Improving Adequacy of Benefits

1. Improving Adequacy of Benefits The Role of Social Security Presented during Regional Social Security Forum for Africa, Arusha -Tanzania, 05-07 December 2011 Irene Isaka Director General- SSRA

2. Social Security The ILO has traditionally defined social security as a set of public measures that address three types of contingencies: • The need of medical care, • The loss or substantial reduction of earnings due to different lifecycle events, sickness, maternity, employment injury, old age, invalidity, death of breadwinner or unemployment, • The cost associated with raising children

3. 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 -

4. 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

5. 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

6. Financing Mode;Financing principles with institutional implications Delivery mechanisms General government Public entity Regulated Private agent Tier/pillar 3 Tier/pillar 1 Tier/pillar 2 High General tax INCREASING willingness to pay DECREASING willingness to pay Vertical Cross-subsidy User fees Earmarked tax Mandatory insurance Private insurance Low Low High Benefit Principle

7. 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

8. Adequacy of social securitybenefitsislinked to the quality of public services

9. 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

10. 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.

11. Multi-dimensional impact of social security benefits adequacy 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. Economic reform Human Capital Social security adequacy Livelihood Social Cohesion Risk Management Economic Resilience

12. 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

13. 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

14. …Level of Resources dedicated to Social security show there is catching up to do on mobilizing resources and financing.. Luis Frota – Presentation; Nov 2011

15. 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)

16. Current situation in Tanzania • Levels of contributions and benefits do not match across the schemes

17. Tanzania dedicates a limited % of GDP to social assistance

18. 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

19. The self-employed in agriculture and elsewhere account for about 93.5% CHALLENGES, LIMITED COVERAGE Informal Sector 93.5% of Workforce Formal Sector 6.5% of workforce Public-sector and other formal-sector employees account for about 6.5% of total employment Public mandatory social security/ protection arrangements. (Institutions are NSSF, PPF, LAPF, PSPF, GEPF, GPS (Treasury department), NHIF and Employment contract incentives) Private schemes which are not community based. The coverage is insignificant

20. 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 Vision

21. 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

22. Long term Perspective Reforms are divided into 3 phases; 3. Growth & Prosperity 2. Stabilisation 1. Extension & Harmonisation

23. Challenges facing BA ; Partnership needed with other stakeholders

24. 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

25. General responsibilities Partnership needed Social Security Institutions 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 • 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

26. 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

27. 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….

28. 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?

29. ASANTE SANA Prepared by Irene Isaka

30. 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