Pension Coverage and Linkages in Low- and Middle-Income Countries

13-Aug-2012    This paper examines policy issues, challenges and country experiences concerning extension of coverage of pension benefits in low- and middle-income countries.

Despite the development of significant analytical insights and country-reform experiences, the extension of pensions coverage to near-universal levels remains a vexing issue in most low- and middle-income countries (LMICs) globally. A large informal sector in most LMICs presents specific challenges to the objectives, design, delivery systems, and financing of pensions. The heterogeneity of country contexts makes formulating a single pension system or a single strategy to extending coverage difficult. This paper argues that main objective of pension extension in LMICs should be to substantially mitigate old-age poverty. This will require integrating pension system reform with poverty reduction and development strategies.

To extend pension coverage in the LMICs, parametric and systemic reforms of existing formal-sector systems are necessary. But such reform is not sufficient. There is a need to link the reform of formal-sector systems with retirement income transfers, such as social pension (whether universal or resource-tested), minimum pension guarantees under the existing formal systems, and matching contributions. The analysis of initiatives in Brazil, Chile, China, India, Mauritius, and South Africa suggests the need for context-specific design and implementation strategies to address the pension coverage gap. Common challenges that emerge include the absence of robust databases needed for formulating and evaluating policy initiatives and for
identifying the intended beneficiaries; fiscal and institutional constraints; and the need to balance competing priorities. In turn, uneven and relatively slow progress in addressing the coverage gap in LMICs has been made more complex by the current global economic crisis.

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