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Social security’s role in recovery efforts may lead to financing problems
27 April 2009 - Social security systems worldwide are responding to the financial and economic crisis with innovative measures that alleviate the social impact of the downturn. But the severe pressure on schemes caused by the crisis may have policy implications in the medium- and long-term, an international gathering of social security administrators and experts has heard.
Preliminary analysis of a global survey on the impact of the economic crisis on social security systems prepared by the International Social Security Association (ISSA) documents that public pension schemes suffered important investment losses in 2008. These losses, combined with increased expenditure – primarily due to the rapid rise in unemployment – and a reduction in contributions, are placing intense pressures on some schemes, according to the survey.
The initial findings of the survey were presented at an international seminar on Social Security in Times of Crisis: Impact, Challenges and Responses, organized by the ISSA in collaboration with the Social Security Department of the International Labor Organization (ILO), in Geneva, 24-25 April. The seminar gathered 250 social security leaders, administrators and investment managers from 72 countries and social policy experts from international organizations, including the UN, the World Bank and the OECD.
“The first findings of the ISSA survey and the discussion at the seminar confirm that social protection systems can play an effective role as economic stabilizers, reinforcing social cohesion and improving socio-economic stability,” said Hans-Horst Konkolewsky, ISSA Secretary General. “However, if the unprecedented pressures on schemes continue, financing problems might arise in the medium- and long-term,” he warned.
Social security: a core element of recovery packages
Case studies from diverse contexts presented at the meeting, including Australia, Brazil, China, Canada, South Africa and the USA, confirmed that social security systems are an important component of many economic recovery packages. Many speakers called for closer national and international coordination of financial, economic and social policy measures to respond to the crisis.
Participants in the round table debate at the close of the seminar called on social security administrators to increase their cooperation with political decision-makers, to be realistic in their goals, and to deploy responses that will be of immediate benefit. They urged institutions to avoid creating long-term dependency, for example through increased use of pre-retirement or disability schemes.
Sustainability of pension schemes
The debate also underlined the high risk associated with having pension schemes that are over-reliant on financial market performance. The ISSA survey indicates that, in countries that have opted for mainly defined-contribution schemes based on private individual accounts, beneficiaries are likely to experience a significant reduction in their pensions, especially people close to retirement age. The current economic environment may also create problems for countries with large non-contributory pension schemes financed from government revenue, due to budgetary restrictions, the survey concludes.
Concluding the seminar, the ISSA President Corazon de la Paz-Bernardo recognized that the context created complex challenges for social protection, and urged institutions to respond proactively. “In times of crisis, we need more social security, not less,” she said.
The ISSA Secretariat will intensify efforts to analyse the impact of the crisis on social security schemes in the coming period, and to facilitate sharing of information and good practices.
Videos of the keynotes speeches and country case studies, the ISSA survey report and other documents presented at the seminar will be available on the ISSA’s Web portal: www.issa.int/crisis09.
The International Social Security Association (ISSA) is the world's leading international organization bringing together national social security administrations and agencies. The ISSA provides information, research, expert advice and platforms for members to build and promote dynamic social security systems and policy worldwide. Founded in 1927, the ISSA has 355 member organizations in more than 150 countries. The President of the ISSA is Mrs. Corazon de la Paz-Bernardo, from the Philippines.