Definition

Social pensions are non-contributory, typically tax-financed cash transfers provided by governments to older persons who are not eligible for, or do not receive an adequate level of, old-age income from contributory sources, such as social insurance or private pension schemes. They constitute one of the key mechanisms through which social protection systems address old age, one of nine life-course risks that social protection systems address through a combination of different schemes and mechanisms. The overarching objective of social pensions is to protect individuals from the risk of outliving their income-generating capacity in old age. Social pensions provide basic income security and facilitate access to needed goods and services, in particular health and care services and food.

Rationale

Social pensions provide a critical safety net for individuals that have not accumulated sufficient contributory pension entitlements during their working lives, ensuring a minimum level of income security in later life. Social pensions have been shown to generate positive economic multiplier effects, as recipients frequently use transfers to support dependants, including grandchildren. Social pensions are also of particular importance for women, who are systematically less likely to accumulate adequate contributory pension rights due to discrimination in the labour market and an unequal distribution of unpaid care work in most societies. Evidence further demonstrates that social pensions contribute to enhanced self-esteem and social inclusion among older recipients.

Key Features

• Benefit levels and legal anchoring: According to international standards, the benefits should be anchored in national laws and regulations, and clearly specify the range, qualifying conditions and levels of the benefits. Further, the level should be sufficient to maintain the beneficiary and his or her family “in health and decency”. Also, benefit levels should be periodically reviewed to ensure that their purchasing power is not eroded by inflation.
• Eligibility and age thresholds: Qualifying conditions for social old-age pensions always include an age requirement. According to international standards, the age threshold should not be more than 65 years, with due regard to the working ability of people in old age in the country. In practice, some countries have progressively introduced social old-age pensions, starting with a higher age threshold and gradually reducing the pension age while creating more fiscal space to finance the benefits.
• Pension coverage: Social pensions vary in their coverage approach. Some countries provide universal old-age pensions, while others restrict eligibility to those who have not acquired pension entitlements from other sources. Finally, some countries target old-age pensions to poor households.
• Targeting mechanisms: Means-tested approaches, particularly those using proxy means-testing, have been subject to significant criticism for:
  • Using the household as the unit of analysis, potentially undermining the autonomy of older beneficiaries;
  • The difficulty of establishing reliable, cost-effective means tests, resulting in exclusion errors and coverage gaps among those most in need;
  • The lack of transparency and predictability of these mechanisms for the persons concerned;
  • Reliance on periodic mass-enrolment campaigns that restrict on-demand registration;
  • Stigmatizing effects of benefits targeted at the poor.
• Affluence testing as an alternative: Recognising the limitations of poverty targeting, some countries have introduced affluence tests (mechanisms that exclude only high-income households) which produce significantly lower targeting errors and broader coverage.