Social Security System- Towards Global Standards

By Vineet Agarwal, The Hindu Business Line

May 24, 2010

India

In India, almost 90 per cent of the population has no means to secure its future.

Social security systems act as a social insurance that protects a country's population against various economic risks. Across the world, governments have formulated various social security plans to fulfil the objectives of protecting the poor and raising the standard of living for the population.

Social security plans, in general, cover workers and their dependants against old age, unemployment, health and other risks. These plans vary from country to country, eg. India mainly has a ‘provident fund' scheme, to which only people employed in the formal sector contribute from their salaries. In return, they are entitled to receive the accumulated balance at the time of their retirement.

The US, the UK, Japan, France and Australia, have systems where it is mandatory for every earning member of society to contribute towards social security. The benefit of these pooled funds is available to the entire society and not restricted to those making the contributions.

As per a recent study, the average global unemployment level is close to 50 per cent and almost 60 per cent of the world's population earns below $1 a day. Interestingly, over 2 billion people across the globe are not covered by any social security arrangements and approximately 50 million people in low-income countries are not covered against basic social risks.

The downside of social security schemes in most developing countries is that the schemes cover only the employees who are in formal employment. In India, for instance, approximately 10 per cent of the population is covered by social security schemes, indicating that almost 90 per cent of the population has no means to secure their future.

Indian system

In India, there are various schemes in place that largely cover employees in the organised sector and their families. But these schemes are more in the nature of savings schemes than social security schemes. Some of these are Provident Fund, Gratuity, Employees' Deposit Linked Scheme, Employees' Pension Scheme and Superannuation Scheme.

As the names suggest, all of them are basically designed to cover people in the formal employment sector. Also, most of the schemes are mandatory for employees and, hence, no security cover is available to those who are non-contributors to any of the schemes, such as self-employed / unemployed people. Broadly, under most of the schemes, the amount contributed by the employee and employer during the tenure of employment, plus interest accumulated, is returned at the time of retirement and, generally, no security is available for unemployment, old age, hospitalisation, etc.

Developed countries

Social security systems in the US, the UK, Japan, Australia and France are complex but cover a major portion of society. The pension plans cover most of the labour force. In countries such as the US, Canada and the UK, which have a lower percentage of mandatory pension contribution, there is a greater reliance on voluntary private pension provisions. There are free hospitalisation benefits in developed countries like US and Japan. Contribution to health cover is ensured in the form of ‘medicare taxes' and a portion is financed through public funding.

Some developed countries also have unemployment insurance schemes, where, if a person is unemployed, the government provides him a specified monthly pension to take care of himself and his family.

Ideal system

An ideal social security system can be divided into social insurance; and social assistance. Social insurance covers the mandatory contribution to provide help to workers and dependants against such major risks as unemployment, health risk and old age. Social assistance refers to the non-contributory transfer programmes that are meant to target the poor or those vulnerable to poverty. These are possible through progressive taxation, minimum wage laws, etc.

We can change towards a more structured and universal social security arrangement by increasing our revenue collection from tax. We may also need to think of creating new programmes to cover more groups. As compared to developed countries, in developing countries like India, there is a strong demand for social security and better social protection for all the workers, and not just a handful for people. The long-term goal may be a universal integrated system in which all citizens have access to adequate and affordable level of healthcare services, pension in old age and protection against loss of employment due to accident or other contingencies.

Copyright © Global Action on Aging
Terms of Use  |  Privacy Policy  |  Contact Us