sri lanka strengthening social protection
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Sri Lanka Strengthening Social Protection. Improving Social Insurance. Ravi Rannan-Eliya Institute for Health Policy http://www.ihp.lk. Outline. Risks Schemes for formal sector Schemes for informal sector & others Problems Recommendations Issues. Risks. Old age Disability Death - PowerPoint PPT PresentationTRANSCRIPT
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Sri LankaStrengthening Social
Protection
Improving Social Insurance
Ravi Rannan-EliyaInstitute for Health Policy
http://www.ihp.lk
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OutlineRisksSchemes for formal sectorSchemes for informal sector & othersProblemsRecommendationsIssues
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RisksOld ageDisabilityDeathUnemploymentHealth
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Old age - Formal sector Government workers
Civil Service Pension SchemeAutomaticDefined benefit, non-contributory
Private sector workersEPF/ETF & APPFs
MandatoryDefined contribution, contributoryIndividual accounts
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Old age - Informal sectorFarmers’ pension schemeFishermens’ pension schemeSelf-employed pension scheme
VoluntaryDefined benefit, contributory
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Disability/DeathFormal sector
Civil Service Pension SchemeDisability, survivor defined benefits
ETFDisability/survivor lump sum payments to Rs 150,000
Informal sectorFarmers/Fishermen’s/SE schemes
Disability/survivor defined benefits
NGO sectorMicro-insurance schemes
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UnemploymentNo provisionUnder consideration since 2003
Proposals for unemployment insuranceContributory, Replacement rate of 50% of last wage for 12-25 months
Ad-hoc workfare schemes, e.g. post-tsunami
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HealthNo health insurance, but tax-funded health system performs insurance role*
Covers medical costsDoes not directly cover income losses
*Historical note: Insurance approach was deliberate choice in 1935, 1948
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Problems
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Cross-cutting problemsLack of coordination
No national strategy, ad hoc responses Many agencies
Gaps in coverage in formal schemesNominal coverage - 53% of populationActual coverage - 28% of population
AdequacyWeak administrationFiscal sustainability
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1. Formal sector pensionsAdequacy
Benefit values low in EPF/ETF, voluntary schemesLack of consumption smoothing in EPF/ETF
Fiscal sustainabilityCivil service pension
2% of budgetLack of funding
EPF/ETFOnly self-funded in theory - in practice funded by government through debt
Constraint to labor mobility
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2. Unemployment insurance
Weak administrative capacityAdministration of benefit paymentsEligibility monitoring - potential for moonlighting
Incentive problemsRecipients may not look for work
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3. Informal sector pensions
AdequacyLow benefit values - no inflation protection
Coverage<50% - not designed for actual income conditions
Fiscal sustainabilityAd-hoc changes to benefit levelsIncreasing government liability
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Recommendations
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1. Formal sector pensionsCivil Service Pension Scheme
Reduce replacement rate, increase earnings base, & index to inflationIntroduce contributions
EPF/ETFIncrease retirement agesOutsource fund management & expand role of private sectorImprove administrationConsider annuity options
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2. Informal sector pensions
Shift from defined benefits to defined contributionsIntroduce annuitiesImprove administrationImprove fund managementIntroduce matching contributions to encourage voluntary contributorsProvide disability through group insurance
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3. Unemployment insurance
Fix initial eligibility and coverage same as TEWABenefits to require non-employment in formal sector (can monitor)Replacement rate - ~50%, 6-12 monthsFinancing - Employer and workersAdministration - Piggyback ETFJob search - employment services for recipients
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Alternative - Unified approach
National defined contribution pension scheme for all new workers
Individual accountsDefined contributions, benefits
AdvantagesEconomies of scale, group insuranceAdministrative efficiencyPromote coverage through voluntary incentives
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Issues
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RealismImportance of political pressures
Ad-hoc schemes not arbitrary decision of central planners, but response to political pressures
>Reforms must not ignore political constraints
Future pressuresExpansion in coverage as elderly increaseIncrease in benefit levelsNeed for indexationCompatibility for job mobility
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FundingPosition on prefunding/contributions not balanced or supported by theory or evidenceFunded Schemes
IMF/WB/OECD: “In context of large fiscal deficit, contributory schemes will become PAYG”Contributory schemes not viable route to adequate benefits
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Consensus pointsExisting informal sector schemes represent an implicit government liabilityNeed to improve level and quality of benefitsNeed to expand coverageNeed for unified social insurance system
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Alternative - US/Asian solution
Unified national pension scheme as long-term goalPartly funded, life-time contributions, but with tax funded PAYG elements to bring in informal sector and non-workersDefined benefits so as to allow risk protection and achieving minimum income targets