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13 July 2022

Pension savings a must for Africa’s retirees

Who will look after you when you’re retired? Will it be your children, as you did for your parents when they became old? Will they be able to afford to support you, while raising their own family?

A great tragedy we see too often is old-age poverty. Where, after a successful career and life, our elderly fall into poverty. This is mainly due to lack of retirement savings through formal pension schemes or other ways of saving for retirement, for needs such as food, shelter, and medication.

While you would expect that those most affected are in informal sectors, it is disturbing to note that even those in formal sectors where there are no government-driven retirement plans are also affected. Poor plans for old age are a result of retirement illiteracy, closed-mindedness towards retirement contributions and limited access to savings channels.

Between 2014 and 2019, investments in private equity accounted for less than one per cent of total pension assets for most countries in sub-Saharan Africa.

Effecting systemic change has become critical in ensuring that future generations do not suffer due to a lack of enough retirement cashflows to sustain their lives. This has a direct nexus with economic development, poverty reduction, improved livelihood, and increased resilience of individuals.

The pandemic caused a 6% fall in per capita incomes in 2020 – setting living standards back by a decade in a quarter of sub-Saharan Africa, (WB, Jan 2021). Gross Domestic Product (GDP) Losses were estimated at $146bn in 2020-2021, with an estimated 25 to 30 million jobs lost.

With this, the continent faces a financing gap for future development of $290 bn for 2020–2023. Private flows would barely cover half of the financing needs while other flows from various donors are thin. According to the International Labour Organisation, pension coverage remains low in Africa with only 9.6% active contributors from the working-age population (15-65 years).

Domestic resource mobilisation has received greater limelight during the Covid-19 period – in line with the Africa Union Agenda 2063, with pension sector development being recognised as key in filling this funding gap. Furthermore, through its asset allocation, pension funds can direct more resources to the private sector, boosting jobs and growth and finding its way to climate-friendly investments.

In 2019, FSD Africa formed the Africa Pension Supervisor’s Forum (APSF), which has a membership of 10 African regulators – Botswana, Egypt, Mauritius, Ghana, Kenya, Nigeria, Rwanda, South Africa, Uganda and Zambia – who combined are responsible for 86% of pension assets on the continent.

The APSF was formed to pave the way for a harmonised approach and collaboration towards interventions and reforms in the pensions sector across the continent. The first APSF Conference, themed Unlocking Africa’s Pension Potential, covered critical topics including new investment products, asset allocation policies, sustainable/climate investments, automation of pensions contributions, incentives for inclusive pensions and emerging trends in RegTech, fintech and SupTech.

Under the Africa Pensions Supervisor’s Programme, which resulted from the APSF, FSD Africa aims to carry out holistic interventions through the application of innovations and a joint approach to resolving common challenges in the region’s pensions sector. This will ultimately encourage long-term savings to not only meet the pension assets’ growth potential but also create facilitative policy, regulatory and industry environment to support appropriate deployment and investment of the pension assets. The initiative also aims to increase pension literacy and knowledge building on retirement products and investments.

To achieve the above targets, Africa Pensions Supervisor’s Programme is looking at ways to provide technical assistance to develop guidelines and regulations that would allow access to retirement savings for housing and mortgages. This will go a long way toward resolving the ongoing housing affordability crisis.

A revolution in the continent’s pensions sector is beckoning. It is envisaged that through this programme, longer-term financial sector and social and real economy impacts will be realised. By deploying capital resources drawn from the pensions sector, it will be possible to efficiently and effectively finance long-term inclusive economic growth. In addition, the programme will also create a sustainable future for pension contributors and increase access to basic services during retirement through cashflows from pension savings.