1. Gustavo Demarco
TheWorld Bank - MNSHD
Pensions for Migrant Workers
Issues and options
Pensions Core Course
Washington DC, April 2013

2. International flows of foreign
workers (million) - 2000
From/To Africa Asia Europe Latin
America
North
America
Oceania Total
Africa 11.5 2.0 2.3 0.0 0.7 0.3 16.8
Asia 0.4 34.9 4.1 0.1 8.3 1.5 49.3
Europe 0.2 3.2 35.0 1.7 6.2 2.7 48.9
Latin
America
0.0 0.4 0.4 2.9 14.7 n.a. 18.3
North
America
0.0 0.3 0.4 0.4 1.0 0.2 2.3
Oceania 0.0 0.0 0.0 0.0 0.1 0.7 1.0
WORLD 12.2 41.1 47.9 5.8 32.6 5.5 145.2

3. Pension coverage for migrant
workers
 No unique model: Different options respond to specific
profile of migrant workers.
 Factors:
 Length of service / duration of stay in one country
 Duration of stay abroad
 Financing model in sending and receiving countries
 Regulatory framework in sending and receiving countries
 Issues:
 Large number of workers uncovered, or inadequately covered
 Part are legally protected by bilateral agreements, but these are
not always operational
 Retirement saving instruments insufficiently developed

4. Extending Pensions for migrant
workers: Some guiding principles
Universality:
 All foreign workers should have access to a pension
scheme
Portability:
 Funds should be readily available when one of the
covered contingencies occurs; this would in turn entail
carrying pension rights as workers move from one
country to another

5. Extending Pensions for migrant
workers: Some guiding principles - Cont
Flexibility:
 The scheme should provide protection in the event of
termination of appointment, retirement, death, disability
or transition between jobs
Cost Neutrality:
 The scheme should not significantly add labor or fiscal
costs and affect competitiveness of the economy
Inclusion of existing successful programs:
 The scheme should take stock of existing successful
programs and not compete with them

6. Option 1: International agreements
of totalization of services
 Recommended by ILO conventions
 Usually bilateral agreement between receiving and sending country
 For PAYG schemes, the guiding principles are usually:
 Totalization of services
 Pensions calculated (and paid) as a proportion of length of service in
each country
 Main problems:
 not comprehensive for the universe of migrant workers in one
country
 Complex administrative arrangements
 Impractical when more than 2 countries are involved;
 In consequence, very few workers benefit

7. Option 2: Perfect portability of
retirement savings
 Characteristic of fully funded schemes
 Usually bilateral agreement between receiving and sending
country is also needed
 Transferring funds can be straightforward, but associated
pension rights may demand careful attention (examples:
vesting periods, associated life and disability insurance, etc.)
 Main problems:
 Solution works best between two fully funded schemes, but this
is quite uncommon.

8. Option 3: End of service benefits
 This may take the form of:
 Severance pays at the end of an appointment;
 Refund of contributions at the end of appointment or when
leaving the country
 Simple to manage
 But…
 Main problems:
 In fact not a “pension”
 Does not address problems of myopia

9. EOSB - Shortcomings
 Bankruptcy risk of employer when there is no-
prefunding or mandatory book provisions
 Potentially large liabilities in countries with economies
relying on expatriate workforce
 Potential risks of low compliance from employers when
adequate enforcement mechanisms are not in place

10. Option 4: Mobility Savings
Accounts
 MSA is a new mechanism designed to serve multiple
purposes of foreign workers
 retiring,
 transitioning between jobs or
 returning to their home countries;
 MSA can be used with flexibility to increase retirement
savings or to finance transition between jobs (job search).
 Funds are not available at any time, but the workers can
dispose of them when different social contingencies occur;
 Contingencies are defined following usual social insurance
mechanisms, but specificities are added to respond with
flexibility to international mobility of workers

11. Option 4: Mobility Savings
Accounts - cont
 Adequate for countries where foreign workers are not
required to pay pension contributions
 May be introduced on a mandatory or voluntary basis
 Bilateral agreements between receiving and sending country
are helpful but not necessary
 Main problems:
 “Flexible use of funds” may leave some workers unprotected in
the old age.
 An assessment of country’s enabling conditions is required
when the scheme is funded

12. Introducing MSA: Motivation
 Provide an instrument of social protection for expatriate
workers
 Promote economic development through enhanced
institutional financial intermediation and instruments
 Better manage talent to support transition towards
higher-value added production with necessary supply of
qualified labor
 Provide ability to self-sponsor transition periods
between jobs and invest in training
 reduce recruitment and screening costs for prospective
employers

13. MSA - Options
Options for mandate:
 Mandatory
 Voluntary
Options for financing mechanism:
 Insurance
 SavingsAccounts
Options for administration of the system:
 Centralized
 Decentralized

14. Setting parameters of MSA for
foreign workers
 Employers’ contributions:
Costs to employers may be minimized by replacing any existing EOSB with
equivalent employer’s contribution (cost neutrality principle)
 A personal contribution from the workers should be added to the
employers’ contribution on a voluntary or mandatory basis.
 Fund withdrawal options:
a) Lump sum (total) upon termination of work contract
b) Lump sum (total) upon return to home country, or transfer to another
retirement savings scheme in the home country
c) Periodic withdrawal during job search (contingent on balance in the account)
d) Annuity upon retirement.

15. Advantages of MSA
 For the workers:
a) Tangible benefits
b) Less exposure to the risk of not receiving EOSB
c) Increase savings as a result of professional portfolio management
d) Finance transition between jobs, being allowed to stay in the country
depending on the accumulated balance.
 For the employers:
a) Reduce cost or recruiting new staff by hiring workers who are staying in the
country in transition between jobs (currently this cost represents around 1.5
to 4.5 salaries)
b) Incentive to retain skilled workers
c) Reduce employee turnover

16. MSA- Challenges moving forward
 Will the employers accept additional costs, or even the
shift from provisioning funds to paying monthly
contributions?
 Will employees find enough incentives to add their
contributions to the scheme?
 Is the financial sector prepared to provide an enabling
environment for the proposed reform?