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Sri Lanka Strengthening Social Protection

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

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Sri Lanka Strengthening Social Protection

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  1. Sri LankaStrengthening Social Protection Improving Social Insurance Ravi Rannan-Eliya Institute for Health Policy http://www.ihp.lk

  2. Outline • Risks • Schemes for formal sector • Schemes for informal sector & others • Problems • Recommendations • Issues

  3. Risks • Old age • Disability • Death • Unemployment • Health

  4. Old age - Formal sector • Government workers • Civil Service Pension Scheme • Automatic • Defined benefit, non-contributory • Private sector workers • EPF/ETF & APPFs • Mandatory • Defined contribution, contributory • Individual accounts

  5. Old age - Informal sector • Farmers’ pension scheme • Fishermens’ pension scheme • Self-employed pension scheme • Voluntary • Defined benefit, contributory

  6. Disability/Death • Formal sector • Civil Service Pension Scheme • Disability, survivor defined benefits • ETF • Disability/survivor lump sum payments to Rs 150,000 • Informal sector • Farmers/Fishermen’s/SE schemes • Disability/survivor defined benefits • NGO sector • Micro-insurance schemes

  7. Unemployment • No provision • Under consideration since 2003 • Proposals for unemployment insurance • Contributory, Replacement rate of 50% of last wage for 12-25 months • Ad-hoc workfare schemes, e.g. post-tsunami

  8. Health • No health insurance, but tax-funded health system performs insurance role* • Covers medical costs • Does not directly cover income losses *Historical note: Insurance approach was deliberate choice in 1935, 1948

  9. Problems

  10. Cross-cutting problems • Lack of coordination • No national strategy, ad hoc responses • Many agencies • Gaps in coverage in formal schemes • Nominal coverage - 53% of population • Actual coverage - 28% of population • Adequacy • Weak administration • Fiscal sustainability

  11. 1. Formal sector pensions • Adequacy • Benefit values low in EPF/ETF, voluntary schemes • Lack of consumption smoothing in EPF/ETF • Fiscal sustainability • Civil service pension • 2% of budget • Lack of funding • EPF/ETF • Only self-funded in theory - in practice funded by government through debt • Constraint to labor mobility

  12. 2. Unemployment insurance • Weak administrative capacity • Administration of benefit payments • Eligibility monitoring - potential for moonlighting • Incentive problems • Recipients may not look for work

  13. 3. Informal sector pensions • Adequacy • Low benefit values - no inflation protection • Coverage • <50% - not designed for actual income conditions • Fiscal sustainability • Ad-hoc changes to benefit levels • Increasing government liability

  14. Recommendations

  15. 1. Formal sector pensions • Civil Service Pension Scheme • Reduce replacement rate, increase earnings base, & index to inflation • Introduce contributions • EPF/ETF • Increase retirement ages • Outsource fund management & expand role of private sector • Improve administration • Consider annuity options

  16. 2. Informal sector pensions • Shift from defined benefits to defined contributions • Introduce annuities • Improve administration • Improve fund management • Introduce matching contributions to encourage voluntary contributors • Provide disability through group insurance

  17. 3. Unemployment insurance • Fix initial eligibility and coverage same as TEWA • Benefits to require non-employment in formal sector (can monitor) • Replacement rate - ~50%, 6-12 months • Financing - Employer and workers • Administration - Piggyback ETF • Job search - employment services for recipients

  18. Alternative - Unified approach • National defined contribution pension scheme for all new workers • Individual accounts • Defined contributions, benefits • Advantages • Economies of scale, group insurance • Administrative efficiency • Promote coverage through voluntary incentives

  19. Issues

  20. Realism • Importance of political pressures • Ad-hoc schemes not arbitrary decision of central planners, but response to political pressures • >Reforms must not ignore political constraints • Future pressures • Expansion in coverage as elderly increase • Increase in benefit levels • Need for indexation • Compatibility for job mobility

  21. Funding • Position on prefunding/contributions not balanced or supported by theory or evidence • Funded Schemes • IMF/WB/OECD: “In context of large fiscal deficit, contributory schemes will become PAYG” • Contributory schemes not viable route to adequate benefits

  22. Consensus points • Existing informal sector schemes represent an implicit government liability • Need to improve level and quality of benefits • Need to expand coverage • Need for unified social insurance system

  23. Alternative - US/Asian solution • Unified national pension scheme as long-term goal • Partly funded, life-time contributions, but with tax funded PAYG elements to bring in informal sector and non-workers • Defined benefits so as to allow risk protection and achieving minimum income targets

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