Pension Patterns and Challenges in

Sub-Saharan Africa

World Bank Pensions Core CourseApril 30, 2015

Mark C. Dorfman

Pensions Global Solutions Group

The World Bank

Organization

1. Pension Patterns & Challenges

a. Scheme Design

b. Enabling conditions: Demographics, household composition, poverty and growth

c. Coverage

d. Adequacy and affordability

e. Sustainability

2. Questions for discussion

Scheme Design

3

National Scheme Separate or Integrated with National Civil Servants Schemes

Non-Contributory Elderly AssistanceDesign Scheme Contributory and Funding

PAYG DB

Provident

Fund

Funded

DC

Separate from

National

Scheme

Integrated with

National

Scheme

Occupational

Scheme (no national

scheme)

Noncontrib.

PAYG

DB FDB FDC Universal

Pension-

Tested

Means-

Tested

Pilot

Scheme1

Angola √ √ √2

Benin √ √ √3

Botswana √ √ √4

Burkina Faso √ √ √5

Burundi √ √ √6

Cameroon √ √ √7

Cape Verde √ √ 1/ √ √8

Central African Rep. √ √ √9

Chad √ √ √10

Congo, Dem. Rep. √ √ √11

Congo, Rep. √ √ √12

Cote d'Ivoire √ √ √13

Ethiopia √ √ √14

Gambia, The √ √ √15

Ghana √ √ √ 2/ √ √16

Guinea √ √ √17

Guinea-Bissau √ √ √18

Kenya √ √ √ √19

Lesotho √ √ √20

Liberia √ √ 3/ √21

Madagascar √ √ √22

Malawi √ √ √23

Mali √ √ √24

Mauritania √ √ √25

Mauritius √ √ √ √

26Mozambique √ √ √ √

27Namibia √ √ √

28Niger √ √ √

29Nigeria √ √ √ √

30Rwanda √ √ √

31Sao Tome & Principe √ √ √

32Senegal √ √ √

33Seychelles √ √ √ √

34Sierra Leone √ √ 4/ √

35Somaliland 5/ 5/

36South Africa √ √ √ √

37South Sudan 5/ 5/

38Sudan √ √ 7/

39Swaziland √ √ √ √

40Tanzania √ √ √

41Togo √ √ √

42Uganda √ √ √ √

43Zambia √ √ 6/ √ √

44Zimbabwe √ √ √

1/ Integrated for civil servants hired beginning in 2005.

2/ Integrated first in 1972 and then further integrated in 1991.

3/ Civil servants are integrated into the national scheme and some receive a supplementary benefit from the Treasury.

4/ Integrated for new civil servants beginning in 2002.

5/ Legislation is being developed to constitute a formal pension scheme for civil servants.

6/ Integrated for new civil servants hired after January 1, 2010.

7/ The contributions for the civil service scheme cannot be identified.

Pension scheme design

Enabling Conditions: Demographics, Household

Composition, Poverty & Growth

5

Old Age Dependency Rates – low but growingProjected Old Age Dependency Ratios

(Age 65+/age 15-64)

Source: World Bank database based on World Population Projections, 2010 revision. Note: Mauritius and Seychelles have not been included.

Demographic window offers a positive environment for reformTotal Dependency Ratio Projections

(Percent)

Source: United Nations, Population Division, Population Projections, 2012 Revision,

0

20

40

60

80

100

120

Tota

l D

ep

de

ncy

Ra

te

2010 2050

Household composition 87% of elderly live with non-elderly

Percent of elderly living in households with non-elderly

Source: World Bank ASPIRE database, accessed November 2014.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Median = 86.7%

Growth Projections offer a Positive Environment for Most

Recent and Projected Annual Real GDP Growth Rates

Source: IMF World Economic Outlook Database, 2015.

4.3%

5.5% 5.7% 5.8%6.0%

6.2%

6.6%6.8% 6.8% 7.0% 7.1% 7.1% 7.2%

7.7% 7.8%8.1% 8.1% 8.2% 8.2% 8.4% 8.4% 8.4% 8.6% 8.6% 8.7%

8.9% 9.0% 9.0% 9.0%9.3%

9.8% 9.9%10.0%10.0%10.1%10.1%10.5%

10.8%11.1%

11.5%11.5%

12.1%

12.9%13.2%

7.7%

5.6%

4.6%

7.1%

-5.0%

0.0%

5.0%

10.0%

15.0%

GD

P G

row

th

1995-2009 2010-2014 Projected 2015-2019

High poverty levels < $1.25/day & weak correlation with GDP/capita

GDP per capita and Poverty Headcount (US$ left axis, percent right axis)

Source: World Economic Indicators, 2012. Note: Poverty headcount is from the most recent year between 2005 and 2012. The GDP per capita data is from 2012. The lack of uniformity between the poverty headcount figures and the GDP per capita figures reflects the difference in data points.

87.7

83.881.3

74.572.1

68.0 67.9 67.8

62.861.6

59.6

54.151.7

50.4

44.6 43.6 43.4 43.4 43.340.6

38.7 38.0

33.530.7

28.6

23.8 23.4

19.8

13.8

9.6

0

10

20

30

40

50

60

70

80

90

100

-

2,000

4,000

6,000

8,000

10,000

12,000

Pove

rty

Hea

dco

un

t -

% o

f Po

pu

lati

on

($1.

25/d

ay)

GD

P P

er C

apit

a -

US$

-P

PP

GDP per Capita - US$ - PPP

Poverty Headcount (% of 'Poverty & Income per Capita (% of Population -US$1.25/day)

Coverage

11

Mandatory,

contributory

scheme

Social

assistance

for

households

&/or elderly.

Occupational & Individual

Pensions Savings

Individual pre-retirement wage as a % of the average wage in the economy

Pe

nsi

on b

en

efit

as

a p

erc

en

t o

f in

div

idu

al p

re-r

etir

em

ent w

age

Minimum Pension

Coverage Gaps

• Social pensions in 8 of 47 countries +

very weak SSNs

• Poor but improving regulation of

occupational schemes.

What is the coverage gap?

Key Challenge – Labor force coverage

0.8%0.8% 1.5%0.9% 2.0%3.7%

2.1%1.7% 2.5%4.8%4.9%

3.1%4.2%4.5%5.0%5.0%6.8%7.9%

4.9%5.2%

8.8%9.4%10.4%7.6%

5.8%

10.0%10.4%12.8%11.4%

18.8%17.6%

25.5%

51.6%

68.6%

0%

10%

20%

30%

40%

50%

60%

Ang

ola

Ethi

opia

1/

Cong

o, D

em. R

ep.

Cent

ral A

fric

an…

Nig

er

Mal

awi

Chad

Bur

kina

Fas

o

Moz

ambi

que

Tanz

ania

Leso

tho

Togo

Rw

anda

1/

Suda

n

Uga

nda

Sene

gal

Libe

ria

Mad

agas

car

Mal

i

Ben

in

Sier

ra L

eone

Cong

o, R

ep.

Bur

undi

Cote

d'Iv

oire

Mau

rita

nia

Gha

na

Keny

a

Cape

Ver

de

Nam

ibia

Zam

bia

Cam

eroo

n

Bot

swan

a

Sao

Tom

e an

d…

Nig

eria

Zim

babw

e

Gam

bia,

The

Swaz

iland

Sout

h A

fric

a

Mau

riti

us

Seyc

helle

s

% o

f La

bor

Forc

e Co

vere

d

Occupational Schemes Civil Service National Scheme

0%

10%

20%

30%

40%

50%

60%

70%

Civil Service Coverage as a % of Total

Coverage – strongly correlated w/GDP per capita

y = 3E-05x + 0.0159R² = 0.6771

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

- 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

National Scheme + Civil Service Scheme + Occupational Scheme Coverage (% of Labour Force)

Botswana

Angola

Swaziland

Namibia

Sierra Leone

Kenya

Burundi

Ghana

Sudan

South Africa

Zambia

Sao Tome & Principe

The Gambia

Nigeria

Republic of Congo

Cape Verde

Mauritius

Ethiopia

Lesotho

Chad

Zimbabwe

Liberia

Cote d' Ivoire

MauritaniaMalawi, DRC, Central African Republic, Niger

Tanzania, Burkina Faso, Togo, Rwanda

Senegal

Mongolia

Czech RepublicUnited Kingdom

Brazil

Jordan

IndiaGhana

Niger

y = -5E-10x2 + 4E-05x + 0.0198R² = 0.807

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 10000 20000 30000 40000 50000 60000

Act

ive

mem

bers

(%

Wor

king

Age

Pop

ulat

ion)

Income per capita (Thousands)

Active coverage vs Income per capita

Contributory pensions generally cover those w/wage incomes & better off in

retirement

Source: The World Bank, ASPIRE database, 2014

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Coverage in poorest quintile (%) - Old Age Contributory Coverage in 2nd quintile (%) - Old Age Contributory

Coverage in 3rd quintile (%) - Old Age Contributory Coverage in 4th quintile (%) - Old Age Contributory

Coverage in richest quintile (%) - Old Age Contributory

Elderly and Labor Force Coverage (Late 2000s; percent of elderly over eligibility age; percent of labor force)

Sources: ILO, World Bank, country administrative data.

29.5

56.1

47.0

94.393.092.4

51.5

44.3

89.1

0.9 1.6 2.0 2.7 2.7 3.1 3.2 3.7 3.8 4.1 4.1 4.4 4.6 5.4 5.7 6.1 6.5 6.6 7.7 7.9 9 9

12

25

65.0

73.4

86.0

93.1

100.0100.0100.0100.0

37.138.0

34.0

69.7

98.5

89.2

41.4

29.5

92.9

5.5

1.5

16.6

5.2

11.0

4.2 3.2

17.4

4.5

9.3

1.73.6 2.8

7.44.5

1.3

5.43.2 4.0

6.37.7

0.0

3.4 2.3

8.8 8.9

33.6

20.1

2.7

11.8

39.0

7.3

57.5

1.3 1.0

6.1

0.7

5.8 5.6 5.3

10.09.8

-

10

20

30

40

50

60

70

80

90

100

Mid

dle

Eas

t

Lati

n A

mer

ica

and

th

e C

arib

bea

n

Asi

a an

d t

he

Pac

ific

Cen

tral

an

d E

aste

rn E

uro

pe

No

rth

Am

eric

a

Wes

tern

Eu

rop

e

Wo

rld

Dev

elo

pin

g ec

on

om

ies

Dev

elo

ped

eco

no

mie

s

Sier

ra L

eon

e

Ch

ad

Gam

bia

, Th

e

Ben

in

Zam

bia

Rw

and

a

Bu

rkin

a Fa

so

Zim

bab

we

Bu

run

di

Cam

ero

on

Mal

awi

Tan

zan

ia

Sud

an

Gh

ana

Mal

i

Nig

er

Med

ian

Togo

Uga

nd

a

Co

te d

'Ivo

ire

Ken

ya

Gu

inea

Mo

zam

biq

ue

Sen

egal

Ave

rage

Cap

e V

erd

e

Sou

th A

fric

a

Swaz

ilan

d

Leso

tho

Bo

tsw

ana

Mau

riti

us

Nam

ibia

Seyc

hel

les

Cen

tral

Afr

ican

Rep

ub

lic

Co

ngo

, Dem

. Rep

.

Co

ngo

, Rep

.

Eth

iop

ia

Lib

eria

Mad

agas

car

Mau

rita

nia

Nig

eria

Sao

To

me

and

Pri

nci

pe

Per

cen

t (

of

eld

erly

or

lab

or

forc

e)

Elderly Coverage Labor Force Coverage

Elderly coverage weak (except in countries with non-contributory schemes)

What has contributed to the coverage challenge?

Low, volatile & non-wage incomes (w/populations substantially rural and

informal)

Payroll-tax contributory schemes best aligned to formal sector employment

Contribution rates may discourage coverage & compliance

Vesting periods penalize informality

Discretionary indexation creates uncertainty

Compliance & enforcement costly

• Voluntary occupational & individual schemes offer options but need to be better

regulated & supervised in many countries to ensure public confidence.

Adequacy & Affordability

18

Adequacy of non-contributory pensions – tension with coverage

and cost

…target replacement rates in some cases too high to be widely

afforded or sustained

Simulated Replacement Rates

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%Se

yche

lles

Cent

ral A

fric

an R

epub

lic

Zam

bia

Mau

ritan

ia

Zim

babw

e

Togo

Chad

Cong

o, D

em. R

ep.

Mad

agas

car

Moz

ambi

que

Libe

ria

Cote

d'Iv

oire

Tanz

ania

Gha

na

Sao

Tom

e an

d Pr

inci

pe

Ethi

opia

Buru

ndi

Beni

n

Cam

eroo

n

Cape

Ver

de

Mal

i

Nig

er

Rwan

da

Sier

ra L

eone

Burk

ina

Faso

Gui

nea

Suda

n

Cong

o, R

ep.

Ango

la

Sene

gal

Sout

h Af

rica

Gam

bia,

The

Leso

tho

Mau

ritiu

s

Swaz

iland

Nam

ibia

Uga

nda

Keny

a

Mal

awi

Calc

ulat

ed R

epla

cem

ent R

ate

(30

year

s of

cov

ered

ser

vice

) National Scheme

Civil Service Scheme

Source: Social Security Programs throughout the World: Africa 2013; and Bank estimates.

…Contribution rates linked to target income replacement & scope of

benefits

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%Na

mib

ia

Sout

h Af

rica

Bots

wan

a

Leso

tho

Seyc

helle

s

Zim

babw

e

Moz

ambi

que

Mau

ritiu

s

Sao

Tom

e an

d Pr

incip

e

Swaz

iland

Ango

la

Guin

ea-B

issau

Cape

Ver

de

Liber

ia

Keny

a

Zam

bia

Gam

bia,

The

Ethi

opia

Mal

awi

Sier

ra Le

one

Ugan

da

Nige

ria

Ghan

a

Tanz

ania

Suda

n

Cong

o, D

em. R

ep.

Buru

ndi

Mad

agas

car

Cam

eroo

n

Mau

ritan

ia

Chad

Nige

r

Guin

ea

Beni

n

Togo

Burk

ina

Faso

Cent

ral A

frica

n Re

publ

ic

Rwan

da

Cote

d'Iv

oire

Cong

o, R

ep.

Mal

i

Sene

gal

Aver

age

Med

ian

Sickness and Maternity Family Allowances Work Injury Old Age Dis & Survivorship

English Speaking/ Former British Colonies

Southern Africa & Lusophone Countries

Former French/Belgium Colonies Average& Median

Contribution Rates

Source: Social Security Programs throughout the World: Africa 2013.

…uncertain indexation & vesting periods can discourage

participation of some workers …Indexation Vesting periods

0

5

10

15

20

25

Se

ne

ga

l

Ke

nya

Ma

urit

an

ia

Lib

eria

Co

ng

o,

De

m.

Re

p.

Eq

ua

to

ria

l G

uin

ea

Eth

iop

ia

Ga

mb

ia

Gu

ine

a-B

issa

u

Mo

za

mb

iqu

e

Sa

o T

om

e a

nd

Prin

cip

e

Se

ych

ell

es

Zim

ba

bw

e

Ma

li

An

go

la

Be

nin

Bu

rk

ina

Fa

so

Bu

ru

nd

i

Ca

pe

Ve

rd

e

Ce

ntra

l A

fric

an

Re

pu

bli

c

Ch

ad

Co

te

d'I

vo

ire

Gh

an

a

Gu

ine

a

Ma

da

ga

sca

r

Rw

an

da

Sie

rra

Le

on

e

Ta

nza

nia

To

go

Za

mb

ia

Ca

me

ro

on

Ga

bo

n

Ma

law

i

Nig

er

Nig

eria

Su

da

n

Co

ng

o,

Re

p.

Contributory Pension Indexation

Source: Pension Programs throughout the World, Africa, 2013; and Bank estimates.

Angola NA

Benin Discretionary

Botswana 1/

Burkina Faso Discretionary (acc to wages, minimum wage & resources of the scheme)

Burundi

Discretionary (according to changes in the cost of living, depending on the financial resources of the

system)

Cameroon No explicit indexation

Cape Verde Ad-hoc

Central African Republic No explicit indexation

Chad Discretionary (by decree according to actuarial projections by the National Social Insurance Fund)

Congo, Dem. Rep. Discretionary

Congo, Rep. Price

Cote d'Ivoire Price (and according to changes in the cost of living, depending on the financial resources of the system)

Ethiopia NA

Gambia, The 2/

Ghana Wage indexation

Guinea Wage, depending on the financial resources of the system

Guinea-Bissau NA

Kenya 2/

Lesotho 1/

Liberia NA

Madagascar According to increases in the legal minimum wage

Malawi 4/

Mali

Benefits are indexed (adjusted) by decree according to changes in the average salary and the legal

minimum wage, depending on the financial resources of the system.

Mauritania Price, depending on the financial resources of the National Social Security Fund

Mauritius NA

Mozambique NA

Namibia 1/

Niger 3/

Nigeria 4/

Rwanda Ad hoc on the basis of Presidential Decree

Sao Tome and Principe Wages

Senegal 3/

Seychelles

Periodically according to revisions in the regulations which specify the benefit scales and benefit

adjustments

Sierra Leone Wages, depending upon the financial position of NASSIT

South Africa 1/

South Sudan 1/

Sudan NA

Swaziland 2/

Tanzania Discretionary, according to the recommendation of the actuary

Togo Price

Uganda 2/

Zambia Wages

Zimbabwe No explicit indexation

1/ No national scheme

2/ Provident Fund.

3/ Points scheme.

4/ Defined-contribution scheme

Sustainability

23

Mapping contribution rates against full career replacement rates

suggests that some countries may face sustainability challenges

Contribution Rates and Calculated Replacement Rates for Defined-Benefit Schemes

Source: Social Security Programs throughout the World, Africa: 2013 and World Bank estimates.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

Old

Age

Con

trib

utio

n Ra

te

Calculated Replacement Rate (after 30 years)

Sudan

Tanzania Mali

TogoGhana

Rep. of Congo

Angola

Seychelles

Central African Republic

Zambia

Mauritania

Cote d'Ivoire

Sierra Leone

Madagascar

Liberia Rwanda

Guinea

Burkina Faso

Chad

Moz. CameroonZimbabwe

Ethiopia

Sao Tome & PrincipeBurundi

… and some countries have projected unsustainable

fiscal burdens over the medium-term

Tanzania: Pension Financing Gaps

Tanzania Financing Gap

Projections: 2010

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

20062011

20162021

20262031

20362041

20462051

20562061

20662071

price indexation no indexation

The Gambia: Projected Expenditures for the

Public Service Pension Fund

Pension spending generally low compared to regional benchmarks yet

understandable when considering dependency and coverage ratesPension Spending

(% of GDP, % of Government Expenditure – late 2000s)

Source: ILO, World Bank estimates, IMF World Economic Outlook Database, 2014.

1.3%

5.0%

1.1%

2.0%

11.1%

8.3%

4.6%

6.6%

3.3%

3.3%

5.0%

4.4%

3.2%

2.3%

2.2%

2.1%

2.0%

1.9%

1.9%

1.8%

1.8%

1.7%

1.6%

1.4%

1.4%

1.4%

1.3%

1.3%

1.0%

1.0%

0.9%

0.9%

0.9%

0.8%

0.8%

0.7%

0.7%

0.6%

0.5%

0.5%

0.5%

0.4%

0.4%

0.4%

0.3%

0.3%

0.1%

3.6%

13.6%

13.0%

9.1%

9.3%

6.7%

10.6%

3.3%

5.4%

7.0%

5.2%

6.3%

4.8%

6.8%

6.5%

5.3%

3.3%

4.5%

4.6%

3.0%

3.5%

3.5%

3.5%

2.5%

4.8%

2.8%

2.9%

2.9%

2.3%

2.5%

1.7%

1.2%

2.1%

2.0%

1.0%

1.7%

0.4%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

Africa

North Africa

Sub-saharan Africa

Asia and the Pacific

Western Europe

Central and Eastern Europe

Latin America and the Caribbean

North America

Middle East

World

Mauritius (2011)

Cape Verde (2013/2010)

Namibia (2011)

Togo (2010)

South Africa (2010)

Guinea-Bissau (2005)

Lesotho (2009)

Seychelles (2011)

Tanzania (2010)

Mozambique (2010)

Senegal (2010)

Botswana (2009)

Mali (2010)

Benin (2008/2010)

Zambia (2008/2012)

Malawi (2012)

Kenya (2010)

Ghana (2010)

Congo, Rep.

Zimbabwe (2011)

Nigeria (2004)

Burkina Faso (2009)

Burundi (2010)

Central African Republic (2004)

Rwanda (2005)

Cote d'Ivoire (2006)

Niger (2006)

Mauritania (2007)

Cameroon (2009)

Sierra Leone (2009)

The Gambia (2006/2003)

Swaziland (2010)

Congo, Dem. Rep. (2005)

Uganda (2011)

Eritrea (2001)

Ethiopia (2006)

Liberia (2010)

Spending as a % of Government Expenditure

Spending as a % of GDP

Central Government Expenditures, Revenues and Gross DebtAnnual average, 2010-2014, % of GDP)

60

44

42

41

40

35

35

35

35

35

35

34

33

33

32

31

31

30

28

28

28

27

27

27

27

27

26

26

26

25

25

24

24

24

23

22

22

21

20

20

19

19

18

17

13

42

30

34

32

29

38

80

9

50

32

17

35

23

44

70

19

88

31

42

31

8

52

43

54

56

26

20

40

77

31

58

18

30

45

53

35

60

33

30

28

30

16

56

31

39

23

24

41

36

50

25

33

- 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0

Lesotho

São Tomé and Príncipe

Equatorial Guinea

Malawi

Angola

Botswana

Burundi

Namibia

Mozambique

Seychelles

Swaziland

Cabo Verde

Republic of Congo

South Africa

Eritrea

Liberia

South Sudan

Kenya

Senegal

Ghana

Zimbabwe

Rwanda

Gabon

Tanzania

The Gambia

Zambia

Guinea

Nigeria

Burkina Faso

Togo

Mauritius

Comoros

Côte d'Ivoire

Niger

Mali

Chad

Benin

Cameroon

Guinea-Bissau

Uganda

Sierra Leone

DRC

Ethiopia

Central African Republic

Madagascar

Advanced economies

Emerging market and dev. economies

Latin America and the Caribbean

Middle East and North Africa

Sub-Saharan Africa

percent of GDP

Central Government Gross Debt

Central Government Revenues

Central Government Expenditures

Source: IMF: World Economic Outlook Database, March 2014.

And the fiscal envelope is modest compared to other benchmarks

Efficiency can exact a high cost

Administrative Expense Indicators (US$ or % of Benefits/Expenditures)

Source: Oleksiy Sluchynsky, Defining, Measuring and Benchmarking Administrative Expenditures of Public Pension Programs. Draft mimeo, 2012. Note: An “x” above the scheme indicates that the actual costs of operation are more than 5 times the predicted levels based on the averages observed for 100 pension and social security programs throughout the world.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

180.0%

200.0%

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

$400.0

x x x x x x x

Botswana-POPE

Namibia-GIPF

Swaziland-PSPF

SouthAfrica-GEPF

Uganda-NSSF

Tanzania-PPF

BurkinaFaso-CNSS

Ghana-SSNIT

Kenya-NSSF

Tanzania-GEPF

SierraLeone-NASSIT

Rwanda-RSSB

Kenya-CSPS

Mauritius-MNPS

pe

rce

nt

US$

Administrative Expense per Insurance Benefit- US$ - left axis

Administrative Expense as % of Benefits percent right axis

Administrative Expense as % of Revenues percent right axis

What are the costs of various social pension benefits?Cost Estimates for Elderly Assistance Schemes

(% of GDP)

Sources: World Development Indicators, accessed 3/2015. Note: demographic data is from 2013; GDP data, government expense data, poverty gap data from 2008-2013 as applicable.

14%

7%

20%

22%

8%8%

18%

15%

3%

10%

14%

8%

10%

11%

9%

12%

0%

11%

15% 15%

10%

8%

17%

22%

12%

8%

20%

19%

14% 14%

8%

17%

20%

28%

20%

8%

20%

19%

22%

26%

14%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

Rw

anda

Gam

bia,

The

Ang

ola

Bur

undi

Chad

Uga

nda

Bur

kina

Fas

o

Nig

er

Zam

bia

Sier

ra L

eone

Keny

a

Nig

eria

Togo

Mal

i

Mad

agas

car

Cong

o, D

em. R

ep.

Gui

nea-

Bis

sau

Ben

in

Sene

gal

Libe

ria

Gui

nea

Cote

d'Iv

oire

Mau

rita

nia

Mal

awi

Cam

eroo

n

Suda

n

Moz

ambi

que

Tanz

ania

Sao

Tom

e an

d Pr

inci

pe

Cong

o, R

ep.

Ethi

opia

Gha

na

Swaz

iland

Nam

ibia

Bot

swan

a

Cent

ral A

fric

an…

Zim

babw

e

Leso

tho

Cabo

Ver

de

Sout

h A

fric

a

Seyc

helle

s

Mau

riti

us

Gov

ernm

ent E

xpen

ditu

re -

% o

f GD

P

% o

f GD

P

Cost of a benefit of 20% of GDP/capita for all age 65+

Government Expense (right hand axis)

Universal Benefit of $1.25 per day for all 65+

Cost of a Benefit based on Poverty Headcount at $1.25/day for allpopulation under $1.25/day and over age 65

What contributes to potentially growing fiscal costs?

• National schemes – maturing

• Early stage in demographic transition, but possibly more

advanced in covered workforce

• Contr. rates & benefit formulas inconsistent w/long-run

balances

• Administrative costs

• Civil servant schemes - Growth in system dependency ratios

& some with inconsistent parameters.

• Transition costs for civil servant schemes adopting funding.

• Social pension costs increase w/growth in elderly populations

& scheme expansion

Reform Principles

31

Reform Principles – contributory schemes

• Explore new design options – voluntary, liquid, & possibly with special

subsidies for the poor to save.

• Parametric reforms - choices between years of work life, contribution rates

and replacement rates - actuarial projections to guide reform options.

Retirement age

Contribution rate

Accrual rate

Wage base def.

Vesting

Minimum pension

Indexation

• Harmonize & merge

• civil service & national schemes (w/occupational top-up as necessary).

• Strengthen regulation & supervision of occupational & individual

schemes (esp. for self-employed, unemployed, informal workers).

20.322.8 23.6

16.8 18.2 19.7 20.4 20.9 21.8 18.516.9 12.3

14.3 14.8 15.0 15.1 15.3 15.3 15.4 15.4 15.5 15.5 15.5 15.7 16.1 16.1 16.3 16.3 16.6 16.6 17.2 17.3 17.4 18.4 19.1 19.1 19.4 16.0 16.4 11.6

0

10

20

30

40

50

60

70

80

Age

Retirement Eligibility Age Life Expectancy at Retirement Age

Reform Principles – non-contributory schemes

• Universal support for the elderly – exclusion errors need to be weighed against fiscal

costs.

• Cost-benefit analysis of targeting the elderly can be weighed against targeting poor

households

• Matching contributions could be linked to worker savings & elderly assistance benefits.

Infrastructure needed for public transfers - identification, targeting, record-keeping,

disbursement.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Ghana Tanzania Mozambique Malawi Mauritius Zambia Rwanda

Working Age Adults (25-59) Children (0-14) Youth (15-24) Elderly (60+)

Poverty Headcount (%< Bottom 40%)

Poverty headcount by age group

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Co

st (%

of

GD

P)

Women Men

Cost of social pensions to eliminate poverty gap

amongst the elderly

Questions for Discussion

34

Closing the coverage gap• Should a core focus of social security be oriented towards increasing the

coverage of elderly poverty protection?

• What contributory designs and non-contributory support offer the strongest

potential for scalability?

Focusing on the poorest• Should cash transfers target the poorest, including elderly in poor households?

• Alternatively, should universal support for the elderly be offered to avoid

exclusion errors and labor market effects (or cases with a legacy schemes)?

Aligning pensions to needs and enabling conditions • Should payroll-based PAYG DB schemes in SSA depart from the scaled-

premium approach adopting lower benefit levels where needed consistent with

affordable long-term contributions and sustainable balances?

• Where in the region might the risks of pre-funding outweigh the benefits due to

insufficient enabling conditions (incl. fiscal capacity to support transition costs,

regulatory & institutional infrastructure)?

• What are some of the tradeoffs involved in coordinating or merging civil service

and national schemes?