A social pension is a non-contributory cash income that is given by the Government to the elderly.
In July of this year, the Jamaican Government launched an $800,000,000 social pension geared at providing guaranteed income to senior citizens 75 years and older who don’t have retirement income or disability benefits. Recipients are entitled to a monthly payout of $3,400. But, can this paltry sum suffice in an economy of rising prices? The nation is indeed facing a retirement crisis. With a decline in fertility compared to an aging population, the prospects are not favourable for the younger working population who will pay taxes to provide retirement benefits for a graying population. There is the view that the retirement age needs to be further extended since seniors are living longer. It’s worth encouraging seniors to retire later while they are still able to work. Many people are paying mortgages up to age 70. The social security system that exists currently determines the retirement age based on the calendar instead of considering the ability to work.
Universal social pension
Research shows that developing nations face an increasing challenge in providing for the elderly, most of whom have low socio-economic status. Women are particularly vulnerable because they live longer than males and oftentimes take care of the children and family members at tremendous sacrifice to their own well-being, which factors leave them at a disadvantage in retirement. Studies show that social pension reflects less than one per cent of a nation’s budget. Governments have an obligation to protect the most vulnerable in an economy. Social pensions are also known as cash transfers and social protection pensions. A feasibility study by Helpcare International, co-sponsored by the European Union, recommended a universal social pension for the Phillipines. It described universal social pension as “tax-financed schemes that guarantee a minimum pension to all citizens and/or residents over a specified age”. These plans have several advantages and have been successfully implemented in several countries, including in Thailand and Veitnam.
Pension benefits are provided for all older persons without regard to socio-economic status. Low-income workers within the informal sector are covered and they can make voluntary contributions. Pension payouts are a right for the recipients and not a favour. The nation’s poor can maintain dignity in retirement and not depend solely on relatives to survive. Eligibility is transparent, criteria easy to understand, and administration of the universal social pension is not costly. Studies reveal that the universal social pension helps to reduce poverty and inequality as the risks of old age are shared by the wider society. Social pensions have been proven to stimulate the economies of China and Thailand by increasing household consumption during times of economic decline. An assessment by the International Labour Organization (ILO) showed that the cost of the social pension was 1.2 per cent of GDP, which saw the poverty gap reduced by 22 per cent. The cost of Tanzania’s social pension is one per cent of GDP and the nation’s poverty gap was reduced by 20 per cent.
The World Bank reports that the “most dramatic aging worldwide is projected to take place in the low- [to] middle-income countries”. Old age social pension has been introduced to alleviate poverty and to narrow the pension gap. Jamaica’s Ministry of Industry, Investment and Commerce and the International Labour Organization launched a partnership to assist the informal workers in the agriculture and fisheries sectors to become part of the formal economy. The launch took place in February 2021. Minister Audley Shaw said “it is estimated that 43 per cent of the Jamaican economy operates informally”. Scenarios like this show that there is a shortfall of social contributions to provide pension benefits for the elderly. The huge challenge is how to have the informal sector transition to the formal sector. The burden is on the formal economy to fund social pension for the informal sector. ILO reported that studies indicate that the cost of social pension at one per cent of GDP “should be sustainable in the long term, even for the least well-off countries”. With the age group of 60 and over growing rapidly both in the developing and developed countries, governments will need to review and implement policy changes that will stimulate employment among the younger population, women and persons with disabilities, as these are the most at-risk groups for poverty in an aging population. Whether you work in the formal or informal sector, we all contribute to the economy yet we all don’t contribute to a pension plan. Our retirement is our responsibility.
“It’s best to start thinking of your retirement before the boss does.” – author unknown.
Grace G McLean is financial advisor at BPM Financial Limited. Contact her gmclean@bpmfinancial. and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self.