Pensions and Development in the South

Abstract

The issue of how to organize pension provision and old age support in developing countries is increasingly coming to the fore. The demographic and epidemiological transitions underway in the developing world make this a pressing issue. Current population forecasts suggest that by the year 2050, there will be ten Latin Americans, 12 Africans, and 69 Asians aged 60 and over for every European in the same age bracket (Barrientos and LloydSherlock, 2002). The World Bank’s 1994 report on ‘‘Averting the old age crisis: policies to protect the old and promote growth’’ raised the profile of ageing as an issue in the context of development policy, but within an unfortunate context of ‘‘crisis’’ (World Bank, 1994). In the 1990s, a number of countries in Latin America and transition economies radically transformed their pension provision, and moved swiftly in the direction of privately provided individual retirement plans. However, pension reform has been embedded within structural adjustment, mainly as a response to fiscal deficits and labour market liberalization. This has narrowed the potential range of policy responses to demographic change available to developing countries. It is important to focus attention on the issue of pensions in the South from a development perspective. This paper uses a comparative perspective to draw attention to the variety of pension provision in the developing world, and to identify and discuss the main issues for pension reform in the South. The spread of pension reform in the 1990s, and the discussions that have attended it, have paid insufficient attention to the variety of pension provision in the South. The countries selected for this comparative study make this point well. Chile’s individual retirement plans have taken a paradigmatic role in pension reform among developing countries. Employees contribute a fraction of their earnings to a retirement account managed by private pension fund managers, which invest account balances in a range of financial assets in exchange for a management fee. At retirement, employees use the balance of their individual accounts to purchase an annuity. Singapore’s Central Provident Fund provides a different model of old age support. Compulsory payroll contributions are collected in a fund managed by the government, and the individual accounts are credited with a fixed rate of return. Affiliates can use their savings for a range of merit expenditures, including health, housing, and education. Individual retirement plans and the provident fund model reflect dominant models of pension provision in Latin America and South Asia respectively. Less conspicuous, but very important in the context of development policy, are the experiences of pension reform in South Africa and Brazil. In South Africa, the fall of apartheid led to the universalization of pension benefits, by abolishing the discrimination in entitlements and access to pensions suffered by blacks. The ‘‘social pension’’ provides a regular source of income to elders and their households, and is proving to be a powerful instrument of poverty reduction and development. The ‘‘social pension’’ has also led to a significant improvement in