The Driving Forces behind universal non-contributory old age pensions in developing countries and the role of international actors

Content

Figures and Tables

1 Introduction

2 State of Research

3 The concept of universal non-contributory old age pensions in developing countries

4 The enabling conditions behind the implementation of universal pensions
4.1 Institutional, systemic, societal an global factors that shape old age protection
4.2 The driving forces behind the implementation of universal pensions

5 The Approaches of international actors towards Universal Old Age Pensions
5.1 The approach of the World Bank
5.2 The approach of the ILO
5.3 Approaches of other international actors

6 Evidence from Bolivia

7 Conclusions

Literature

Figures and Tables

Table 1: Development and design of selected universal pension systems in Asia, Africa and Latin America

Table 2: How politics shapes pensions in developing countries

Table 3: Driving forces behind the implementation of a universal non-contributory pension scheme

Figure 1: The Multi-pillar pension model of the World Bank

Figure 2: The Multi-pillar pension model of the ILO

1 Introduction

In the last decade, the discussion about the role of social protection emerged in the context of development cooperation and therefore started to gain importance in many countries in the developing world. Several developing countries in Latin America, Africa and Asia began to implement social protection measures, like for example (conditional) cash transfers^[1] to protect the poorest and especially vulnerable groups against shocks and risks in difficult stages of life, like for example childhood, motherhood or old age.

In this context, non-contributory old age pensions financed via taxes and provided by the state - especially for those not involved in other state old age insurance schemes - emerged and gained of importance in developing countries in the last few years. Donors and international institutions as well as governments of the respective countries recognized and emphasized on the importance of such schemes and their role in protecting poor old people.

This paper deals with the given conditions that enable and the driving forces behind the implementation of universal non-contributory social pension schemes. It wants to explore what the main factors for their implementation in different developing countries were in the last few years. Thereby, the focus of the analysis lies on the international discourse and external forces, which push for the implementation of a specific pension scheme. Evidence was collected from the poorest developing countries with a universal pension scheme where a universal pension scheme was implemented in the last two decades: from Bolivia, Lesotho and Nepal, and partly from other countries where such schemes already exist, namely Namibia, Mauritius, and Botswana.

The guiding research questions for my investigation were: What is the enabling context and what are the driving forces behind the implementation of a universal old age pension in different countries? What is the opinion of different international actors towards universal old age pensions? How do they influence the implementation of such a scheme by advocating and supporting or opposing it?

To answer these questions I will first analyse the state of research on driving forces and conditions behind the implementation of universal pensions and other social protection measures per se. Then I will focus on the concept of universal non-contributory pension schemes and the common arguments for the justification of the implementation in many developing countries in the last years. The subsequent section deals with the theoretical frames in which enabling conditions and driving forces can be integrated. Afterwards I will focus on the external conditions and the international discussion about old age pensions and will explain positions of international actors to clarify the role of the organisations leading the global discourse about pension schemes and pension reforms. Within this framework I will afterwards deal with the country case of Bolivia to determine to which degree external forces have influenced the implementation of a universal non-contributory pension scheme there. Out of this I will draw my conclusions.

2 State of Research

Although the growing importance of targeted or universal non-contributory social pensions in developing countries in the last years is proved by the appearance of a bulk of literature and reports about the objectives, the design and the outcomes and impacts of this form of social assistance (cf. Johnson/Williams 2006, Helpage 2008 Kildahl/Kuhnle 2008, Barrientos 2005, Barrientos 2006, Barrientos/Lloyd-Sherlock 2002, Kakwani/Subbarao 2005, etc.), there was little research done on driving forces behind and the context which enabled the implementation of such schemes. Until today there is also hardly found any investigation about the role of the World Bank and other multilateral institutions or bilateral donors in this context. Existing studies about the role of international finance institution and international donors in the process of pension reforms in developing countries mainly concentrate on the aspect of privatisation of public pensions (cf. Mesa-Lago/Müller 2002, Mesa-Lago 2007, Charlton/McKinnon 2000, Orenstein 2008, Deacon 2007).

A useful study which deals with the implementation of universal pensions has been published by Willmore in the Journal ‘World Development’ in 2007. It analyses the multi-pillar pension system of the World Bank and gives some basic insight in the different country cases (Willmore 2007). The paper “Thinking about the politics of social protection in Africa” by Hickey gives a basic idea about the institutional, systemic, societal and global framework which enabled the implementation of different social protection schemes in Africa. It also mentions some country cases where universal non-contributory pensions were implemented (Hickey 2005, Hickey 2007). Further, in 2007, Pelham analysed in a working paper the politics behind non-contributory old age pensions in South Africa, Namibia and Lesotho (Pelham 2007). This paper is partly based on the frameworks presented in the two latter studies. Both papers emphasize inter alia on the influence of global politics and external forces on the implementation of social protection schemes and also on old age protection.

To explore the role of international institutions, especially the World Bank and the ILO, it was helpful to analyse first the social protection approach of the different institutions and to have a look on the already existing literature about this subject (cf. for example Deacon 2007, Orenstein 2008). Furthermore, some research has been done to analyse the pension model of the World Bank and other institutions, the way these concepts are diffused and their scope in developing countries in general (Hall 2007, Maier Rigaud 2005, Carlton/McKinnon 2000, Charlton/Mc Kinnon 2002). This work tries to bring together this literature to analyse the role of external influences on the implementation of universal non-contributory pensions in developing countries.

3 The concept of universal non-contributory old age pensions in developing countries

There is a growing recognition in developing countries that new strategies have to be developed to reach the poor people with measures of old age protection and that it is necessary to reach these groups to guarantee an equity in society. At the same time, a range of tax-financed and non-contributory (conditional) cash transfer programmes is emerging in several developing countries which provide a basic income for different groups (e. g. mothers and their children, handicapped persons, etc.) (cf. Leisering 2006, Yeates 2009, Farrington/Slater 2006). Within this scheme, also old age protection systems were developed and gain importance in social protection concepts in developing countries.

Only very few developing countries have non-contributory pension schemes. However, in the last decade several countries in Southern Africa (Botswana, Lesotho and Swaziland), Latin America (Bolivia) and South Asia (India, Bangladesh and Nepal) have introduced such a scheme. Some countries where non-contributory schemes already existed have strengthened them in the last years, like for example Brazil, Chile and South Africa (Barrientos 2007: 1).

Social old age pensions can be defined as regular transfers to people over a certain age that are paid without any preconditions (no contributions have to be paid before receiving the benefit). These pension schemes are mainly funded from general taxation and other state revenue(cf. Pelham 2007: 1). Their aim is to provide a basic income to this population group and in this way to reduce poverty among the targeting population as well as among the population as a whole because of the multiplier effect these pension should have for involved households and families (Barrientos/Lloyd-Sherlock 2002: 23 – 24).

Non-contributory pensions can be universal or means-/income-tested. Universal means that they cover the entire population over a certain age. The latter cover only a target population group which is selected by means-/income-tests (United Nations 2007: 90). For example, in Namibia or Lesotho non-contributory pensions are paid to every person over a certain age – regardless of their income, the income of other family and household members, their assets and other for example contributory state or private pensions that they are receiving (cf. Pelham 2007). Income or means-tested schemes were implemented for example in Ecuador where before receiving the pension, older people have to prove that they live below a certain poverty line and where this pension scheme is part of an extensive social cash transfer program (cf. Armas 2005) or in Bangladesh where recipients have to belong to the group of the poorest in a certain community or region (cf. Barrientos/Holmes 2006, Davis 2001). In the subsequent table different pension schemes and their different designs in various developing countries are listed and can be compared. This paper concentrates on countries where universal pensions were implemented.

Table 1: Development and design of selected universal pension systems in Asia, Africa and Latin America

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(Source: Barrientos 2007: 12)

The discussion about the extension of social protection measures in general and about the implementation of a non-contributory old age pensions system in particular gained importance in many developing countries in the last years. When discussing about the reasons and the legitimation why universal pensions should be implemented and why they are the right schemes to respond the current problems normally different arguments responding to the country context are mentioned:

First, it was recognized that the measures developing states implemented to protect their population against risks of every day life could not reach the majority of the population. In most developing countries there is a high degree of informality and a high proportion of people working in the rural subsistence sector and therefore social security mechanisms implemented for formal sector workers didn’t work. Therefore, policy makers recognized that there is a need of implementing another kind of social old age protection than mandatory contribution based pension schemes bound to formal employment. Besides contributory schemes based on community belonging etc. non-contributory schemes now are proposed as the solution of the problem to reach all groups of society (cf. Willmore 2007: 24, van Ginnecken 1999, Kildal/Kuhnle 2008).

Secondly, old people have a growing responsibility in the south. They assume new tasks and have a different role in society that some decades ago. Through societal phenomena, like for example the impact of HIV/AIDS on society in developing countries and the consequences of migration of the productive generation into the cities and abroad, old people face new responsibilities and risks. On the one hand they have to take care for other family members, like their grandchildren because of the absence of the productive generation. On the other hand they loose the support of this generation and therefore they loose their traditional informal protection networks that protected them in times of crises. Therefore, old people need to be protected to protect themselves and to protect their family members dependent on them. Non-contributory old age pensions seem to be an adequate measure to tackle these problems (Kakwani/Subbarao 2005: 4, 16 – 18, HelpAge International 2003, Barrientos/Lloyd-Sherlock 2002: 2).

“Social pensions have been neglected since the emphasis of sustainable welfare policies has long been on investing in children and adolescents. However, especially the spread of HIV/AIDS in Africa has triggered the insight that the elderly can also contribute to social development. Grandparents may head multigenerational households in which the parents’ generation is afflicted by, or has died of the disease.” (Leisering 2009: 250)

Thirdly, demographic change is also taking place in developing countries and therefore there is a growing pressure on the productive generation because of the growing number of older people (Kakwani/Subbarao 2005: 4 - 5). Although most of the old people in these countries don’t receive a state pension and therefore the pressure is not the same as in societies where people depend mostly on pensions paid out from PAYG Systems, the productive generation is affected by the growing number of older people because they often care for them through so called informal social protection network relations (cf. Benda-Beckmann et. al. 1988, Aboderin 2004, Gomes da Conceição/Montes de Oca Zavala 2004). A high number of old people depending on a small number of younger people can destroy the functioning of these networks. In many developing countries demographic change takes place faster than in industrial countries and therefore adequate solutions have to be developed to tackle this problem. Non-contributory old age pensions provide one way out of this dilemma because they can provide – although limited – resources for old people to care for themselves.

However, the main question when discussing about the implementation of non-contributory pension systems in developing countries is that of financing. The common argument of both, local policy experts as well as international organisations, against the implementation is that such a system is not affordable for developing countries. Therefore it is interesting that some of the poorest countries of Asia, Africa and Asia, namely Bolivia, Lesotho and Nepal have designed and implemented a non-contributory pension scheme in the last year.

These arguments of legitimation or opposition are often provided by bi- and multilateral donors (f. e. German Technical Cooperation, DfID, UNDP, etc.), international finance institutions (World Bank, IMF, ADB, IDB, etc.) and NGOs working in the field (f. e. Help Age International) when they advocate for the implementation of old age protection schemes in developing countries. Their role in the discourse will be analysed in chapter 5.

4 The enabling conditions behind the implementation of universal pensions

The common argumentation used to legitimate the implementation of non-contributory old age pensions in developing countries were presented in the last section. Besides these official arguments there is an underlying political, social and economic process that determines the political outcome and the measures put in place. This process – the definition of the problem, the search for adequate solutions, the policy formulation and finally the implementation of a non-contributory old age pension scheme – and the conditions in which it takes place is often most determinant for the implementation. Therefore, there is a range of several factors which influenced the emergence of the discussion about non-contributory old age pensions, their growing importance and finally, their implementation in developing countries in the last few years.

As mentioned above, affordability is often an official argument for or against or for the implementation of social pension but often this is not the most important one. However, the political environment was in most of the cases where this type of pension was implemented in the last decades more important than the fiscal and economic preconditions within the country. Recent cases show that also least developed countries can afford to implement at least a small non-contributory old age pension, e. g. countries like Lesotho, Bolivia or Nepal. (cf. HelpAge International 2008c: 12, ILO 2008: 5- 6).

Two papers – those of Pelham and Hickey - provided some interesting – although very different - frameworks for the analysis of the conditions in which pension reforms towards the implementation of universal social pensions could take place. Both papers also emphasize the role of international actors, the international discourse and the conditions for this step in developing countries. To provide a holistic view, I will first present these frameworks and their particular points before concentrating on the role of international actors in the subsequent section.

4.1 Institutional, systemic, societal an global factors that shape old age protection

Hickey (Hickey 2005, Hickey 2007) developed an analytical framework to analyse the factors which influence the implementation and design of social protection schemes in Africa where he distinguishes between institutional, systemic, societal and global factors which have an influence on social protection schemes. The concept and the associated factors which have the potential to influence social protection schemes are illustrated in the subsequent table:

Table 2: How politics shapes pensions in developing countries

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Source: Hickey 2005: 14, Hickey 2007

Institutional features refer to the conditions which result from the past or are implemented within the traditional rule prevalent in a state or society. An institutional feature which creates an enabling or constraining environment for the implementation of universal old age pensions can be the political history of a country. Here, in developing countries the colonial past and the politics imposed by the country which colonised it can play a crucial role.

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^[1] Cash transfers are conditional when they are linked to human-capital development, by making receipt of the CT conditional on school attendance and regular health care check-ups for children (cf. Handa/Davis 2006: 513).