Old Age Protection for the Uninsured: What are the Issues?
This paper considers three alternative ways that countries have dealt with old age security and what the implications are for poverty among the uninsured: A universal social security system (or first pillar in a multi-pillar system) that delinks benefits and contributions and covers everyone, so there are no uninsured; a contributory social security system that closely links benefits and contributions, thereby creating a class that has not contributed and is not insured; and the most traditional system, the family, which still has a supplementary role to play in each of the other systems.
In recent years we observe a shift away from the first alternative and toward the second-a tighter link between benefits and contributions-most obviously in the shift toward multi-pillar systems with a large defined contribution component. This augments the fiscal sustainability of social security systems; but runs the risk of increasing the number of uninsured or partially insured, many of whom are poor. The uninsured fall into two groups: workers in the informal sector, who have labor market jobs that are not covered by contributory programs, and women, who have worked in the household rather than the labor market for most of their lives. To address the needs of the first group, social security reforms that make benefits contingent on contributions have been or should be accompanied by enhanced means-tested programs-creating the need to design such programs efficiently and take their costs into account in planning the reform. For the second group, the pay-out phase of the defined contribution pillar should be designed so that it provides lifetime income to dependent spouses to keep them out of poverty.
Last updated: 04/26/07
