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7/27/2019 financing social security schemes
http://slidepdf.com/reader/full/financing-social-security-schemes 1/20
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FINANCINGSOCIAL SECURITYSCHEMES
CHAPTER
FIVE5
FINANCING SOCIAL SECURITY SCHEME
7/27/2019 financing social security schemes
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Objectives of the lecture:After completing this lecture, the students should beable to:
5.1 Describe the factors affecting cost
5.2 Determine sources of finance5.3 Describe the financing methods
5.4 Analyze trends and issues
FINANCING SOCIAL SECURITY SCHEME
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Cost of Social SecuritySchemes
- Amount needed to pay for the benefit- Expenses of administration
- Basic problem?- How to raise the necessary resources to
meet the cost when it has to be paid, when:
- Resouces must be raised in a regular andsystematic ways, even though the benefits fall due
at irregular inteval.
- How the money should be raised (taxation or
contributions – employer?? Employee??) 3
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INTRODUCTION
• PUBLIC ASSISTANCE
– Universal scheme, social assistance
– covering all
– taxation
• SOCIAL INSURANCE
– Occupational schemes, provident fund
– Specific group
– Financed out of contribution
FINANCING SOCIAL SECURITY SCHEME
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5.1 FINANCING PERSPECTIVE
• SHORT-TERM
BENEFITS – Sickness cash benefits
– Maternity cash benefits
– Medical care
– Temporary incapacity
– Family benefits
– Unemployment benefits
• LONG-TERM
BENEFITS – Old-age
– Invalidity (Continuing
sickness)
– Survivors’ benefits
– Benefit for disablement
– Dependents payable
under employment
injury scheme
FINANCING SOCIAL SECURITY SCHEME
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5.2 FACTORS AFFECTING COST
• The cost in financing the social security
programs are derived from many factors.Thus, these factors may affect the cost of
social security.
• Internal Factors
• External Factors
FINANCING SOCIAL SECURITY SCHEME
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FACTORS AFFECTING COST
• INTERNAL
FACTORS
– Financial condition of
the social securityorganization
– Allocation of
government
– Number of cases &applications
• EXTERNAL
FACTORS
– Economic conditions
– Cost of living
– Demographic
FINANCING SOCIAL SECURITY SCHEME
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Internal factors
• Financial conditionof the socialsecurity
– The management of fund
– How they generate thefund / income
– Based from thenumbers of contributors
• Allocation from thegovernment – Socio-economic
sector – Welfare programme
– Financial strength
– Government policy
FINANCING SOCIAL SECURITY SCHEME
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External factors
• Economic condition
– Inflation
– Recession
– Fiscal policy
– Economic stability
• Cost of living
– Linear relationship
– Consumptions / labour
market / consumer
price
– Medical cost
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External factors
• Demographic
– Quality of life (life-
span)
– Long range financing
– Pension scheme &
medical benefits
– Us : 1956 (77.5)
2003 (82.5)
FINANCING SOCIAL SECURITY SCHEME
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4 pillars in financing socialsecurity
• Mandated savings – compulsory saving
such as EPF, Sosco deducted by salary
• Redistributive features – the rich pay more
to cover the poor (taxation)
• Fiscal incentives – government encourage
people to saving in private insuranceschemes and get tax deduction
• Voluntary personal saving – pay to pay for
ourself- saving, trust fund, ASB11
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5.3 SOURCES OF FINANCE /
FINANCING METHODS
• There are five methods of financing the costs of social security program
• Government fully funded
• Joint fund
• Private fund• Trust fund
• Investment
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SOURCES OF FINANCE / FINANCING METHODS
• Tripartite financing – Bismarck’s social insurance
– Joint contributions by:• Employer
• Employee
• Government subsidy
– Sustain responsibility of the contributors and thedignity of the beneficiary
– Supplies evidance of the insured person right to
benefit and perhap the voice in the management of the scheme
– Maintain industrial peace
– Conserve the employees’s productivity capacity
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• Government fully funded
– Government contributes to program costs fromgeneral funds
– USSR and Eastern Europe, employee pays nocontributions
– Entire cost of the social security systems is borne
by the employers and the state – Taken from public money / budget
– All persons has the right
– Social assistance programme
– Benefits are usually fixed/flat rate
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SOURCES OF FINANCE / FINANCINGMETHODS
• Joint Fund
– Employees &employers
– Through contributions – Employers withholds
the contributions &send to social security
organization – Must fulfill qualifyingconditions
• Private fund
– Fully funded by theemployee
– Conventionalinsurance
– Insuree will get fullbenefits
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SOURCES OF FINANCE / FINANCINGMETHODS
• Trust funds
– Sources are form
members’contributions,
– government grant
– Donations
– Income
• Investment
– Unit trust
– Projects
FINANCING SOCIAL SECURITY SCHEME
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5.4 TRENDS AND ISSUES
5.4.1 Social Security Administration
• Most of social security programmes are mandatory publiclyadministered
• The plan is legislated by law and compulsory for every
employer and employee
• It is an obligation for employer to ensure that employees inthe organization are covered by the particular program in theplan.
• The plan is employer-employee funded
• Government manages the plan with broad power over it.
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5.4.2 The advantages of the plan
• Forced saving – helps to inculcate the saving habit in the population
• The plan firmly establishes individuals (and family) responsibility for the provision of social security
• The pool of saving generated by the plan could help stimulate growthby providing greater room to pursue appropriate macroeconomicpolicies, and by providing long-term, predictable, and large flow of funds for investment.
• Defined contribution plans are by nature fully funded, and do notinvolve use of the tax-transfer process in a major way
• Centralized public administration of the plan results in large saving inoperating costs.
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Homework
• Make a mind mapping of the methodicalrising of resources of the:
– Annual assessment system
– Assessment of constituent capitals system
– Systems of capital accumulation
– General average premium
– Scaled premium system(Introduction to social security, International
Labour Office, Geneva, page 110-114)
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TUTORIAL
• Financial issue in SOCSO
• Financial issue in EPF
• Financial issue in insurance agencies
• Financial issue in government
FINANCING SOCIAL SECURITY SCHEME
Look at the challenge of each sector