Critical Review of Literature on the Factors Pertaining to Financial Sustainability of Social Security Schemes

The sustained generation of sufficient funds to cater for pension benefits and other social security needs of retirees remains the principal challenge to the financial viability of social security schemes in most countries today. This has particularly been exacerbated by the sharp increase in the aging population requiring social security support relative to the ratio of those workers contributing to the pension fund. It has lead to the deterioration of the financial position of public retirement programs and thus putting the social security schemes under severe pressure and creating uncertainty on their future. Literature reviewed on financial sustainability of social security schemes indicates that in both developed countries and emerging market economies (EME), the financial challenges facing social security schemes are mainly due to inadequate regulatory capacity, imprudent investment, poor corporate governance and macroeconomic instability. In addition high overheads and administrative costs, limited coverage and design oversights particularly the structuring of the schemes either as pay as you go (PAYG), funded, defined contribution or defined benefit systems. Studies in this area have however, not weighed and ranked these factors on the basis of their significance to financial sustainability of the respective social security schemes they examined. Analysis undertaken in this paper shows that troubled social security schemes require a combination of measures to address the issues that undermine their financial position and sustainability. This include initiating parametric reforms, introduction of a multi-pillar pension system, implementation of good corporate governance and investment practices, reforming the regulatory and institutional framework and instituting various pension and economic reforms among others. It is important to note that nearly all studies on social security issues were carried out in developed countries. The paper nevertheless, shows that minimal research has been undertaken in this field in most developing countries. Research in this critical area of finance will therefore help expand the knowledge base in the field, especially in African countries and provide a basis for comparison with work done in other countries in addition to contributing to improved policy formulation and management.