Pension industry challenged

The pension industry needs to come up with innovative products to broaden the coverage of pension systems to include informal workers, industry experts have said.

In an article co-authored by Gandi Gandidzanwa and Itai Mukadira of Risk and Investment Management Consulting Actuaries, the informal sector workers do not formally retire like employees in the formal sector.

However, there is still a need for them to prepare for the reduction in earnings that accompanies old age primarily resulting from a decline in health.

“While even as recent as 10 years ago it would have been almost impossible to roll out a cost-effective, all-inclusive, micro-pension programme that targets those in the informal sector, the exponential growth in cell phone ownership, mobile network penetration, and mobile payments technology adoption makes it now very much possible,” they wrote in May newsletter published by Zimbabwe Association of Pension Funds.

There were 14, 76 million mobile connections in Zimbabwe in January 2021, according to latest statistics by Data Portal.

The number of mobile connections in Zimbabwe increased by 1, 6 million (+12 percent) between January 2020 and January 2021.

The number of mobile connections in Zimbabwe in January 2021 was equivalent to 98,5 percent of the total population. However, many people have more than one mobile connection, so figures for mobile connections may exceed 100 percent of the total population.

This provides huge scope for pension schemes to boost coverage.

The coverage of pension systems in Africa is limited to the small segment of the population in the formal sector.

According to the World Bank, the coverage is thin partly because traditional pension schemes are not responding to the needs of the informal sector. As a result, a large share of the region’s adult population has no access to contributory pension schemes during their working lives.

Gandidzanwa and Mukadira notes a robust nation-wide micro-pension drive requires an expansive ecosystem that has different strategic players taking up very critical roles in the entire value delivery system.

The financial services industry needs to design the solutions. Mobile payments technology providers have an all-critical role to play in crafting the most cost-effective systems and channels for payment of contributions and receipt of benefits.

“Mobile network providers would strategically be responsible for raising awareness, facilitation of the application and registration process, customer servicing, on-going

communication and two-way engagements between members and providers,” they argued.

The viability of this initiative requires scale to successfully keep the costs low.

To this end, only administrators who can command the right memberships would need to administer the member records, they suggests.

To achieve that, there could be a need for all these different role players to forge strategic partnerships.

“Public Private Partnerships (PPPs) need also be considered to further cost-effectively distribute at a national scale.

” To gauge interest, and for the business viability proof that the private sector may require before investing heavily in the sector, the government, with support from old age poverty-alleviation-driven NGOs, could pilot the concept.

“This would provide the much needed evidence-based confirmation for interest in old age pensions by the informal sector, financial viability, as well as help build a business case for the private sector.”-ebusinessweekly.co.zw