

Extending pension coverage in Cambodia: The governance and investment challenges of the Social Security Investment Fund

Rapid economic growth, declining fertility and changes in family structures have encouraged the Kingdom of Cambodia to reform its old-age pension system. The Government of Cambodia reached an important milestone in 2019, when the Law on Social Security was promulgated. The Law includes provisions for a compulsory defined benefit pension scheme, establishing a sound framework for extending compulsory pension coverage beyond the public sector to formal private-sector workers. As a future step, the compulsory pension scheme should be extended to informal workers. To accompany the reform, the investment policy for the pension scheme’s reserve funds, including the supervisory regime and investment strategy, will be essential for the modernization of the Cambodian social security system. In this regard, Cambodia has successfully sought policy advice. However, the country should continue to seek further advice, and to act on this. Otherwise, the necessary and increasingly pressing policy ambitions of Cambodia to develop an adequate and sustainable social protection system may not be fully realized.     

Social security coverage for couriers who work through digital platforms in Mexico: A role for a special scheme?

The socio-demographic characteristics of couriers who work through digital platforms in Mexico reveal that more than 85 per cent of these workers have completed full-time secondary education and 83 per cent of these workers are young (aged 14 to 44). However, only 25 per cent are covered for health services and social security benefits. Against this backdrop, and guided by international experience, we set out a proposal to provide these workers with a tailored package of social security benefits. The proposal would require to categorize couriers who work through digital platforms as “digital workers”, introduce a special scheme for these workers based on voluntary affiliation, and offer a specific portfolio of benefits.     

The performance of the income protection system for older adults in Ecuador and future challenges

The objective of this article is to analyse the performance of Ecuador’s pension system and the challenges it will face in the future. Over the last 13 years, the pension system has made significant advances in terms of coverage and adequacy. However, demographic ageing is straining the financial sustainability of the contributory scheme. In this context, a number of public policy areas are identified, in terms of parameters and structures, which, together with the expansion of non-contributory coverage, could provide a more equitable and sustainable scheme.     

The expected impact of the 2019 Brazilian pension reform on survivors’ pensions

This study analyses the expected changes in survivors’ pensions resulting from the permanent rules of the 2019 pension reform in Brazil. Actuarial annuities are used for representative worker profiles. The dispersion in the replacement rate values decreases, except for the highest income level. The rates needed to finance survivors’ pensions decrease relatively more than do the rates for old-age pensions. The internal rates of return significantly decrease. There is a heterogeneous change in the distributive aspects of the pension system. The reform shall affect the adequacy and intragenerational equity of old-age and survivors’ pensions.     

China’s development of a multi‐tier pension system

China has made a number of major changes to its pension system in the period 2014–2020, and is in the process of establishing a multi‐tier old‐age pension system, consisting of programmes provided by the government, voluntary programmes provided by enterprises, and voluntary programmes established by individuals. Policy objectives are to reduce the fragmentation in its pension system; deal with population ageing; and diversify risks by involving the government, enterprises as well as individuals. This article shows that while China has a complex system for urban workers, the coverage provided by its multi‐tier system is uneven, with the second and third tiers being in the early stages of development.     

Special pension schemes for workers in arduous and hazardous jobs: Functions and conditions to ensure equal treatment

Most jurisdictions grant differentiated and more beneficial treatment – usually in the form of early retirement, and commonly under special pension schemes – to workers in arduous or hazardous jobs. Several justifications for such treatment have been advanced, including i) compensating the worker for the hardship, ii) protecting the worker from the hazard, and iii) realizing the principle of equality in the distribution of costs and benefits in the social security system. This article analyses these functions from a socioeconomic perspective and explains how early retirement for workers in arduous and hazardous jobs is necessary to ensure equality by treating “unequals unequally”, and in proportion to their inequality. Moreover, this article presents a precise formula to calculate when a worker should be allowed to retire, so that workers in occupational domains with a shorter life expectancy do not systematically enjoy lower expected benefits from the pension system while having contributed the same amount. Implications for the design and desirability of special pension benefits are discussed.     

Does a universal non-contributory social pension make sense for rural China?

China’s pension reform during the past three decades has allowed a majority of China’s population to be covered by a pension scheme. Of particular note has been the New Rural Pension Scheme (NRPS), a voluntary programme introduced starting in 2009. One goal of our analysis is to assess that pension scheme, using a variety of sources of information including data drawn from recent (2013 and 2015) nationwide China Health and Retirement Longitudinal Surveys (CHARLS). Our analysis involves an exploration of differences between the generosity and structure of the NRPS and other pension schemes currently in place. We also explore the feasibility of reforming the current “quasi-social pension” component of the NRPS by substituting a universal non-contributory social pension pillar. In connection with our assessment of the NRPS, we note the unusually low benefit levels for rural China.     

Digital social security accounts for platform workers: The case of Estonia’s entrepreneur account

Advancements in technology enable new opportunities for creating digital social security accounts, but the effectiveness of these to solve the accessibility and eligibility issues facing platform workers has not been assessed fully in the literature. The potential of digital social security accounts lies in their ability to consider the possible different streams of income of atypical workers and to improve the effective access of these workers to social security. Tax and social security offices can now exchange information on the income of platform workers in real time, which offers the promise of formalizing the previously informal casual work relationships of the self-employed. This article explores the case of the Estonian entrepreneur account as a digital hybrid solution for improving the effective access to social security of platform workers. Digital portable accounts create the conditions for the structural improvement required to respond adequately to meet the changing social security needs of atypical workers. However, this also requires that the policy design be thought through carefully, to avoid digital portable accounts being simply a digital facilitator of outdated solutions.     

Work histories and workers’ failure to satisfy pension contribution requirements: A comparison of Mexico and Uruguay

Comparing Mexico and Uruguay, this article examines the work history of workers and the challenges they face to satisfy the minimum contribution period for eligibility to receive a contributory old-age pension. Administrative data on work histories is used to formulate a survival model aimed at estimating hazard rates of entering and transitioning out of a given contribution status. This model is then used to perform a Monte Carlo simulation to forecast contribution histories. Results suggest that the hazard rate is negatively associated with the length of a worker’s spell in his or her current status and warn that, both in Mexico and Uruguay, a significant group of workers will find it difficult to gain entitlement to a contributory pension in old age. The manner in which each of these national systems has addressed the challenges associated with low contribution densities may explain the two countries’ very different coverage results.     

The 2022 Greek pension reform: The rebirth of carve-out privatization in Eastern Europe

After a decade of unprecedented austerity, Greece abruptly changed the course of pension consolidation in 2022 and implemented the controversial carve-out pension funding approach, whereby a portion of existing pay-as-you-go (PAYG) contributions are diverted to fund individual pension savings, thus undermining the financing of existing PAYG pensions. Although inspired by the World Bank’s 1994 pension privatization blueprint, the Greek 2022 reform features a major policy shift by entrusting the management of individual pension savings to a dedicated government body, ostensibly to try to remedy inherent market failures in private pension provision. Like earlier reforms in Eastern Europe, the multi-decade transition costs of carve-out funding have been vastly underestimated in Greece, which will give rise to fiscal distress in the coming years when annual transition costs become sizeable and favourable international financing terms start to change. Unless firm political commitment is established to implement the measures necessary to finance the transition costs, Greece may have to resort to reform reversals similar to those already implemented across Eastern Europe.     

Pension scheme fees and charge ratios in 44 countries: A comparative study

Based on data received from pension supervisory authorities, the article reviews 85 different pension schemes in 44 jurisdictions by looking at fees and charges as well as their legal ceilings and their development since 2014. A key finding is the observed decrease in fees and caps. The article presents jurisdictions according to clusters, i.e. by groups of countries with identical or very similar items already covered by pension fees, and analyses the extent to which various cost and fee elements are covered by fees charged to members. Finally, we calculate charge ratios for each cluster to quantify the impact of fees and charges on pension savings. Occupational defined contribution pension schemes and personal plans linked to employment tend to be much more cost effective than personal schemes that have no direct employment link.     

The challenge of pension reform in Georgia: Non‐contributory pensions and elderly poverty

Georgia's national social security system offers almost universal non‐contributory basic pension coverage. The basic pension has, to date, proved effective in dealing with old‐age poverty. But Georgia's fiscal constraints and ageing population also highlight the importance of improving the pension system, in order to ensure its sustainability. This article presents policy reform choices, which suggest that, in Georgia, pension reform might include increasing the statutory retirement ages and reducing the generosity of benefits through means testing. The case of the Georgian non‐contributory basic pension might hold value for some low‐ and middle‐income countries that are considering the implementation of, or expanding coverage under, a non‐contributory pension programme.     

The potential impact of introducing a social security system in the State of Palestine: A computable general equilibrium approach

This article assesses the potential impact for the State of Palestine (West Bank and Gaza) of enforcing the enactment of the currently suspended Social Security Law (No. 19 of 2016). Using a computable general equilibrium model, we simulate different scenarios associated with the enactment of the social security system on key macroeconomic variables, such as GDP, private consumption, government spending, investment and employment, for the period 2020–2030. We evaluate the influence on the economy of introducing a social security system for private-sector workers, as set out in the 2016 law, and compare the simulation results of each scenario to the baseline. In each scenario, we consider different options concerning severance payment duration and different options for the investment strategy of social security contributions. However, for employees in Gaza, the article does not consider severance payments due to economic difficulties and the Israeli closure policy.     

An actuarial balance sheet of the Swiss old‐age pension scheme

Following the recent update of the international System of National Accounts (2008 SNA), internationally comparable estimates of accrued‐to‐date pension liabilities (ADL) of unfunded social security pension schemes will soon be available in the supplementary table to the National Accounts. Against this background, this article analyzes the medium‐term sustainability of the Swiss old‐age pension scheme (Alters‐ und Hinterlassenenversicherung – AHV). This is achieved by estimating a “Swedish” actuarial balance sheet, which compares pension liabilities with the explicit and implicit assets of the pension scheme. Our results show that the current financing of the AHV is unsustainable, with about 30 per cent of the liabilities not backed by corresponding assets. In order to close this financing gap either the contribution rate should rise from 8.4 per cent to 12 per cent or all pension liabilities should be cut by about 38 per cent.     

Economic crisis and social policy reform in Korea

The economic crisis that broke out in Korea in December 1997 has had a chilling impact on social development in the country. Today unemployment is the highest that Korea has experienced in the past thirty years. This paper aims to examine the impact of the economic crisis on social development and the role of public policy to mitigate the problems caused by the crisis. The economic crisis has hit vulnerable groups harder, increased the proportion of part-time and daily workers, and reversed the trend of steady improvement of income distribution. The economic crisis along with the trend of aging population, globalization, and competition calls for an expanded role of social policy, which the Korean government has neglected for a long time. The main targets of social policy reform in Korea include the expansion of government programs and safety nets for the unemployed and redesigning the national pension and health insurance scheme to provide adequate income security as well as to improve the system sustainability.     

Expanding social health protection in Cambodia: An assessment of the current coverage potential and gaps,and social equity considerations

The Royal Government of Cambodia recently launched its National Social Protection Policy framework to strengthen and expand social security and assistance. To inform social health protection policy, we examine socio-economic survey data and administrative coverage data to assess the coverage potential of existing coverage mechanisms and current gaps; and compare equitable contribution rates. Over 53 per cent of the population currently has no social health protection coverage mechanism, and about 16 per cent of the population who do have access to a mechanism are not yet enrolled. Current expansion efforts focus on the formal employee scheme, primarily benefiting individuals from higher income households. In addition, recent coverage expansion to some informal workers leaves significant gaps, particularly among the informal sector. We find out-of-pocket health care expenditure to be an excessive share of income among lower wealth quintile individuals and conclude they are financially vulnerable. Finally, we illustrate that an equitable approach to individual, monthly health care contributions among the lower three quintiles has a severely limited potential for revenue generation, and collection costs could exceed the amount collected. Therefore, we recommend that vulnerable groups should be exempted from contribution payments as social health protection is expanded.     

Introduction: Social security,inclusive growth and social cohesion

This special issue selectively addresses the relationship linking social security systems, inclusive growth and social cohesion. Inclusive growth and social cohesion are viewed as political expedient and necessary goals for national economies. The desirability of their attainment reflects political pragmatism, the “social contract”, as much as it does a commitment to the wider emancipative goal of social justice. The International Social Security Association (ISSA) has often paraphrased these assertions to argue that there can be “no social justice without social security”. Of course, progress achieved towards the realization of the goals of inclusive growth and social cohesion should be equally beneficial for the adequacy, sustainability and coverage of social security systems. The aim of this special issue is to unpack and better understand the nature of this relationship.     

Reinvigorating the social contract and strengthening social cohesion: Social protection responses to COVID-19

The COVID-19 pandemic has exposed the vulnerability of those who are inadequately covered by social protection in more and less developed countries alike, and has exacerbated the fragility of a social contract that was already under strain in many countries. A weak social contract in the context of an exceptional crisis poses a very real risk to social cohesion. Nevertheless, many States have reasserted themselves as the guarantor of rights by protecting public health and incomes. By sustaining these measures, economic recovery will be supported which will help minimize risks that may weaken social cohesion. However, this is a fast-moving, inherently unstable and protracted crisis. Social protection stands at a critical juncture. Decisive policy action will be required to strengthen social protection systems, including floors, as one of the cornerstones of a reinvigorated social contract.