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The Role of Old Age Pensions in Reducing Poverty

Pampazuka News 

September 4, 2003

Non-contributory pensions can help to reduce and prevent poverty among older people and their households in developing countries, according to evidence from a new research study, which compares and examines the impact of non-contributory pension programmes in Brazil and South Africa. The joint project was undertaken by researchers in the UK universities of Manchester and East Anglia, universities in Brazil and South Africa, and HelpAge International.

The role of old age pensions in reducing poverty
Non-contributory pensions can help to reduce and prevent poverty among older people and their households in developing countries, according to evidence from a new research study, which compares and examines the impact of non-contributory pension programmes in Brazil and South Africa.

The joint project was undertaken by researchers in UK universities of Manchester and East Anglia, universities in Brazil and South Africa, and HelpAge International.

Old age poverty is widespread in developing countries, and informal old age support from families and communities is coming under increasing pressure from adverse economic conditions, migration, HIV/AIDS, and changes in household composition.

If new policies are not found to support older people and their households, they will continue to swell the ranks of the poor.

Pensions play a key role in old age support systems, but research and debate on pension policy in developing countries has so far focused on contributory pension programmes, which only reach a small proportion of older people. Non-contributory pension programmes are only established in a handful of developing countries, but these are more likely to reduce poverty and vulnerability and facilitate economic development, the study argues.

The research shows that:
* In Brazil and South Africa, pension benefits are shared within households, so that they act as household cash transfers channeled through older people.
* Non-contributory pension programmes have a clear impact on poverty, significantly reducing the probability that individuals in households where there is a pension recipient will be in poverty.
* These programmes reduce household vulnerability. Households with a non-contributory pension recipient show greater financial stability and lower probability of experiencing a decline in living standards.
* Non-contributory pension programmes can promote wellbeing in older people. Preliminary analysis of a range of deprivation indicators shows that pension recipients have a lower incidence of a range of deprivations, especially in urban areas.
* In Brazil and South Africa, non-contributory pension programmes reach a large number of poor older people (5.3 million in Brazil and 1.9 million in South Africa) at relatively low cost (1 percent of GDP in Brazil and 1.4 percent in South Africa). They are financially sustainable and attract a large measure of political support.

The researchers also conclude that the Millennium Development Goals for the eradication of severe poverty are unlikely to be achieved without urgent consideration being given to establishing and extending non-contributory pension programmes. In low-income countries, with a limited tax base and a lack of an effective administrative structure, the introduction of such programmes will require international support, they argue.

* Non-contributory pensions and poverty prevention? A comparative study of Brazil and South Africa Final Report, DFID Project R7897 Pensions and Poverty Prevention, July 2003, London.
Available electronically
University of Manchester: http://idpm.man.ac.uk/ncpps/
HelpAge International http://www.helpage.org/publications/PapersEtc/PapersEtc.html


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