Mukul Asher recommends some specific changes to social policy and the level of governance within pension structures of the South East Asian nations
The importance of good governance in both private and public sector organisations has been increasingly recognised. In the case of provident and pension funds, the relevant areas are the composition of the board and its access to expertise; fiduciary responsibility, transparency and accountability; disclosure norms; and actuarial analysis. Individual account-based savings schemes, whether mandatory or voluntary, require sophisticated regulatory regime and financial and capital markets. Provident and pension funds require board members who are independent-minded and competent. They should be highly conscious of their fiduciary responsibilities. The relevant laws and regulations should give high priority to such responsibilities.
In Thailand, Singapore, Malaysia and the Philippines, there is tripartite representation on the board (government, employees and employers) and provision for experts. However, the provident and pension fund organisations are closely tied to their respective ministries. In Malaysia, the Employees' Provident Fund (EPF) is under the Ministry of Finance, Singapore's Central Provident Fund (CPF) is under the Ministry of Manpower, the Social Security System (SSS) and Government Service Insurance System (GSIS) in the Philippines are under the Office of the President, and Thailand's Social Security Organisation (SSO) is under the Ministry of Labour and Welfare, while the Government Pension Fund (GPF) is under the Ministry of Finance. Board appointments in each country are made by the minister, or the president.
Given the political economy prevailing in these countries, it has been a major challenge to find board members who are both competent and independent-minded. As a result, the requirement that the board members give high priority to fiduciary responsibilities is fairly weakly adhered to.
The mono-centric power structure and treatment of even routine socio-economic data as a strategic resource rather than public good are dominant characteristics of Singapore's political economy. The governance structure of the CPF, including its board composition (and investment policies) reflect these characteristics.
In the Philippines, the leadership and policies of the SSS and GSIS has been closely tied to the prevailing political power structure. Thailand's SSO and GPF operate within the governmental structure. GPF aspires to be a professional organisation with good governance practices, but its autonomy is constrained by governmental goals and objectives.
In Malaysia, the investment panel of the EPF is separate from the board and reports directly to the Minister of Finance. While this permits introduction of outside expertise in investment decisions, it also dilutes the board's authority and autonomy.
In none of the four countries is there an independent regulator for provident and pension funds. This particularly impedes requisite emphasis on the fiduciary responsibilities and professional development of these organisations.
Actuarial studies by the SSS in the Philippines estimate that at current contribution rates, benefits and investment income, the SSS will be insolvent by 2015. There is no requirement that authorities, whether Congress, the President's office or the SSS board, act on this publicly available information. In any social insurance scheme, matching assets and liabilities is an essential part of good governance.
Thai law does not indicate what the fiduciary duties of the Provident Fund Committee are. It does not have a trust law and the lack of a regulator hampers system-wide perspective of the social security system. This is true of all four countries.
There is considerable room for improvement in the timeliness and accessibility of data concerning the operations of the provident and pension funds in these countries. The transparency and accountability levels need to be improved. Again, a regulator would be better able to enforce guidelines concerning these aspects.
The transparency and accountability of the civil service schemes are especially poor in all four countries. It is strongly suggested that the civil service schemes in these countries be subjected to frequent actuarial evaluation and that these studies be made publicly available to all stakeholders. At a future date, these schemes should also come under the purview of the pensions regulator.
It should be stressed that in developing countries, the pensions regulator also needs to play a developmental role. This involves enhancing pension economics literacy among the policymakers as well as the general public. It requires facilitating an orderly development of different components of the pensions industry. Co-ordination between pensions regulator, insurance industry regulator and the stock market regulator is essential.
As in other areas of public policy such as tax reform, it is the professional attention to detail of design and implementation which are crucial. It is important to keep in mind that the primary objective is to provide retirement income security for members. Too complex an objective function for these organisations is likely to be counter-productive. This is particularly the case in Singapore and to a lesser extent Malaysia.
The investment function will become increasingly complex and appropriate strategies, including international diversification, will need to be considered. For Singapore, the main task should be to ensure that the investment returns ultimately obtained by government holding companies are actually credited to the members.
It is worth stressing that there is an urgent need to develop indigenous research capabilities in the area of social security. In none of the South East Asian countries do any of the universities offer specialisation in this area. To make progress in this area, authorities will need to regard socio-economic information and pension policy as a public good, rather than as something to be used for tactical purposes. It is only through genuine cooperation and desire to improve social protection for those in the informal sector and for the elderly poor, that innovative but locally relevant policies and programmes can be designed and implemented.
Finally, development of appropriate social security systems should be regarded as an essential aspect of international competitiveness and of managing globalisation, and not on conflict with them.
These comments were extracted from the paper ‘Social Security Policy in an Era of Globalisation and Competition: Challenges for South East Asia', by Mukul Asher, Professor of the LKY School of Public Policy at the National University of Singapore, and Amarendu Nandy, Research Scholar with the Department of Economics at the NUS