This commentary continues the discussion in Korashi's previous article "<a href="https://aps.aucegypt.edu/ar/articles/107/social-pensions-in-egypt-a-call-for-reform" target="_blank" rel="noopener">Social Pensions in Egypt: A Call for Reform</a>"
Growing old is inevitable and is accompanied by increasing risks of chronic illnesses, disabilities as well as old-age poverty. In addition to combatting the vulnerability of old age, social protection policies are pivotal to the attainment of social justice and social security. Corresponding to the first goal of the Sustainable Development Goals, Target 1.3 reads: &ldquo;Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable&rdquo; (IlO, 2017). This counts as a reinforcement to the earlier ILO Social Protection Floors Recommendation No. 202 enacted in 2012 calling for the provision of a minimum level of social protection for all individuals (ILO, 2017). The enactment of a social protection floor is particularly relevant for the elderly who struggle to secure post-retirement income.
<h3 style="text-align: justify;">The need for non-contributory assistanced&nbsp;</h3>
According to a 2017 ILO publication, approximately only 20% of the elderly receive retirement pensions in most low-income countries, rendering the elderly majority&nbsp; more prone to old age poverty (Ortiz, Duran-Valverde, Pal, Behrendt &amp; Acuna-Ulate, 2017). Whilst significant improvements need to be introduced to contributory systems to enhance coverage, according to Willmore (2007), a non-contributory pension can assist in addressing the coverage gaps that contributory pensions fail to address.
Non-contributory schemes can be either universal or targeted. As implied by name, universal pensions deliver old-age cash transfers to all individuals, regardless of employment affiliation, income or gender. The only eligibility criteria are usually age and residency. Targeted transfers or pensions, however, are those which are provided to specific groups, usually those with specific income characteristics. The question of universal versus targeted provision of social protection is one that has fueled many debates. In practice, both approaches are present. As of 2014, 36 countries offered universal schemes including Argentina, Bolivia, China, Kenya, and Zanzibar amongst others, while 53 countries provided means-tested schemes (Kidd, 2016; ILO, 2017).
Universal pensions consist of a flat rate pension paid to all who reach a certain age. They are not means-tested, i.e., not requiring an income or asset prerequisite. Such type of pensions promise wider coverage, especially to women and informal workers (Willmore, 2007), and thus, avoid the coverage deficits associated with targeted schemes. They are the easiest and most simple to administer, yet are fiscally challenging.
<h3 style="text-align: justify;">Universal vs means-tested pensions</h3>
When contrasting universal schemes with targeted schemes, it is obvious that it is a question of addressing poverty versus inequality. Though both are not inherently substitutable, targeted schemes are more suitable for addressing the needs of specific groups, whilst universal schemes promote equality across all social segments. In comparison to means-tested schemes, universal pension schemes entail less administrative costs, as they are generally targeted towards the elderly population as a whole. The average administrative costs of universal pensions in a sample of 57 developing countries were valued at 3% of total expenditure, compared to an average of 12% under targeted schemes, signaling the diversion of funds away from pension expenditure under targeted schemes (Ortiz et al., 2017).
Protagonists of the universality of schemes argue that they involve zero exclusion error; since they are basically targeted at the non-poor as well as the poor. This simple eligibility criteria leads to observable higher coverage rates than those witnessed under targeted schemes.&nbsp; Targeted schemes never achieve full coverage of the intended beneficiaries and are almost always guilty of limited coverage of the poor. For example, as Kidd (2016) puts forward, Brazil&rsquo;s Bolsa Familia and Mexico&rsquo;s Oportunidades programmes exclude 49% and 70% of their targeted beneficiaries, respectively.
On the economic effects of each of the schemes, the evidence is mixed. On the one hand, a lower probability of poverty has been witnessed upon the administration of universal pensions in Namibia, albeit with an insignificant effect on inequality (Jouste &amp; Rattenhuber, 2018). Targeted schemes on the other hand were more effective in countries where the majority of elderly persons are not poor (Grosh &amp; Leite, 2014). Nonetheless, several studies have reasserted that targeting schemes in a sample of African and Latin American countries, are guilty of considerable exclusion errors that diminish their final effect on poverty reduction (Brown, Ravillion, &amp; de Walle, 2018; Detheir, Pestieau &amp; Ali, 2010) .
On the political front, administering universal pensions builds cohesive political alliances across different economic classes (Kidd, 2016). Both the politically weak (the poor) and the politically influential (the rich) benefit from such pensions. In other words, the poor are no longer fighting alone for their economic rights, but are benefiting from the political influence of the more powerful sectors. Under targeted schemes however, such political support may be absent, leading eventually to low-value transfers. Targeted schemes are also frequently associated with corruption, bureaucratic procedures and dearth of transparency in setting eligibility criteria.
&nbsp;Universal schemes are typically more costly than others. Yet, the lack of complicated administrative concerns--that are otherwise present in targeted schemes--can offset their high fiscal costs (Willmore, 2007). The main cost determinants of universal pensions are the level of benefits and the eligibility age. In Egypt, universal pension benefits were simulated to cost around 0.9% of GDP, calculated on the basis of a 65 year old eligibility age and a pension benefit which amounts to 100% of the poverty line. This figure is approximately half of the average reported for the full sample of 57 lower income countries (Ortiz et al., 2017). A number of financing alternatives that include imposing taxes on financial transactions and the reallocation of public expenditure in favor of social protection have been suggested (Cruz Martinez, 2016). According to Ortiz et al., (2017), Egypt demonstrates low willingness to support social investments, as demonstrated through the low shares of spending on health and education.&nbsp;&nbsp;
Universal pensions can be gradually introduced through phased stages. Eligibility age can be set higher than the retirement age (e.g. 65+) and then be gradually reduced until it reaches the retirement age. Another example can be settling on a low initial pension value that is to be gradually upscaled. Through such approaches, fiscal pressures can be mitigated. Nonetheless, regardless of the financing option, it is believed that through providing universal entitlement, political and social advocacy is guaranteed.
<h3 style="text-align: justify;">Egypt: Abandoning the universal approach </h3>
&nbsp;Non-contributory pension schemes in Egypt include Takaful, Karama as well as the Social Solidarity Pension<a href="#_edn1" name="_ednref1">[i]</a> , all of which are targeted programs. The only universal scheme offered has been the energy subsidy, which is currently being gradually phased out in light of the economic and structural reform program. Food subsidies had also been universally adopted until 2017, when they became targeted for poor households (Machado, Bilo, Soares &amp; Osorio, 2018). The policy intentions in Egypt are therefore gradually shifting from a universal-based approach to a more targeted approach. This shift is evident, especially in the aftermath of the recently released Households Income, Expenditure and Consumption Survey (HIECS) underscoring an increase in the poverty rate to 32.5% (The Economist&nbsp; 2019). As such, policies concerned with mitigating the increasing poverty levels are the current concern.
A review of the historical performance of targeted programs in Egypt reveals that their success remains limited. For example, monthly cash benefits offered by the Social Solidarity Pension have very minimal poverty-reducing effects (Sieverding &amp; Selwaness, 2012). World Bank estimates in 2006 indicated that the majority of public social pensions (70%) went to the non-poor whilst the percentage of poor benefiting from these pensions was less than 12% (World Bank, 2007). In fact, the alarming increase in poverty rates reported in the HIECS survey clearly suggests that the intended beneficiaries of pensions programs are neither adequately covered nor protected. Additionally, in most developing countries, middle class consumers are also deemed vulnerable to price increases that take place post-subsidy removal. That means that even if targeted safety nets are introduced to the poor, other classes will still be negatively affected.
Universal pensions are not irrelevant to the Egyptian landscape. Such a policy needs to be incorporated within a long-term strategy that primarily addresses inequality. Moreover, it could be useful to view targeting and universal schemes as complementary, rather than mutually exclusive policy options. In Ecuador, the country managed to introduce universal pensions that top-up the low benefits of targeted schemes. Those who are completely uncovered by a targeted pension receive the full universal pension benefit. Recipients of&nbsp; the targeted pension receiving benefits less than the universal pension benefit from this top up. This scheme has been successful at reaching elderly persons, with observable declines in poverty and inequality (Jouste &amp; Rattenhuber, 2018), and is regarded as an efficient way at creating a &lsquo;hybrid&rsquo; scheme that reaps the benefits of two seperate policy approaches.
Along similar lines, there is the Bolivian experience. In Bolivia, two benefit amounts of pensions exist, for those who do not receive contributory pensions and for those who do. The latter&nbsp; group receives higher benefits than the former, in order to compensate for the lack of stable income. It is worth noting that as an effect of this policy, coverage rates in Bolivia are the highest in Latin America (Jouste &amp; Rattenhuber, 2018). The two previous examples highlight that combining two policies-that may seem mutually exclusive at first glance-can be both efficient and effective. Needless to say, social protection policies need to be carefully crafted to suit a country&rsquo;s conditions. Indeed, ILO (2017) notes that it will be a long road until universal social protection coverage is realized.
<hr>
<a href="#_ednref1" name="_edn1">[i]</a> The Social Solidarity Pension targets households that lack a male income provider and individuals who are not recipients of any other pension type (Sieverding &amp; Selwaness, 2012).
<hr>
References
<ul>
<li style="text-align: justify;">
International Labor Organization (ILO). (2017). World Social Protection Report 2017&ndash;19: Universal Social Protection to Achieve the Sustainable Development Goals (p. 454). Geneva.
</li>
<li style="font-size: 10pt;">
Jouste, M., &amp; Rattenhuber, P. (2018). A Role for Universal Pension? Simulating Universal Pensions in Ecuador, Ghana, Tanzania, and South Africa (Working Paper No. 23; p. 29). UNU-WIDER.
</li>
<li style="font-size: 10pt;">
Kidd, S. (2016). Social Protection: Universal Provision is more Effective than Poverty Targeting. Retrieved from <a style="color: #333333;" href="https://ideas4development.org/en/social-protection-universal-provision-is-more-effective-than-poverty-targeting/">https://ideas4development.org/en/social-protection-universal-provision-is-more-effective-than-poverty-targeting/</a>
</li>
<li style="font-size: 10pt;">
Machado, A. C., Bilo, C., Soares, F. V., &amp; Osorio, R. G. (2018). Overview of Non-contributory Social Protection Programmes in the Middle East and North Africa (MENA) Region Through a Child and Equity Lens (p. 348). International Policy Centre for Inclusive Growth and UNICEF Middle East and North Africa Regional Office.
</li>
<li style="font-size: 10pt;">
Sieverding, M., &amp; Selwaness, I. (2012). Social protection in Egypt: A policy overview (Working Paper No.23). Population Council. <a style="color: #333333;" href="https://doi.org/10.31899/pgy2.1091">doi:10.31899/pgy2.1091</a>
</li>
<li style="font-size: 10pt;">
The World Bank. (2007). Arab Republic of Egypt. Poverty Assessment Update (No. 39885). World Bank Group. Retrieved from&nbsp; <a style="color: #333333;" href="https://openknowledge.worldbank.org/handle/10986/7640?locale-attribute=es">https://openknowledge.worldbank.org/handle/10986/7640?locale-attribute=es</a>
</li>
<li style="font-size: 10pt;">
Willmore, L. (2007). Universal Pensions for Developing Countries. World Development, 35(1), 24&ndash;51. <a style="color: #333333;" href="https://doi.org/10.1016/j.worlddev.2006.09.008">https://doi.org/10.1016/j.worlddev.2006.09.008</a>
</li>
</ul>
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