First published in 1948, the International Social Security Review is the principal international quarterly publication in the field of social security.
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.
Long-term care provision and financing are becoming increasingly important matters in all ageing economies. Therefore, a major challenge for policy makers is to strike a balance between adequate care and sustainable financing. In this study, we evaluate the proposal of a so-called sustainability factor in German long-term care insurance. Considering changes in the beneficiary-contributor ratio, it aims for a rule-based consideration of demographic dynamics to alleviate pressure on long-term care financing. Using the framework of generational accounting, we demonstrate that this proposal could have a relieving effect on finances, depending on the share of involvement of current and future generations. It may offer an option for pay-as-you-go long-term care insurance systems worldwide that need to curb the impact of ageing societies. Therefore, this article addresses policy makers tasked with designing a sustainable financing model for long-term care insurance. It demonstrates that the sustainability factor represents a step towards sustainable finances and, thus, it might be one component of a more comprehensive reform package.
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. Similar to 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.
Universal Health Coverage (UHC) and Social Health Protection (SHP) are key policy foci that cut across all dimensions of the 2030 Sustainable Development Goals agenda. Understanding of these two concepts, their fundamentals and relations would improve health policy development and implementation to attain UHC and effectively protect the health of people and save lives and livelihoods. The COVID-19 pandemic has provided useful lessons to improve multi-sector activities to strengthen and finance health and social protection systems. The aim of this article is to provide conceptual clarity on the contribution of the global frameworks on SHP to the policy goal of UHC. In doing so, the article contributes to health financing and social security related policy discussions and advocates for much needed integrated policy actions at global as well as country levels. It discusses the origins of the two concepts and the relevance of SHP to health systems financing for UHC. Although country situations differ, the main findings, especially for low- and middle-income countries, are highlighted and summarized.
This article analyses Cuba’s pension system from 2006–2021 with respect to its financial and actuarial sustainability and impact on the population. It includes discussion of the ageing population; the sharp cut in social expenditures since 2009; the deficit in pension financing and the impact of the 2008 parametric reform; the devaluation of pensions; structural reforms and the expansion of poverty and the curtailing of social assistance; the impact of the current economic crisis on pensions; and projections of the future financial sustainability of pensions.
In an effort to establish universal health coverage (UHC), Senegal set up two departmental health insurance units (UDAM) to scale-up health insurance to rural communities. Part of this innovation meant that health insurance was longer managed by volunteers, but by professionals. Several years after the conclusion of the project in 2017 that supported their initial development, both UDAMs still operate successfully. This mixed methods research aims to understand the factors that have contributed to the sustainability of both UDAMs, as well as discuss the remaining challenges. The factors deemed favourable to sustainability are actions undertaken to ensure financial stability and organizational risk taking. However, the mobilization of the population, relationships with health professionals and the role of the State have been more difficult to organize. Challenges concern the payment of subsidies and the supply of medicines by the State and partnership with the health care system, the maintenance of contributions, the digitalization of administration, as well as fraud and abuse.
Platform work confronts traditional social security law in two dimensions. First, it makes the distinction between dependent and independent work uncertain and unclear, as the borderlines between these blur. This is a profound challenge for social security law, because the criteria of dependent and independent work have to be precise. In the determination of work as dependent or independent, German law illustrates that a shift has taken place in determining employment status, moving from external and objective criteria to the contracting parties’ decision, which is to be executed under private law, but also respected under social security law. Second, platform work is heavily intertwined with digital communication, which has established a global environment for communication. Thereby, platform work can also facilitate international trade by making transnational work more accessible and efficient. Therefore, it seems necessary to examine the implications of platform work in international law. International law makes possible the choice of law, executed by the contracting parties. As a consequence, the protection of employees by social security law is related to the private law arrangements between the service provider and the service recipient. Gaps in social security protection of service providers are widespread. In many countries, awareness of the social protection deficits of platform workers has grown and responses to improve the social status of platform workers have come under scrutiny. Analysis reveals that there is a joint responsibility of the service provider and the service recipient to be bound to social security coverage under the same national legislation. Nevertheless, from an international law perspective, it is shown that reforms are confronted with restrictions under international law.
One mechanism for influencing income redistribution through a pension system is to incorporate non-contributory financing. Using mathematic modelling tools, this study compares two arrangements for financing Argentina’s pension system that emerged from an optimization exercise. One arrangement permits financing through income tax and the other does not. The former is found to be preferable in terms of equality and proves robust to changes in the investment rate and the inequality aversion parameter. The use of mathematical modelling tools by decision-makers with access to sufficient high-quality data would allow for a credible assessment of the extent to which a particular parametric reform might (or might not) contribute to improved income distribution.
This article examines the sustainability of China’s Urban Employees’ Pension Programme – the main component in China’s overall old-age support system. It looks at the sustainability of the programme generally and, in particular, at case studies of two areas (Tianjin municipality and Guangxi province) to highlight both the extent of regional variations and the common challenges facing Chinese policy-makers. It discusses a number of key issues that should assist policy-makers to address the challenge of population ageing. It concludes that the challenge facing China is no more severe than that already faced by other countries in Europe and Asia. Moreover, the ageing of the population is not uniform across the regions of China. Consequently, those areas where the demographic shift is more advanced will provide some opportunity for policy experimentation. Given the experience to date of slow progress on various aspects of pension policy reform, the article suggests that it seems unlikely that paradigmatic change will be significant. Nonetheless, the study suggests a range of parametric policy measures that should be considered by China. The challenge facing China’s policy-makers is to ensure that China gets old and rich at the same time.
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.
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.
This article analyses the impact of replacement migration on the financial sustainability of the old-age pension system in Portugal, a country with one of the largest ageing populations in Europe. We do this using demographic forecasts and prospective exercises for the evolution of the Portuguese economy. During the 2015–2060 period, our results evidence the positive impacts of international migration on old-age pension system financial balances, reaching over 3 per cent of GDP after 2045. Moreover, even when taking into considering the low dynamics for the Portuguese economy, replacement migration is an important input to improve pension system financial sustainability.
European Union (EU) Member States have very diverse social security pension systems with respect to the types of schemes/benefits offered, their redistributive features, as well as the method and sources of financing adopted. Also, the role of the state in securing retirement in old age varies considerably across the EU. According to the European System of National and Regional Accounts 2010 framework, the pension obligations of EU social security pension schemes are now reported in the supplementary Table 29, based on the accrued-to-date liability method. Such a method does not allow the assessment of the financial sustainability of social security schemes, which are typically financed on a pay-as-you-go/partially funded basis, as well as the sustainability of public finances. In addition, while the contributory social security pension schemes, with or without non-contributory components, are included in Table 29, the non-contributory social security schemes are in principle excluded. This article aims to suggest how to enhance the transparency and cross-country comparability of Table 29 results at EU level, by disclosing additional information suitable for evaluating the financial status of contributory social security pension schemes, which would take into account not only the financing method adopted but also the type of benefits offered. From a policy perspective, such additional information would ensure that no certain types of social security schemes are promoted in the EU, and that the clarity and effectiveness of the role of the state in financing a social security pension scheme is enhanced.
This article provides insights into methodological and measurement considerations and challenges from an actuarial and social security policy perspective with reference to actuarial valuation work undertaken in the recent period. It aims at supporting the global discussion to improve the transparency of the reporting of financial liabilities of social security schemes linked to employment-based obligations (contributory), as these are often guaranteed by the government following social security funding rules such as pay-as-you-go and partially funded approaches. The article supports the actuarial profession’s engagement with experts in national accounting and public finance statistics towards providing improved guidance to national governments in presenting a fair and accurate picture of the financial position of their social security schemes with due and unbiased recognition of the social security policy approach decision of any given country. While the reflection of the financial position of social security schemes guaranteeing long-term benefits payable for life is most important in terms of possible public finance implications, care must be exercised in adopting a valuation methodology and indicators that are not biased and which do not distort the interpretation of its financial position. In this respect, challenges remain and there is ample scope for refining methodologies and adopting coherent accounting approaches encompassing policy decisions for funding purposes.
The article explains the role of the International Public Sector Accounting Standards Board (IPSASB) in setting accounting standards for the public sector, and the due process that is followed in setting those standards. The article explains the scope of the IPSASB’s current project on social benefits, and how this compares to the scope of social benefits in Government Finance Statistics (GFS)/System of National Accounts (SNA) as well as the IPSASB’s previous social benefits projects. The scope is wider than pensions, and wider than social security as social assistance is also included. The accounting principles that underpin the IPSASB’s current project are discussed and include the IPSASB’s definition of a liability, and the key role that a “past event” plays in that definition. This is contrasted with some of the actuarial approaches. The article then describes the potential past events that the IPSASB has considered to date in the project, and what impact liabilities from these past events would have on the financial statements. This comparison makes reference to pensions, where the financial impact of different past events will be greatest. The article sets out the IPSASB’s proposals in its recent Exposure Draft ED 63, Social Benefits, and also discusses the alternative view of three members on recognition and measurement. The article concludes by discussing the IPSASB’s current guidance in RPG 1, Reporting on the Long-Term Sustainability of an Entity’s Finances, and notes that the IPSASB is seeking views on whether it should undertake further work in this area.
The processes used to assess the financial sustainability of the Canada Pension Plan (CPP) and the corresponding reporting are recognized internationally as “best practices”. In the context of the international and multi-disciplinary debate about the most appropriate methodology for the measuring and reporting of social security assets and obligations, the experience and practices of Canada offer a number of important policy lessons. The article analyses the assets and obligations of the CPP using different actuarial balance sheet methodologies, i.e. open and closed group. It concludes that the balance sheets under the closed group with and without future benefit accruals methodologies do not reflect the nature of the partial funding approach of the CPP, whereby future contributions represent a major source of financing for future expenditures. As such, it is inappropriate to reach a conclusion regarding the Plan’s financial sustainability considering only the asset shortfalls determined under the closed group with and without future accruals balance sheets. The article asserts that measuring the Plan’s assets and obligations using the open group approach provides information that properly reflects how changing demographic and economic environments affect the long-term sustainability of the CPP. In contrast, using the closed group without future accruals approach may provide incomplete or even misleading information. Finally, the article discusses approaches used to report the financial state of the CPP, including both actuarial and financial reporting. It highlights the comprehensive disclosures approach adopted for the purpose of CPP annual reports and the Public Accounts of Canada.
The international statistical community has a growing interest in the liabilities of pension and social security systems. The System of National Accounts 2008 encourages countries to provide detailed information in a supplementary table on pensions. The IMF Government Finance Statistics Manual also encourages reporting of public-sector balance sheets as part of government debt, and the European Union (EU) has mandated that all EU Member States compile estimates of accrued-to-date (ADL) liabilities for all pensions, including public-sector pensions and social security schemes. The ADL liabilities for public-sector pensions, which are often defined benefit, and typically financed on an unfunded (pay-as-you-go) or partially funded basis, are likely to be very large in some countries, receive significant public scrutiny, and be misunderstood and/or misused. The article begins by reviewing the current requirements, disparity and ambiguity in existing accounting and actuarial standards. It notes the opportunities for “accounting arbitrage”, where countries can provide similar benefits in a different form to avoid placing these pension liabilities on the government balance sheet and/or to avoid required disclosure of pension liabilities. This article concludes that the ADL for social security and government-sponsored pension programmes has little or no meaning, does not provide any information about the fiscal sustainability of a country’s pension programmes and does not provide any useful information for comparing pension plans across countries. It argues that the best measure of fiscal sustainability for unfunded or partially funded pension programmes that are financed on a pay-as-you-go basis is the financing gap, and that this “open group” measure of fiscal sustainability should be published alongside the ADL, supplemented by information on coverage rates, replacement ratios and expenditures as a per cent of GDP. The article concludes that pension expenditures as a per cent of GDP is probably the single best measure for cross-country comparison.
The article is based on the International Actuarial Association (IAA) Social Security Committee’s principles-based paper with commentary on measurement and reporting obligations of social security retirement systems (SSRSs) with proposals for appropriate disclosure requirements, for consideration by national and international organizations when developing reporting standards in respect to SSRSs. The article argues that the method of measuring and reporting obligations should be consistent with the financing basis of the SSRS. In particular, SSRS financed on a pay-as-you-go (PAYG) or partially funded basis should use an open group method for measuring and reporting actuarial obligations. Only SSRS that purport to be fully funded should use a closed group basis, since SSRS are not analogous to large private-sector pension plans. For most PAYG and partially funded SSRS, accounting for obligations on a closed group basis would indicate huge actuarial unfunded liabilities, which might not be understood by the general public and could inappropriately create pressure to move towards fully-funded systems. The methodologies used for accounting and/or statistical reporting should enable the accurate assessment of the long-term financial sustainability of any SSRS without a bias for or against a particular financing approach. The article prefers measures of sustainability of a SSRS to measures of its funding level. A system that is fully funded currently may not be sustainable while a pure PAYG SSRS may be sustainable. In the case where there is a requirement to disclose obligations on a closed group basis, such disclosures should be supplemented by an open group analysis, with appropriate reconciliations and explanations (i.e. a multiple disclosure approach).
In a context of the increasing transparency of social security scheme design and financing, assessing the financial implications of the promises made to current and future retirees of a social security pension system has become a key issue. The central role played by actuaries in the financial evaluation of social security systems means that the debate regarding methods and assumptions to use in such an exercise is of interest to all actuaries, those who use their work and those whose decisions are based on their work. This, in theory, appears a rather technical debate. However, in reality, these deliberations have a much wider impact. The discussion around how to assess the implications of promises made by social security systems to current and future populations will affect the decisions taken regarding the key features of systems, in particular the social contract between generations. It also feeds into the debate regarding sustainability, inter- and intra-generational equity, and the adequacy of benefits as well as the robustness of systems; that is, how future changes to the economic and demographic environment will affect systems. This introductory article discusses the importance of this topic including the implications for actuaries, policy-makers and other stakeholders and then summarizes the seven substantive articles that comprise the special issue. These articles reflect different points of view, but also different experiences and environments – which adds to their value as contributions to this important debate. Finally, this introduction sets the context for the reader – to ensure that the technical aspects of the set of papers are considered within the wider framework of social security provision and financing.
Processes of public policy formation and implementation in the Middle East and North Africa are underexplored. This article presents a case study in public policy reform, focusing on efforts to expand health insurance coverage in Egypt. The account draws on a thematic analysis of peer and non-peer reviewed literature and print media between 2005 and 2015, with a particular focus on the period to 2011. This analysis shows that reform initiatives failed for much of this period because of fundamental disagreements between key actors over the goals, proposals and the political process for change. The success of planned reforms in Egypt may well depend on the extent to which account is taken of the varied agendas and evolving power relations of these actors, especially given the profound political, social and economic challenges the Egyptian health system now faces.