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HOME > Design, Costing and Financing of Social Security Schemes

The introduction/reform of social security schemes requires careful consideration of many different questions relating to the design, cost and financing of schemes. Since these different aspects are interrelated to a certain extent, they are dealt with in one step in this “roadmap”.

 The starting point for policy change is typically a certain policy area, target population or benefit packages perceived as insufficiently addressed under current arrangements. Cost developments, caused e.g. by demographic changes may be another starting point for policy reforms. The initial problem and subsequent course of the reform is influenced by the historical, social, political and economic context of the country. While different countries may have different preferences and starting points for extending social security, the UN System Chief Executives Board for Coordination argues for a Social Protection Floor to be established by all countries, consisting of

1.  Essential Services: Geographical and financial access to essential services (water and sanitation, adequate nutrition, health and education)
2. Social Transfers: a basic set of essential transfers, cash or in kind, delivered to the ppor and vulnerable to provide a minimum income security and access to essential health care.

 Depending on the Policy area or target population under consideration, different social security instruments will be applicable. The choice of policy instruments also depends on the country context, external influences, administrative capacity and the balance of power between preferences of major stakeholders.

 The process of agreeing on the design and financing details for the new scheme is circular in the sense that on the one hand, the size of the benefit package, the design of the governance and administration arrangements as well as the target population will determine the costs and necessary financing needs but on the other hand, limits concerning the available financial means will influence the design of the benefit package, administrative set-up and eligibility for benefits (see figure below). The design decisions depend also on the cost estimates for different design choices and the extent to which costs can be negotiated. Generally, the benefit package will be designed already with administrative costs and delivery costs and the related available financing in mind while at the same time arguments concerning the policy needs, the urgency of the problem as well as suggestions for lowering costs or restructuring the supply of benefits will be brought forward to increase the scope of an affordable benefit package. All three factors are interdependent but none is a given: additional sources of financing may be mobilized, prices can be negotiated, benefit packages can be more or less generous, the eligibility criteria more or less comprehensive etc. Innovative approaches to financing play an important role in the context of pushing the boundaries of the scope for action.