A couple of weeks ago I was fortunate to attend the international conference on Social Protection in contexts of fragility and forced displacement. One of the recurring messages emerging from the conference was that the ultimate ambition in these contexts should be long-term, nationally-owned social protection systems. I was able to share some thinking about the role of pensions in building such systems as part of a poster session. This summarises my thinking, writes HelpAge’s Charles Knox-Vydmanov.
The starting point for understanding the role of pensions is the idea that the ultimate vision for social protection in any context should be a comprehensive ‘life cycle’ system. This means a package of transfers (usually a mix of contributory and tax-financed) that protects all citizens from life cycle risks such as old age, disability, raising a family and unemployment. The approach stands in sharp contrast to models of social protection which prioritise a limited ‘safety net’ targeted at the very poorest people (in effect, poor relief). It is also the approach that underpins the concept of a social protection floor.
So why should fragile contexts be working towards life cycle systems? First, these systems have proven to be the most effective in addressing poverty and inequality, as well as weak economic development, all of which are significant issues in fragile contexts. Indeed, the most effective social protection systems found globally follow a life cycle approach, be it in OECD countries, or emerging economies such as Brazil and South Africa.
This is partly explained by the second reason which is that life cycle systems are far more conducive to nurturing a strong social contract than a poor relief approach. This is arguably down to the inclusive nature of life cycle systems. While a poor relief approach limits support to a small portion of the population, a life cycle social protection system seeks to protect all citizens from risk in a predictable way, so that everyone has a stake. The biggest indicator of the strength of these social contracts is that countries with a life cycle approach tend to spend much more on social protection than those focusing on poverty targeted poor relief (such as workfare, conditional cash transfers, household social assistance, etc).
All this is well and good, but the major challenge is that fragile states are inherently those in the weakest position establish any social protection system. By their very nature, these countries tend to have weaker social contracts and state legitimacy, low levels of public expenditure (including on social protection) and limited administrative capacity. A key question is therefore how they might start on the road to a life cycle system.
This is where pensions come in. An interesting trend is that those fragile states that have made significant steps towards lifecycle social protection systems have commonly put pensions at the core of this process. The cases of Nepal, Timor-Leste, Kenya and Myanmar are summarised in the following image.
It should be noted that these pension schemes do not exist in isolation and are, in all the cases above, complemented by other social security transfers. And this is partly the point: pensions seem to act as flagship programmes (with the greatest investment and visibility) that can pave the way for a broader package of social protection.
So why are countries investing in pensions as a priority? One reason is that people in these countries face real vulnerabilities as they age, particularly in terms of increasing challenges to work and higher healthcare costs. This is often exacerbated in fragile contexts where factors such as poverty and histories of conflict can limit the extent to which older people can rely on their children for financial support. Universal social pensions are also a relatively simple approach to social security transfers for countries with weak administrative systems, especially when compared to the challenges of poverty targeting. It is also relatively easy to start small (at higher ages of eligibility) and expand coverage gradually.
Less often discussed, however, is the unique contribution that pensions have in strengthening social contracts. Of all of the cash transfer options available to a country, inclusive pension systems are arguably the closest to a citizen entitlement. This is because the vast majority of people hope to grow old so can expect to benefit from the system at some point in their life. A universal pension system reassures all citizens, no matter their age, that they will be protected in old age. Pensions also have immediate impacts on multiple generations, something which is backed by extensive global evidence of how they impact on reducing child poverty, increasing school enrolment, improving child nutrition and boosting family livelihoods. Indeed, in most cases, basic pensions are probably best understood as a channel for providing support to families while restoring the dignity and autonomy of older citizens within them. They are also one of the tools with the most proven success in reducing inequality. It is for these reasons that pensions tend to be a popular policy amongst a wide constituency and why pension policy is highly political in nature.
What does this all mean for how we think about social protection systems in fragile contexts? The first overarching point is that we need to understand social protection not only in terms of its impact on poverty, inequality and other development outcomes, but also its impact on strengthening social contracts and, in turn, reducing fragility. This suggests we need to consider the political meaning and palatability of different approaches within a given context rather than simply looking at immediate outcomes. Second, and more specifically, there is a tendency amongst stakeholders in the social protection development community to consider countries’ preferences for pensions as somewhat surprising and misguided.
There is a strong case that, instead, we should be seeing these efforts as a logical and politically astute step towards a long-term, nationally-owned social protection system. It’s the promotion of poor relief, which was rejected by Europe in the 19th Century, that seems to be misguided.