In overall terms, what distinguishes Europe from the rest of the world is the size of its social solidarity systems, over and above the diversity of methods at national level.

 

Nevertheless, similar questions about social security in general, and retirement in particular, are being asked in every region of the world. Responses to those questions depend on the history of each country, as well as the stage of development reached.

 

On this basis, it is possible to identify three groups of countries and three types of problem:

• the developed countries (outside Europe)
• the emerging countries
• the poorest countries

 

THE DEVELOPED WORLD OUTSIDE EUROPE: BALANCING PENSION SCHEMES

 

Outside Europe, the wealthiest countries have all adopted pension schemes based on the Anglo-Saxon model. This situation is well illustrated by the fact that pensions expenditure as a proportion of GDP is below the OECD average (7.2% in 2005) in all cases: 4.1% in Canada, 6% in the USA, 3.5% in Australia, 4.4% in New Zealand, etc.

 

The only exception is Japan, where the figure is 8.7%. However, this is a recent development, since Japan fell below the OECD average at the beginning of the 1990s. This trend is explained by its ageing population (Japan has the oldest population in the world) and slowing economy. As in the USA, Canada and Australia, Japanese over-65s rely on state pension schemes for less than half of their income (the figure is barely more than one-third in the USA).

 

Like Europe, these countries are having to confront the challenges of an ageing population and slowing economic growth, which are together posing significant funding issues for state pension systems.

 

However, the situation is patchy: demographics in the USA, New Zealand and, to a lesser degree, Australia are still relatively dynamic (at around two children per woman), which reduces, but does not cancel out, the effect of longer life expectancy.Canada, and especially Japan, are in a significantly less favorable position.

 

All these countries have introduced pension system reforms over the past fifteen years. The majority of these reforms adjust system parameters, rather than introducing profound change: increasing the retirement age and reducing benefits rather than increasing contributions. Supplementary capitalization-based schemes have generally been encouraged.

 

The most common goal is that shared by all pension systems in developed countries: to reduce poverty amongst senior citizens, at the same time as maintaining their post-retirement purchasing power at the highest level possible.

 

EMERGING COUNTRIES: SUPPORTING GROWTH

 

In South America, the former Communist bloc, Asia, and North Africa, the problem is rather different.

 

All these countries have begun their demographic transition, that is to say that their fertility rates have fallen in recent years or decades, although at different speeds. The process is very well advanced in China, where the fertility rate has fallen to 1.54 children per woman, but it has yet to reach completion in India - for example - where the rate is 2.65. Most of these countries still have relatively young populations, but will become increasingly affected by population ageing in coming decades, largely as a result of longer life expectancy. At their varying stages of growth, the economically-emerging countries also have problems.

 

For them, the main pension problem is linked to the issue of development. The Bismarckian models pose problems, because they are based on the assumption that the majority of people of working age are in work and contributing, which is not always the case in countries with large informal economies. The relatively low incomes in these countries provide little opportunity to save for the future, and provide a low starting point from which to deliver sufficient levels of social services. People also need to have enough faith in public and/or private institutions that they are happy to entrust their savings to them over very long periods, rather than to rely on traditional forms of support.

 

Throughout the 1990s, the World Bank recommended ‘three-pillar' systems: a tax-funded state system for the poorest pensioners; a contributory scheme with contributions deducted directly from income and paying pensions proportional to the contributions made (preferably capitalization-based); and private individual voluntary pensions.

 

Why capitalization? Because of a belief that individuals would be more inclined to pay contributions when they are presented as personal savings, because private funds would be less corruptible, less easily-influenced and less sensitive to political instability than the state, and because the savings collected could benefit the local economy.

 

Other organizations, like the International Labour Organization and the International Social Security Association (ISSA) opposed the use of social solidarity systems in favor of contributory schemes, and expressed a general mistrust of markets as regulators of social security institutions.

 

The example of Chile has long polarized this debate: in 1981, the Pinochet government decided to replace the old distribution system (which remains in place for those who prefer it) with a new capitalization scheme managed by private pension funds. Some Latin American countries (Bolivia, Mexico and El Salvador) chose this same route in the 1990s, whilst others preferred to retain their distribution regimes or opted for mixed systems.

 

India introduced a state capitalization system in 1952. China opted for a three-pillar system (solidarity, compulsory individual accounts (theoretically by capitalization) and voluntary insurance), although its long-term financial viability is seriously compromised.

 

Over recent years, all these countries have introduced reforms in an attempt simultaneously to combat poverty in old age by creating or uprating a solidarity-based first pillar (which has delivered real results, especially in Latin America) and to build financially-viable systems capable of delivering better quality of life to a fast-growing population of pensioners.

 

In attempting to gain an overview of the outcomes achieved, it seems that the effectiveness of these efforts depends more on the level of economic development than on the options chosen, whether capitalization versus distribution, or state management versus private management.

 

It is also clear that amongst the diversity of courses chosen, there is a convergence towards the superimposition of ‘minimum pension' schemes, obligatory contributory schemes and optional schemes. The substance of the debate now focuses less on the way in which these schemes operate than on the interaction between them and on adjusting their parameters.

 

THE LEAST-DEVELOPED COUNTRIES: COMBATING POVERTY

 

Some countries, essentially those of Sub-Saharan Africa, have not yet really made or even started their demographic transition: fertility rates remain high (5.3 children per woman in Sub-Saharan Africa, compared with an average of 2.6 worldwide), and life expectancy is still well below the global average, at 51, compared with 69.

 

The pension systems in these countries are still very underdeveloped. The priority here remains combating poverty, and where they do exist, social security programs focus on tax-funded schemes paying universal benefits. Nevertheless, the issue of population ageing will affect these regions in the future: the number of people aged over 60 could increase from today's 35-40 million to 200 million by 2050. Some countries are already anticipating this emerging need.

 

In this region therefore, the focus is on introducing multi-pillar systems to underpin solidarity income and replacement income. But the process of change is still at the very earliest stage. Current ISSA figures suggest that only between 5% and 10% of people in Sub-Saharan Africa are covered by social security schemes.