Designing a private sector pension system in Cambodia

Currently only civil servants and veterans receive an old age pension, making up about 313,000 pensioners (2015). For the rest of the population of 15 million there is no pension system. Without a pension system population ageing will lead to increased poverty of the elderly and growing financial burdens on the families taking care of the elderly.

The Cambodian context presents many challenges for establishing new pension schemes. There is a high amount of informal employment, short-term formal employment and shifting between formal and informal arrangements. Contributory or employment-based pension schemes thus risk being ineffective. The Cambodian economy also cannot easily absorb a fund-ed pension scheme in which pension contributions are invested in financial instruments.

The EU-SPS recommends a three-tiered private sector pension system for Cambodia, based on an ILO Acturial Review. The first tier would be a government-financed social pension. The second tier would be a contributory defined benefit pensions. The third tier would be an optional defined contribution scheme. Various design choices are presented as means of reducing public costs and addressing specific Cambodian challenges. The unique benefits of a minimum social pension are also discussed. A universal minimum pension is argued to be worth its public cost.