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May 04

The Power of Pensions

Using Social Protection Mechanisms to fight Poverty

Social Protection. These two words alone have the ability of easing the tension burden on old and poor people. Over the past few years, more and more attention is being given to this new development tool after the realization that it can combat povertyeffectively. Even while you are reading this post, the United Nations is trying to initiate its Social Protection Floor Initiative. More than 80 countries in the world engage in social pension plans, which involve regular cash transfers to older people. The numbers at first are hard to believe. About 2 million people in Bangladesh, 6 million in Thailand and around 100 million in China receive some form of social pension.

The structure of these pensions varies from country to country. Some are universal to all citizens over a particular age while others are specific, targeting people that belong to a particular area or income level. Although the benefits are small, they can make a huge difference in the economic livelihood of a person. To examine how exactly social pension eases the burden of poverty on a country’s shoulders, lets look at the average older individuals in Brazil. If there was no pension plan, this person would have to work to earn a living, and when they cannot anymore, supporting them is an additional burden on their family. Social pensions would take that burden off.

Not only can pensions cut poverty rates amongst the older population, but also impacts the lives of the entire household where these individuals live. Bolivian households used the social pension they received and re-invested it in agriculture causing a 50% increase in the value of the pension. The good thing about social pension plans is that they are affordable, even for the poorest of countries. In addition to this, they are also an extremely popular option amongst people, which speaks volumes about its potential sustainability. But countries with large populations (India and China in particular) face problems like lacking the resources to monitor the process and the delivery and targeting process. Nevertheless, many countries are looking at new ways to implement different social protection plans, and the pension plan is quickly becoming the most favorable option.

Udit Hinduja is a student at New York University double majoring in Economics and Political Science. As a Program and Research intern with the SISGI Group his focus areas are education, poverty and economic development in Asia and South America.
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