Title: Comment on “Public Pension Programs in <scp>S</scp>outheast <scp>A</scp>sia: An Assessment”
Abstract: Asher and Bali (2015) provide an overall assessment of the pension systems in six major economies of Southeast Asia and suggest some major areas for future reforms. The demographic trends suggest that many of these countries will soon be facing a population ageing problem, leaving a relatively short period to design and implement pension system reforms that can provide effective coverage and protection to the retirees. Generally, I think that the paper provides a good overall review and assessment, and I also agree with most of the main recommendations of the paper. Some comments follow. The first thing that attracted my attention is the very first sentence in the paper, “Current demographic trends suggest that most economies in Southeast Asia will age at relatively low incomes.” I wonder what the significance of “ageing at relatively low incomes” is, particularly in the context of the pension system. Is it to do with having less financial resources to provide for the aged? But then the cost of living will also be lower in the lower income countries and at the same time life expectancy will tend to be less than in advanced countries. Also, fiscal positions may also be relatively strong. Possibly, lower income countries will have less developed financial markets providing less opportunity to achieve adequate returns on retirement funds. In any case, if “ageing at relatively low incomes” is considered to be significant, there could have been more discussion of this in the paper. An important issue, also indicated in the paper, is the presence of a large percentage of own account and unpaid family workers in the labor force in most Southeast Asian economies (predominantly in the so-called informal sector). In Thailand, for example, 56% of all those employed in 2012 were own account or unpaid family workers. Integrating these people into the social security system is difficult. On the other hand, these workers work and earn income way beyond the regular retirement age. So having a sizable percentage of these workers in the labor force will somewhat modify the picture linking the population age structure to old-age dependency on the employment side. Also, as workers' health improves over time they will continue to work longer, almost like having an automatic increase in the retirement age with an increase in healthy life expectancy. This will make it easier for a country's pension scheme to look after the retirees, although in the long-run one would expect the proportion of own account and unpaid family workers in the labor force to gradually decline as the country becomes more developed. The next point is that in thinking about reform directions, it would be useful to know more about the pension systems in each country than described in the paper. As the paper pointed out, many of these countries will have a relatively short period to implement adequate pension systems; therefore, where each country is now and the gaps that need to be filled are important in shaping the reform directions. For most countries, an effective pension system will likely be a combination of the various so-called “philosophies” or what the World Bank called “pillars” as applied to different old-age groups. For example, in Thailand, there is old-age allowance for everyone over 60 years old without a pension (such as from public employee pension or social security) of US$18.5–30.5 per month depending on age, defined benefit schemes for formal sector employees through public employees schemes and private employees in the social security system, defined contribution schemes through various provident funds, and income tax incentives to buy Retirement and Long-term Funds. Assessing the adequacy, effectiveness, incidence, and sustainability of the overall pension system will need to look at the overall pension system (as well as other complementary social provisions such as health care). The recommendations in the paper are all sensible ones. I would have liked to see more discussion of the fiscal sustainability issue, especially given the ageing problem. The paper suggested a greater role for social pensions and referenced some calculations of the fiscal burden for social pensions at the level of 15% of per capita income. It is not clear whether the paper is recommending this 15% level, or how should the appropriate level be determined together with other parts of the pension system. Finally, I fully agree with the paper that health-care reform is very important for complementing an effective pension system. In Thailand, one of the more successful programs introduced by Mr. Thaksin Shinawatra was the 30 baht per visit health-care program. This was very popular with the grassroots. Prior to the program, while in theory the poor could get free treatment at public facilities, the queues were usually prohibitive in practice. Many could not afford to wait and had to go to private facilities, and in many cases their entire life savings were wiped out. Since 2007, the scheme has evolved into the Universal Coverage Health Scheme (with no co-payment). Together with health coverage under the Social Security System and the public employees' scheme, almost 100% of the population is covered. While there are obviously many challenges in providing effective universal health care, particularly in controlling costs, it is a very important supplement to an effective pension system.