Closing the gap

Adequacy and coverage

of pensions in Sri Lanka

Nisha Arunatilake

Content

• Why talk of pensions?

• What are the existing pension schemes?

• How sustainable are they?

• What is their population coverage?

• How adequate are the pension amounts?

• How costly to extend to all?

• Summary

Why talk of pensions?

Sri Lankan population is ageing

Source: Samarakoon and Arunatilake (2015)

Old age dependency in increasing …

Source: Samarakoon and Arunatilake (2015)

0

10

20

30

40

50

60

70

80

902

00

1

20

04

20

07

20

10

20

13

20

16

20

19

20

22

20

25

20

28

20

31

20

34

20

37

20

40

20

43

20

46

20

49

20

52

20

55

20

58

Child dependency Old age dependency Total dependency

There are more elderly females than males

Source: Samarakoon and Arunatilake (2015)

Most pension schemes are employment based, but not all females get employed

0

10

20

30

40

50

60

70

80

90

100

15>19 20>24 25>29 30>34 35>39 40>44 45>49 50>54 55>59 60>64 65>69 70>74 75>79 80>

LFP

R (

20

12

)

Age groups

Male

Female

Source: Samarakoon and Arunatilake (2015)

What are the existing pension schemes?

• Public servants

• Armed Forces Pensions

• Widows/widowers & orphans

• ‘Public servants provident fund’

Public sector

• Employee provident fund

• Employee trust fund ‘Private sector’

• Farmer’s

• Fishermen’s

• Self employed, etc.

Informal

• Public Assistance Monthly Allowance (PAMA)

• Elderly Assistance Programme (EAP)

Elderly assistance schemes

FMPS 4 1987 AAIB Contributory sub by gov.

FSHPS 4 1990 AAIB Contributory sub by gov.

Migrant worker pension

scheme5

2008 National Pension

Trust Fund

Contributory sub by gov.

Sahana7 1996 SSB Contributory sub by gov.

Thilina7 1999 SSB Contributory sub by gov.

Isuru7 1999 SSB Contributory sub by gov.

Sarana7 2006 SSB Contributory sub by gov.

Surakuma7 2006 SSB Contributory sub by gov.

Dhanalakshmi7 2006 SSB Contributory sub by gov.

Informal sector pension schemes

A good pension system is …

Reliable

Covers all

Adequate

How reliable are the pension schemes?

• Non-contributory - Treasury funded

• Widow(er)s & orphans - contributory Public sector

• Contributory ‘Private sector’

• Contributory subsidized by government Informal

• Non-contributory

• Treasury funded

Elderly assistance schemes

What share of population is covered?

Coverage of different pension schemes (2012c)

5,089,000

2,334,596

1,400,758

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

PSPS Farmers’ Fishermens’ Self-employed Total

Eligible population Enrollees Effective coverage

38%

64%

Source: Samarakoon and Arunatilake (2015)

Enrollment in Pension schemes

Share of 15-59 population in Sri Lanka (2012)

Not in the Labour Force 42%

Not eligible 19%

Eligible , but not enrolled

21%

Enrolled , but not effectively

5%

In a pension scheme

13%

Not in a pension scheme

87%

Source: Samarakoon and Arunatilake (2015)

How adequate are the pensions?

Average monthly pensions (Rs.)

16,675 16,814

11,618

1,499 1,301 1,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Poverty line Rs.3781

Source: Samarakoon and Arunatilake (2015)

Present value of future pensions (Rs.) (farmer’s pension scheme - if pension starts at age 60)

4167

2500

1333 1250

1000

537 453 394 471

864

12 19 40 76

658

0

500

1000

1500

2000

2500

3000

3500

4000

4500

18 25 35 40 55-59

Age at enrollment

Promised monthly pension

Present value (5% inflation)

Present Value (15% inflation)

Source: Samarakoon and Arunatilake (2015)

How costly to extend to all?

Success of different pension schemes…

• Unsuccessful in low income countries with a large informal sector (Willmore, 2008)

Contributory pensions

• e.g., India and Bangladesh

• Issues: problems with targeting, costs of targeting

non-contributory pensions

– means tested

• e.g., Nepal

• Issues: costly, benefits also to the wealthy

non-contributory pensions

- Universal

Depends on how extended …

Cost and coverage of a universal pension (20% of per capita GDP)

3

4.6

2.1

3.4

1.2

2.2

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2015 2030

Pension cost (% of GDP)

60+

65+

70+

15

23

10

17

6

11

0

5

10

15

20

25

2015 2030

Coverage (% of population)

60+

65+

70+

Source: Samarakoon and Arunatilake (2015)

Summary

Pension Coverage 60 and Above Population in Sri Lanka (2012)

No pension 50%

Public sector pensions

20%

Informal pensions 5%

PAMA 18%

EPA 7%

Other 25%

Source: Samarakoon and Arunatilake (2015)

Note: EPF, ETF not included

Reference: Samarakoon and Arunatilake, 2015, Retirement – can all afford it?, Institute of Policy Studies of Sri Lanka.