According to the International Labour Organization, social security is a human right that aims at reducing and preventing poverty and vulnerability throughout the life cycle of individuals.
Social security includes different kinds of benefits (maternity, unemployment, disability, sickness, old age, etc.
)[1] A social pension is a stream of payments from the state to an individual that starts when someone retires and continues to be paid until death.
One of the first countries that introduced a social pension was Germany in 1889, when Chancellor Otto von Bismarck enacted a policy to connect[clarification needed] ordinary workers in the newly created German state and granted every worker who reached the age of 65 a small flat pension.
In the 1890s Denmark (1891) and New Zealand (1898) adopted social pensions, and were followed in the early 20th century by Australia (1908) and Sweden (1913), along with many other countries.
[6] The reasons for implementing a social pension and government involvement include issues that arise when individuals voluntarily save insufficient funds for retirement or when market failures create societal inequalities.
This may also relate to an information gap, where individuals cannot accurately evaluate the financial stability of savings and insurance companies or the effectiveness of investment programs.
This framework emphasizes the importance of incorporating multiple pillars in pension system design to enhance effectiveness, efficiency, and sustainability in providing retirement income.
The concept of the five pillars emerged from the World Bank's experience in supporting pension reforms and addressing the evolving needs and conditions in client countries.
[11] Public transfers in Organization for Economic Cooperation and Development (OECD) countries, which include earnings-related pensions and means-tested benefits, typically constitute about 60 percent of the total income for the elderly population.
Efforts to better target these benefits to the poor could have a substantial effect on elderly poverty while also helping contain the fiscal costs.
In the same period, universal social pensions were established in many developing countries in Africa (Botswana, Lesotho, Namibia and Zanzibar), Asia (East Timor), and Latin America (Bolivia).
The primary segment encompasses the compulsory foundational pension coverage, which operates on a defined benefit (DB) structure and is financed through a pay-as-you-go (PAYGO) system.
This segment is all-encompassing, catering to every economically active citizen without any industry-specific variations, except for minor differences in administrative processes within certain public service sectors such as the military and law enforcement.
The benefits from this foundational pension coverage are claimed by over 99% of individuals who surpass the stipulated retirement age.
[22] The pension rate is adjusted each year by movement in the Consumer Price Index (CPI) as well as the average net-of-tax weekly wage.
[26] It serves as a safety net, guaranteeing financial support to retirees who may not have substantial private savings or occupational pension benefits.