MILLIONS of informal workers in Asia are at risk of living out their golden years in poverty—unless countries act swiftly.

In an Asian Development Blog, Asian Development Bank (ADB) Sustainable Development and Climate Change Department Principal Social Development Specialist Sri Wening Handayani said vendors, day laborers, and others are being left out of the national pension system.

Handayani said nearly 10 percent of the population of the Asia and Pacific region are above the age of 60. By 2050, nearly a quarter of the region’s population would be deemed “seniors.”

“Rising life expectancy indicates that large numbers of people in the region are living beyond the age normally associated with retiring from the labor force. Unfortunately, pension systems in the region are limited in scope and appear incapable, without further refinement, of addressing the coverage gaps that are emerging now and in the future,” Handayani said. 

This is the reason the Philippines is also being proactive. Given the size of the informal sector in the country, the government could not sit idly by waiting for something to happen. 

In 2017, the Philippine Statistics Authority (PSA) said the unorganized or informal sector accounted for more than a third of the country’s total GDP of P14.48 trillion last year.

Using current prices, PSA Assistant National Statistician Vivian Illarina pegged the contribution of the informal sector to the country’s economy in 2016 at P5.013 trillion.

Illarina said the informal sectors in agriculture, hunting, fishery and forestry contributed P1.35 trillion of GDP in 2016; industry, P1.4 trillion; and services, P2.28 trillion.

 Modest pensions

National Economic and Development Authority (Neda) Undersecretary for Policy and Planning Rosemarie G. Edillon told BusinessMirror that in order to cover the needs of informal sector workers, the government has a modest social pension and the Social Security System (SSS) has its own AlkanSSSya program.

Edillon said the country’s modest social pension is not significant simply because of the premise that the elderly in the Philippines all have families to take care of them. 

What the government is doing now is ensuring that the current generation is able to see higher incomes that would enable them to provide for the elderly in their families.

“In the case of Filipino families, it’s always been the family that takes care of the elderly. But we have elderly persons (enrolled in) the social pension program. Of course it’s not much but ultimately, what we want to happen is that this current generation (will be able to see an) improvement (in) their incomes (so) they can care for their (loved ones),” Edillon said.

Meanwhile, the AlkanSSSya program enables the self-employed and the informal sector, specifically the self-employed in the services sector, to support their needs, including pensions, through staggered payments.

The AlkanSSSya program can protect informal sector workers from income losses due to sickness, maternity, death, disability, old age, and other similar events.

The SSS said the monthly premiums for members of the informal sector now depends on the amount of the daily earnings of the informal sector worker. If workers earn P3,000 or $60 (P50=$1) per month, the monthly contribution reaches P360 or $7.2 per month or P12 or $0.24 per day. 

 AlkanSSSya’s take: P685M

According to the Development Academy of the Philippines, the AlkanSSSya Program has collected up to P685.12 million as of the end of April 2018. This means a monthly average of P13.74 million.

“There are a lot of SSS programs on that (pension for informal workers). They have the AlkanSSSya which allows informal workers to make super easy payments. It (payment) doesn’t have to be a one-time thing. This one (AlkanSSSya) allows staggered payments,” Edillon said.

Handayani said these are among the strategies being employed by countries across the region. One example in the region, she said, is the flat noncontributory pension which is “suitably low” for affordability.

These kinds of pensions are “growing rapidly” in countries such as Bangladesh, Nepal, the Philippines and Thailand.

“The flat rate pension should be suitably low, for example at a level intended to achieve a minimal survival benefit among the elderly. Alternatively, benefits might be restricted to ages much higher than the official retirement age, as in Myanmar and Nepal,” Handayani said.

 
Increasing retirement age

Other strategies to help the elderly cope in the twilight of their years is increasing retirement age to allow older workers to continue working to support their needs.

Handayani also said providing tax benefits for a portion of the time spent in raising children, or training for re-entry into the labor force can be used to shore up retirement contributions.

She added that voluntary mechanisms such as a “micro pension” that are specifically tailored to individuals with low income and infrequent earnings is also being used in the region.

The main challenge, Handayani said, is in ensuring the safety of funds and instill financial literacy among potential contributors. 

She added that it is also crucial that these mechanisms do not create “unrealistic expectations” that these micro-pensions will be a sufficient source of income for the elderly. 

“Given their low income, it is unlikely that such individuals can be attracted to contributory schemes with tax benefits (deductions) associated with them,” Handayani said.

“Rather, the emphasis will have to be on products that are easy to understand and convenient, such as those accepting low and infrequent contributions, that reach remote areas, and involve low fees,” she added.