Ageing in the Twenty-First Century: - HelpAge International

South Africa’s Old Age Pension covers around 2.4 million
people, 80 per cent of the older population. 79 Programme
results have shown that a pension received by an older
woman improved nutritional outcomes for girls living
in the same household. 80 In Lesotho, where at least 60
per cent of the households receiving the pension include
children orphaned by HIV and AIDS, preliminary
studies show that children in pension-receiving
households are perceived by respondents as being
better fed and having higher school attendance levels. 81
Country experiences and studies highlight the positive
effects that pensions for older people have on the
economy. As a response to the global financial and
economic crisis, governments in the Russian Federation
and Thailand increased spending on social pensions to
foster economic growth.
In Thailand, which was severely affected by the 2008
economic crisis, the Government boosted social pensions
as a core part of its economic stimulus package. Three
million more older persons are now receiving the Thai
pension, as the coverage of the social pension increased
from 25 per cent to 75 per cent of the older population.
The impacts of this were twofold: an improvement in
well-being, nutrition and empowerment of older people;
and increased spending in the local economy and in
businesses.
In the Russian Federation, pension benefit levels were
increased in order to “create growing demand, [and put]
more money in people’s pockets…. That will create more
jobs in the real sector”. 82 Pensions provide a directed
financial mechanism, which can act as a stimulus in the
poorest areas and benefit both the older person and also
their entire family, as older people characteristically
share wealth.
Reforming contributory pension
systems
Contributory pension schemes have been, or are being,
reformed in two different ways: either by changing
underlying parameters (parametric reforms) or by
radically changing the design of the system (structural
reforms). In almost all pay-as-you-go schemes,
parametric reforms have been undertaken as they are
politically easier to implement than structural reforms,
which involve a more extensive change. 83
All countries in the European Union have undertaken
reforms by adjusting the parameters defining their
social security systems. 84 In Greece, Hungary, Italy, the
Republic of Korea, Portugal and Switzerland, for example,
pension benefits have been reduced. 85 In Germany, Italy
and the United States, pension eligibility requirements
have been tightened while the indexation of benefits
has been changed in Germany, Japan and Sweden.
Many countries have increased statutory retirement
ages. 86 The increase of statutory retirement ages is an
attempt to reduce the gap between the gain in life
expectancy and the retirement age. Such an increase
will, however, only improve the viability of pension
systems if the effective retirement ages increase too.
It has been shown that an increase of five years in the
legal age of retirement will contribute to a decrease of
just 1.2 years in the effective age of retirement. 87
Therefore, changes in this parameter also require
changes in labour-market policies to ensure that working
conditions for older workers allow them to continue to
be economically active. It also requires a lifecourse
approach – for example, in terms of lifelong learning.
It also needs to take into account that increasing the age
of retirement could be just an easy solution to the challenge
of population ageing. Before taking this option, countries
should evaluate the real situation of the actuarial
systems and also look for other measures, for example,
those related to the efficiency of pension systems.
In countries like Latvia, Italy and Sweden, structural
reforms of pay-as-you-go systems have been undertaken
without switching to a fully funded system. 88 Individual
capitalization schemes with defined contributions have
been introduced while at the same time maintaining
the pay-as-you-go scheme. Such individual capitalization
systems do not guarantee universal or minimum
coverage as benefits are based on individuals’
contributions, but some authors consider that they help
to maintain the sustainability of pension systems. 89
In practice, many countries have preferred to move
towards capitalized pension systems, but other
countries have simply reformed their contributory
pension systems or pursue a mix between these options.
The choice of pension systems has itself far-reaching
implications for income distribution. Capitalized
systems are typically characterized by less solidarity
and tend to provide the smallest benefits for the
poorest. By encouraging higher savings rather than
consumption, capitalized systems can also have negative
consequences for investment, the former also negatively
impacts on investment and economic growth.
Countries in Latin America, Central and Eastern Europe
and, to a lesser extent, in South and East Asia have
undertaken structural adjustments by changing to,
or complementing, pay-as-you-go systems with fully
funded systems. 90 While fully funded individual
capitalization systems offer higher returns, there is also
a higher risk for retirees. 91 In the case of Latin America,
it has also been demonstrated that in countries that
pursued capitalized systems, there was no increase in
coverage 92 and the cost of financing the operational
deficit of the old pension system is very high. 93
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