EAC countries race to form affordable pension schemes

East African Community partner states are creating micro-pension schemes for employees in the informal sector to address the low pension coverage in the region, estimated at less than 10 per cent.

A new pension sector survey by global investment firm RisCura shows that Rwanda, Uganda and Kenya are among African countries racing to create affordable and all-inclusive old-age saving schemes for the informal sector workforce. Other countries are Nigeria, Ghana and South Africa.

The survey report dubbed Bright Africa 2020: Pension Industry shows that without progressive reform to the pensions and savings environment — particularly for those in the informal sector — governments across Africa are likely to face mounting pressure to provide appropriate social welfare.

Currently, the global population of 60 to 70 year-olds is slightly over one billion, with Africa constituting seven percent (74 million). By 2060, this global population (60 to 70 years) will be approximately 2.3 billion, with Africa contributing 13 per cent (300 million) of the total of old people.

“The continent’s current youthful cohort will represent a sizeable number of individuals who need to draw on savings during their retirement. Without progressive reform to the pensions and savings environment, particularly for those in the informal sector, governments across Africa are likely to face mounting pressure to provide appropriate social welfare,” the report says.

“To avert fiscal and social stress, policy-making on pensions and social security in Africa needs to quickly move to enable affordable, convenient, and secure micro-pension products to be established.”

According to the report, the prospect of a seismic growth in the elderly population on the continent and the fact that over 85 per cent of working Africans are employed informally pose unique challenges to its pension fund industry.

The report notes that most people in Africa lack social protection, with a common narrative across the continent being that social protection is only possible for a small number of those in formal employment.

However, a large informal sector has created a dual challenge since not only are workers in informal employment difficult to target, but they also only contribute slightly, if at all, to overall tax collection.

Low pension cover   
According to the EAC retirement Benefits Policy, the pension coverage in the EAC region is generally low — estimated at less than 10 per cent of the total labour force — and mostly covers the formal sector leaving the larger part of the working population in the informal sector uncovered.