Universal Social Pension in Zambia (2008) Anthony Dumingu, MLSS - - PowerPoint PPT Presentation

Zambia: A preliminary analysis of the scale and scope of a Universal Social Pension in Zambia (2008)

Anthony Dumingu, MLSS Lusaka, 1st June, 2017

International Labour Office

1

Importance of Social Cash Transfer

2

• No developing country has been able to provide older

people with minimum income through contributory pensions.

• Mandatory contributory pensions are only appropriate

where there is large formal sector.

• In developing countries are struggling to collect

contributions from informal sector workers.

• Many people too poor to contribute; have to use income for

present needs rather than future needs.

• Many people – especially women – are not in jobs and

cannot contribute

World Bank model of pension system

Income from Pensions

100

Income from Pensions Safety Net Pension Rich Poor Mandatory Contributory Pensions Voluntary Pensions

Aim of the Global Campaign for Social Protection

The aim of this project is to identify

the amount of fiscal space needed to implement a minimum social protection package in Zambia.

4

Key Findings of the SPER in Zambia

• Demographics:

– Zambia is expected to see an increase in the population

• f 60+, and;

– The general population is expected to rise rapidly over the next 15 years.

• Poverty incidence:

– There are high levels of poverty in Zambia; – Extreme poverty is significantly higher:

• In rural areas, and;
• For children and older people, aged 60 years and above.
• A minimum package of benefits is affordable.

5

60+ Demographics in Zambia

6

Summarising the Demographic situation

• The 60+ population represents less than 5% of the total

population in Zambia;

• The Zambian 60+ population is projected to increase by

more than 25% over the period 2005-2021: – The population may grow even faster after 2030;

• The 60+ female population is set to grow slightly faster

than the 60+ male population.

7

Zambian Labour Market

• The Zambian labour market is highly informal:

– Almost 86 per cent of people are in totally informal employment;

• Labour force participation rates are high in

Zambia;

• Employment rates are very high for older people

(60+) particularly in rural areas:

– Low incomes for the 60+ group mean retirement is not an option.

8

Labour Market - How does this break down?

Totally informal High informality Medium informality Low informality Totally formal Total

Share of group in total

Male

83% 6% 3% 4% 4% 100%

Female

93% 3% 1% 2% 2% 100%

Total

88% 4% 2% 3% 3% 100% Gender composition

Male

49% 67% 73% 76% 73% 52%

Female

51% 33% 27% 24% 27% 48%

Total

100% 100% 100% 100% 100% 100%

Source: Zambia – SPER

9

Poverty - Key Indicators

• 50 % (2008) of all people in Zambia are thought

to live in extreme poverty: – Incidence of extreme poverty was more than double in rural areas than urban areas.

• Poverty levels were higher for the 60+ age group

than for those under 60 years old;

• Poverty rates for children are even higher.

10

Policy option – a Universal Social Pension

• One of the options presented in the Zambian SPER and SB

was a Universal Social Pension for the 60+ population: – This was identified as an affordable policy option as part of a minimum set of social protection benefits; – A child benefit and targeted social assistance were also found to be affordable for Zambia to implement.

• The Zambian Ministry of Labour and Social Security have

developed a concept note which looks at: – A 60,000 Kwacha a month Universal Social Pension for the 60+ population, and; – The cost of delivering the pension.

11

Preliminary Analysis of a Universal Social Pension

• Additional preliminary analysis of the Universal Social Pension has

been undertaken by the ILO in Geneva;

• This preliminary analysis has four functions:

– To begin the process of quality assuring the evidence provided in the SPER/SB and the Concept Note; – To look at the extent of coverage of the Universal Social Pension:

• How many people will benefit?

– To look at the adequacy of a Universal Social Pension:

• How much can feasibly be paid to the beneficiaries?

– To assess what impact the pension has on the poverty rate?

12

Preliminary Analysis - Methodology

• Use demographic, GDP, and Consumer Price Index (CPI) assumptions

from the Zambian Social Budget model;

• Analyse cost of pension for three age groups (the extent of the

reform): – 60+ years; – 65+ years; – 70+ years.

• Assume that everyone receives the pension from 2009;
• Analyse five different pension levels (the adequacy of the reform):

– i) 60 ii) 70 iii) 80 iv) 90 and v) 100 Kwacha per month per beneficiary.

13

Relative costs of Universal Social Pension by age

Relative Cost Comparison - 60,000 Kwacha Pension CPI Indexed - 60+, 65+, 70+ - Total Cost and % of GDP

100,000,000,000 200,000,000,000 300,000,000,000 400,000,000,000 500,000,000,000 600,000,000,000 700,000,000,000 800,000,000,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Year Kwacha 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% % of GDP

60+ 65+ 70+ % of GDP - 60+ % of GDP - 65+ % of GDP - 70+

14

Summary of pension options by age

• The cost of providing the 60,000 Kwacha pension for everyone 60+ is

projected to be less than 0.5% of Zambian GDP for a CPI indexed pension:

– NB we will come back to indexing later.

• As there are fewer beneficiaries, providing a 60,000 Kwacha per

month pension to those 65+ is less expensive than a pension for everyone aged 60+;

• A 60,000 Kwacha per month pension only for those aged 70+ reduces

the cost even further;

• But, a 65+ and 70+ pension would only cover 2% and 1% of the total

Zambian population respectively:

– The extent of the poverty alleviation would be very limited.

15

Should the Universal Social Pension be indexed?

• The issue of whether the Universal Social Pension is

indexed, and how it is indexed, is very important; – The indexation method impacts on cost, and; – Is of considerable importance to the long-term impact

• f the pension.
• Three indexation methods have been examined:

– No indexation; – Indexing the pension by CPI; – Indexing the pension by GDP per Capita.

16

Indexing the Universal Social Pension – Baseline option

0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 100,000,000,000 200,000,000,000 300,000,000,000 400,000,000,000 500,000,000,000 600,000,000,000 700,000,000,000 800,000,000,000 900,000,000,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 % Cost of GDP Kwacha Year

Comparison of costs - 60,000 Kwacha Pension, All 60+ - Different Indexing Options

No Indexing CPI Indexing 2008 GDP Per Capita Indexing % Cost of GDP - No Indexing % Cost of GDP - CPI Indexing % Cost of GDP - 2008 GDP Per Capita Indexing

17

Summarising indexing methods (1)

• No indexation means that the 60,000 Kwacha baseline would remain

constant at 60,000 Kwacha over time;

• Based upon the assumptions made in the Zambian Social Budget, GDP

is expected to grow faster than prices (CPI);

• So indexing the pension by GDP per capita is projected to be more

expensive than indexing by CPI;

• Key decisions need to be made about indexing:

– Should the pension be linked to prices? – Be kept relative to a proportion of average income? – No indexation?

18

RISK – the long-term impact of no indexation

19

Summarising indexing methods (2)

• Using the inflation assumptions, no indexation would

result in the Universal Social Pension being worth only 58% of its 2009 value in 2021;

• This means the purchasing power of this pension would

have fallen significantly over time, reducing the pension’s adequacy of impact over the long-term;

• Indexation by either CPI, or GDP per capita maintain the

value of the pension to some degree.

20

More analysis of the adequacy of the pension

• It is difficult to predict exactly what 60,000 Kwacha is

worth in today’s purchasing terms:

– This is of specific importance as the pension will not be rolled-out for a period of time.

• So it is worth looking at the nominal cost, and cost in

terms of proportion of GDP, of higher pension levels;

• Hence, in addition to a 60,000 Kwacha pension, pensions

up to 100,000 Kwacha per month have been analysed, split by indexation method.

21

Summarising higher benefit levels

• The analysis shows that even a

100,000 Kwacha pension benefit per month is likely to cost less than 1% of GDP.

22

Summary of analysis – the table you have

Overview of Universal Social Pension in Zambia (2021)

Not Indexed CPI Indexed GDP Per Capita Indexed

AGE Number of Pension Recipients Benefit Level (Kwacha) Nominal Cost (Kwacha) % of GDP Relative CPI Purchasing Power in 2021 Nominal Cost (Kwacha) % of GDP Relative CPI Purchasing Power in 2021 Nominal Cost (Kwacha) % of GDP Relative CPI Purchasin g Power in 2021 60,000 398.5 Million 0.26% 688.9 Million 0.46% 827.4 Million 0.55% 60+ 553,539 80,000 531.4 Million 0.35% 58% 918.5 Million 0.61% 100% 1,103.2 Million 0.73% 120% 100,000 664.2 Million 0.44% 1,148.1 Million 0.76% 1,379.0 Million 0.92% 60,000 229.8 Million 0.15% 397.2 Million 0.26% 477.1 Million 0.32% 65+ 319,164 80,000 306.4 Million 0.20% 58% 529.6 Million 0.35% 100% 636.1 Million 0.42% 120% 100,000 383.0 Million 0.25% 662.0 Million 0.44% 795.1 Million 0.53% 60,000 121.3 Million 0.08% 209.7 Million 0.14% 251.9 Million 0.17% 70+ 168,487 80,000 161.7 Million 0.11% 58% 279.6 Million 0.19% 100% 335.8 Million 0.22% 120% 100,000 202.2 Million 0.13% 349.5 Million 0.23% 419.8 Million 0.28%

Please Note - The figures presented are based upon calculations made on demographic and economic assumptions from the Zambian Social Budget Model. The variables used may be subject to significant variation over time, and thus these results should be treated as preliminary and illustrative.

23

Preliminary impact analysis– poverty analysis

• The analysis shows that a Universal Social Pension is

affordable;

• But the relative impact on poverty alleviation must also

be analysed as part of the policy development process;

• Some simulations of the likely impact of the Universal

Social Pension on poverty indicators using data from the 2006 Living Conditions Monitoring Survey was been undertaken.

24

Preliminary Impact Analysis – Rural

Option 60 Kwacha | all 60+

• The pension reduces extreme poverty by around 20% in rural

areas among the 60+

• The proportion of non poor increases significantly.

Poverty levels among people aged 60 and over in RURAL areas - No Pension | LCMS 2006 Extreme poverty 69% Total poverty 13% Non poor 18%

Poverty levels among people aged 60 and over in RURAL areas - After 60000 Kwacha pension for all 60+ | LCMS 2006

Extreme poverty 49% Non poor 30% Total poverty 21%

25

Preliminary Impact Analysis – Urban

Option 60000 Kwacha | all 60+



The pension also reduces extreme poverty in urban areas among 60+;



The proportion of Non Poor also increases from providing a pension.

Poverty levels among people aged 60 and over in URBAN areas - No Pension | LCMS 2006 Non poor 51% Extreme poverty 34% Total poverty 15%

Poverty levels among people aged 60 and over in URBAN areas - After 60000 Kwacha pension for all 60+ | LCMS 2006

Non poor 59% Extreme poverty 24% Total poverty 17%

26

Envisaged Impact

27

• Reduction of poverty for this category
• Impact on the family
• School enrollment
• Nutrition – height and weight of children
• Access to health care
• Helps break inter-generational poverty cycle
• Impact on community
• Encourages entrepreneurship (farming, poultry, etc.)
• Re-investment in the community – support economic

activity

• Promotes Decent work
• Discourages dangerous or exploitative work or business

such as child labour, sell of essential assets, begging, crime.

Summary of analysis

• The Universal Social Pension has a big impact on

those in extreme Poverty in rural areas;

• Virtually all of those in total poverty in rural areas

move in to the category of non-poor;

• Yet poverty is still very high, with nearly one-

half of those in Rural areas still in extreme poverty despite the 60 Kwacha pension.

28

However….

• We must take care when interpreting these results:

– We use 2006 data, and K60 is likely to be worth more two years ago than it is today; – It is unclear how prices and GDP will rise in the future relative to the assumptions made in the Social Budget; – There is uncertainty over the future number of beneficiaries, and; – Work is required on the likely effectiveness and costs of delivery.

• Further analysis is required to determine the likely impacts of a chosen

pension level;

• It is clear that a Universal Social Pension is the most appropriate

policy in order to achieve a significant reduction in poverty for the most vulnerable aged 60 years and above.

29

Key Findings

• Analysis by both the ILO and the Zambian Ministry of Labour and

Social Security show that a Universal Social Pension is affordable: – A pension higher than 60 Kwacha per month would be possible within an envelope of less than 1% of GDP.

• A Universal Social Pension would have an impact on those in extreme

poverty in rural areas;

• The method of indexation chosen will have a significant impact on

the long-term success of the policy in providing adequate income replacement for the elderly;

• The proportion of the population who will potentially receive a

pension will be low - less than 5% of the total population:

30

The Way Forward

• GRZ has limited fiscal space. We cannot have a

duplication of programmes.

• MCDSS has streamlined the targeting to a more

inclusive targeting where the Elderly are also covered.

• The model being upscaled is appropriate for all

vulnerable groups. – no special groups

31