Achieving Effective Social Protection for All in Latin America and the Caribbean by David A. Robalino

Author:David A. Robalino [Ribe, Helena]
Language: eng
Format: epub
ISBN: 978-0-8213-8398-8
Publisher: The World Bank
Published: 2010-04-11T04:00:00+00:00

Opening Social Insurance Access to All

The central goal is to give all citizens or residents access to the same SI system—under the same rules and conditions—regardless of where they work.

SI financed from beneficiaries’ contributions (and employers’ contributions, when available) would remain mandatory in the formal sector.8 But it also would be opened up to informal sector workers on a voluntary basis. These would not be special, second-class programs, but rather the same programs available for the formal sector, with the same basic packages of contributions and benefits.

Expanding the coverage of contributory systems to the informal sector and rural agricultural workers presents several challenges. These workers often are employed in small firms or are self-employed. They often are unskilled, with low incomes and limited savings capacity. They often are not permanently employed, and their incomes fluctuate seasonally. They also tend to have high personal discount rates and strong preferences for liquidity. Many have little contact with or access to financial sector institutions.

To offer services to these workers, SI programs need to adopt appropriate rules and payment and contribution collection systems. First, even when universal insurance mandates are created de jure, the reality is that it is very difficult de facto to enforce a mandate on this population, so programs need to be attractive to persuade them to join. Second, in many cases, these workers are not wage-earners, so their contributions need to be set in the form of flat payments, not as a proportion of wages, and contribution scales need to accommodate individuals with different savings capacities. As discussed later (Reforming Social Insurance Subsidy Systems to Remove Implicit Redistribution), this implies that an individual’s benefits need to be directly proportional to his or her contributions plus any means-tested subsidies he or she has received. Third, a proactive mechanism is needed to market the insurance programs and collect contributions (for example, mobile agencies that could be set up in markets and travel to remote geographic areas). Fourth, transaction costs have to be reduced because the contributions of many of these workers are likely to be small. Fifth, restrictions should be relaxed on vesting periods for the payment of benefits, because many plan members may not be able to achieve high contribution densities.

Some of these problems can be addressed, in part, by subcontracting “aggregators,” such as cooperatives or trade associations in the agricultural and services sectors, to enroll workers and collect contributions. This would generate economies of scale and reduce transaction costs. In addition, financial incentives are needed to attract individuals with limited savings capacity, who would not be able to save enough by themselves to cover adequate benefits or to pay insurance premiums in full. These ideas are discussed in more detail in the next section.

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