Photo: Cecile Bilbao/HelpAge International 2010 The question of targeting is one the most contentious issues in discussions around social pensions. It is also one which is relevant to the wider social protection debate.
Few disagree that a universal social pension is the ideal option in terms of impact. But there is a clear logic that in countries with limited resources, a poverty-targeted pension might be a more pragmatic approach.
HelpAge has examined the experience of poverty targeting across the globe and concluded that the challenges involved are significantly underestimated.
Poverty-targeting misses poorest
It is often argued that targeting the poorest is a more efficient approach. For a set amount of money, the belief is that cash transfers will have more impact if restricted to the poorest.
However, one of the little-acknowledged facts of targeting is that this approach has huge margins for error. Evidence from existing schemes shows that those targeted at the poorest groups miss many who are meant to receive them, and benefit many who are not eligible.
HelpAge has yet to see an example of any poverty-targeted scheme in a developing country that reaches over 50% of the target group.
Errors occur as a result of various factors. Eligibility criteria always involves some level of subjectivity, and this means that such criteria can miss people who are vulnerable.
Additionally, targeting systems often involve administrative hurdles for individuals to claim the grant. This can include complicated application forms and visits to administrative centres. These kind of hurdles are most challenging for the poorest people. Many are unable to read or write and frequently live in remote rural areas, far from an administrative hub.
A key lesson here is that the larger the target group, the lower the margin for error. For example the old age pension in South Africa that targets most older people (excluding the rich) is more effective at reaching the poorest than a narrowly targeted social pension.
All this points to universal pensions as the most successful way of reaching the poorest, with some reaching 100% coverage.
Political, social and economic costs
The significant inaccuracies of poverty targeting only really represents one side of the coin. Poverty targeting also creates a range of other political social and economic problems.
In certain communities, poverty targeting has been known to stir up conflict, especially in contexts where they are already ethnic divisions.
In some cases, rather than empowering recipients, having to identify themselves as “poor” has proven to be a disempowering experience.
Targeting also has economic impacts. The fact that eligibility often depends on lack of assets and savings means that individuals may avoid such investment in order to remain eligible for a grant.
This issue can also create disincentives to save into contributory pension schemes, as discussed in our section on pension systems.
This does not necessarily mean that targeting should never be used. Each country context needs to be considered individually. Even countries with universal schemes often have means-tested top-ups to provide extra assistance to the poorest.
In some cases, a means-tested scheme may be considered a first step towards a system with wider coverage. Nevertheless, it is vital to acknowledge the challenges of targeting right at the beginning of the policy-making process. Equally, if means-testing proves to be divisive and unpopular, this approach can undermine public support for social protection as a whole.
Challenges of universal pensions
There are two potential downsides to universal pensions.
Firstly, universal pensions are also paid to those who are not poor, but whether this is a problem is a matter of debate. With a progressive tax system, these rich pension recipients will still be net contributors to a tax system. Additionally, including the wealthy may mean that there is greater political support for such a policy, and this is a good thing for the poor.
Secondly, universal pensions are believed to cost more money than poverty-targeted equivalents. However, although the costs will be higher, so will the impacts on poverty. This issue is discussed further in our affordability section.
Resources on the topic targeting
Should older people be targeted? Social pensions for the elderly or social assistance for households
This presentation was originally given at the World Bank on April 3, 2013. Charles Knox-Vydmanov, Social Protection Policy Adviser at HelpAge International, explores whether...
Should the Elderly be Targeted? Social Pensions for the Elderly or Social Assistance for Households: Lessons from Brazil rural pension scheme
Year: 2013 | Published by: IADB
This presentation draws on lessons from Brazil's rural social pension and was given at a Morning Symposium on Social Assitance vs Social Pensions at...
Online news report: Panama - Greater fiscal space and social protection efficiency for one million Panamanians
Year: 2013 | Published by: World Bank
This article reports the World Bank approval of a new US$100 million loan to support Panama's efforts to improve tax revenue, fiscal management and...
In Karnataka state in South West India, payments within the Indira Ghandi National Old Age Pension Scheme have been suspended for nine months over...
Year: 2012 | Published by: HelpAge International
This presentation was delivered as part of the 2012 Designing and Implementing Social Transfer Programmes Course. Recognising old age as a distinct vulnerability that...