The shift toward social security systems with a tighter link between benefits and contributions will make such systems more fiscally sustainable. But to protect the uninsured and underinsured, such programs should be complemented by better social assistance programs for low-income groups. Most old people in developing countries are uninsured by formal social security programs. Economic growth is the key to increased coverage, but policy also matters, argues James. Contributory insurance programs may not work for much of the population in developing economies. Moreover, the tradeoffs between higher take-home pay and old-age benefits, between maximizing coverage and minimizing evasion, and between increased coverage and greater competitiveness, must be carefully evaluated before opting for expanded coverage, especially among low-income groups. Keeping the contribution rate low and including some redistribution toward low-income groups in contributory systems may help reduce the number of uninsured, while avoiding costly tradeoffs. Recent years have seen a tighter link between benefits and contributions in contributory systems - most obviously in the shift toward multipillar systems with large defined-contribution components, usually accompanied by a modest redistributive public pillar. This tighter link makes social security systems more fiscally sustainable and may be considered a precondition for financially sound expansion of coverage. At the same time, the number of uninsured or underinsured (who have contributed only small amounts) could increase, as a result of the tighter benefit-contribution link. The uninsured fall into two groups: - Workers who spend much of their lives in agriculture or the informal sector (often self-employed or in small firms), in jobs not covered by contributory programs. Many of these workers are low earners, for whom contributing today for potential old-age benefits may not be welfare-enhancing - and governments do not have the capacity to compel contributions. Social security reforms that make benefits contingent on contributions should include better social assistance programs for these low-income groups. Efficient program design and program costs must also be considered. - Women who, having worked mostly in the household, expect to be supported by the family system, which may fail them in old age. Family support for dependent spouses should be incorporated into the pay-out phase of the defined-contribution pillar, to keep old women out of poverty. This paper - a joint product of Poverty and Human Resources, Development Research Group, and the Human Development Division, World Bank Institute - was presented at the Inter-American Development Bank Conference on Social Protection, February 4-5, 1999
