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Evaluation of Retirement Systems of Countries within SADC - OPM for Fin. Mark Trust, Evaluation of Retirement Systems of Countries within SADC - OPM for Fin. Mark Trust, DSD & ISSA Overview and findings John Kruger and Boipuso Modise (OPM South Africa) 24 May 2011 Centre for Social Development in Africa, Johannesburg 1

Outline • • • Background to the Study Methodology and Approach Review of Components Outline • • • Background to the Study Methodology and Approach Review of Components by Country Challenges and Responses Conclusions 2

 • Background to the Study 3 • Background to the Study 3

Africa and SADC • 4 Africa and SADC • 4

15 Diverse Countries … 5 15 Diverse Countries … 5

…ageing populations … and large proportion of informal employment …ageing populations … and large proportion of informal employment

 • Methodology and Approach 7 • Methodology and Approach 7

Aims of the Study “a comprehensive review of retirement systems and informal mechanisms of Aims of the Study “a comprehensive review of retirement systems and informal mechanisms of all SADC countries” -“describing the retirement systems of each country with a view to understanding the effectiveness and coverage in different systems and the importance of informal approaches to long-term provision” 8

Outputs and Study Challenges • Outputs – Literature review – Country Profiles (system summary, Outputs and Study Challenges • Outputs – Literature review – Country Profiles (system summary, socio-economic context, review of each sub-system) – Synthesis Report – Key documents and analysis (policy documents, legislation, system descriptions, assessments – by country and general literature) • Study challenges – Background and socio-economic context – Basic rules of the game – Data 9

Five Components of a Retirement System Social Civil Service Insurance Occupational Informal Systems Formal Five Components of a Retirement System Social Civil Service Insurance Occupational Informal Systems Formal Private Occupational and Voluntary System Social Assistance Criteria & components investigated: • Formal – Legal and institutional set-up; – Coverage; – Financing (mechanism and quantum); – Quality (contingencies, benefits, protection of rights, sustainability and risks, reform initiatives) • Informal: – long-term savings – asset accumulation – other informal support (kinship networks, community organisations) 10

 • Review of Components by Country 11 • Review of Components by Country 11

6 countries with social assistance targeted at elderly (social old age pension) Qualification age: 6 countries with social assistance targeted at elderly (social old age pension) Qualification age: 60 years (4 countries) 65 (Botswana) 70 (Lesotho) Universal in 4 countries; means-tested in 2 (although not clear that Swaziland applies means test in practice) A guaranteed income to elderly - broadly adequate to sustain recipients above the poverty line Botswana Lesotho Mauritius Namibia South Africa Swaziland Cost ranges from: • 0. 3% of GDP in Botswana to 1. 8% in Mauritius • 0. 7% of government expenditure in Botswana to 7. 9% in Mauritius In other countries, a range of social assistance schemes support the elderly, even though not specifically targeted at elderly. They have limited and uneven coverage (often donorfunded) Key Issues: • Fiscal cost and sustainability • Administration and payment mechanisms • Level of benefit and age group targeted • Universality versus targeting • Claims of other vulnerable groups: children and unemployed; limit on extension of pensions? 12

Social Pensions (Social Assistance) 13 Social Pensions (Social Assistance) 13

10 countries with National Social Insurance Coverage is limited: –Less than 10% of LF 10 countries with National Social Insurance Coverage is limited: –Less than 10% of LF in Madagascar, Tanzania & Zambia –± 55% Mauritius . . . because economic activity is largely based on the informal sector and subsistence agriculture Issues: • contribution rates low ± 10% of salary • administrative costs relatively high; often ± 20% of annual contributions Angola DRC Madagascar Mauritius Mozambique Seychelles Swaziland Tanzania Zambia Zimbabwe Low replacement rates of 30– 50%: • Unlikely to maintain retirees at pre-retirement income • Unlikely to keep retirees out of poverty at retirement Issues: • asset management policies = low returns on funds • in many countries the benefits are paid as lump-sum on retirement not monthly income • need to strengthen governance, asset management 14

Occupational schemes for civil servants No information on Angola and DRC so analysis of Occupational schemes for civil servants No information on Angola and DRC so analysis of 12 schemes; could not access detailed rules for several countries Coverage differs between central, regional, local and parastatals Normal retirement age: 50 -60 Contribution rate usually 20% of pensionable salary Of 12 schemes, 2 are DC, 2 are unclear and 8 are DB; 4 of 8 DB schemes are funded or partially funded All countries except Seychelles Benefits normally generous relative to private sector / social insurance: e. g. Mozambique; South Africa 7 schemes managed at arms length from government by board of trustees or similar; 4 managed inside government dept; 1 not known Issues: • Generous benefits create fiscal pressure, especially in defined benefit and unfunded environment • Absence of adequate regulation (in many cases not covered by pensions legislation/regulator) = need to strengthen oversight • Benefit levels relative to private sector - mobility issues • Often not dedicated/specialised management – instead, part of Finance or Public Service Ministries 15

Occupational schemes - civil servants 16 Occupational schemes - civil servants 16

Occupational schemes - civil servants 17 Occupational schemes - civil servants 17

Occupational schemes for private sector workers & voluntary schemes Even where most developed (Botswana, Occupational schemes for private sector workers & voluntary schemes Even where most developed (Botswana, Mauritius, South Africa), information and regulation have weaknesses; subsequently difficult to give comprehensive summaries Retirement funds a strong role in economies of higherincome countries – large asset holdings Contribution rate usually around 20% of pensionable salary, employers 10 -20%; employees 0 -10% Excludes many formal employees as coverage usually restricted to middle management and above Schemes operate in most countries Size and diversity of financial sector affects potential returns The relative scale and coverage of schemes varies significantly Issues: • Administrative and asset management costs • DC schemes put risks on members • Protection of rights 18

 • Country classifications and issues 19 • Country classifications and issues 19

ILO classification of SADC social security systems 20 ILO classification of SADC social security systems 20

Summarising the Formal Retirement System 21 Summarising the Formal Retirement System 21

Informal Systems • No evidence that other long-term savings mechanisms play a role in Informal Systems • No evidence that other long-term savings mechanisms play a role in retirement • Pointers to housing as an important asset accumulation strategy deserves further investigation • Other support mechanisms – Absence of formal systems lead to reliance on continued work (whether paid or on behalf of the household) and reliance on kinship (family) and other social networks – Despite lack of quantitative evidence, there is a consensus that these are critical to survival but not adequate (poorest often excluded) and under pressure (Aids, urbanisation, poverty, job scarcity) – Migrant worker remittances often feed into these kinship networks – Formal systems in some cases shown to strengthen informal systems – for example, allow for reciprocity from elderly 22

 • Challenges and Responses 23 • Challenges and Responses 23

1: Design and Broad System Reform • Found many exciting practices and leads – 1: Design and Broad System Reform • Found many exciting practices and leads – range of good practice and experiments in the region • Mozambique and Angola: – comprehensive approach to social security for the elderly – broad founding social protection legislation encompassing basic, compulsory and complementary systems • Mozambique – Evidence is being collected to promote expansion of social assistance • South Africa, Mauritius: – Driving reforms to deal with coverage and high costs • SA – social insurance (planning) • Mauritius – in depth analysis of system including reforms in economic restructuring (international support) • Namibia social insurance legislated but not implemented • Zimbabwe: – Resilience of sound legal & institutional framework not immune to economic and financial sector mismanagement • NSSA continues to operate impressively but benefit promises broken and private sector pensions and Insurance and Pensions Commission 24 reduced to shadow of what it was

2: Extending social pensions & improving administration • Lesotho, Botswana: – Introducing basic social 2: Extending social pensions & improving administration • Lesotho, Botswana: – Introducing basic social pensions to reduce poverty at affordable levels • Lesotho (universal pension from age 70), • Botswana (from age 65, benefit level modest compared to poverty line) • Swaziland, South Africa: – Testing and building new systems for delivery of cash • Exploring private sector and modern communications technology • Also range of experiments with smaller scale cash transfers across the sub-continent • SA development of new focused institutions (SASSA) • Growing body of evidence on impact of social pensions – Positive for children (growth, schooling) and generating income (migration, labour supply, small enterprises) 25

3: Occupational schemes • Botswana, South Africa, Mozambique: – Addressing weaknesses in occupational & 3: Occupational schemes • Botswana, South Africa, Mozambique: – Addressing weaknesses in occupational & voluntary schemes and strengthening social insurance schemes – Averting fiscal and economic risks of badly managed civil service occupational schemes - Botswana conversion to defined contribution fund - Mozambique working towards defined contribution fund - South Africa funding of Government Employee Pension Fund. • Mauritius, Botswana – Improving regulatory environment for occupational & voluntary schemes • Mauritius - revised Financial Services Act 2007 and re-establishment of Financial Services Commission; improved monitoring of funds • Botswana (review of pensions legislation proceeded in 2009 towards risk-based system) • Zimbabwe, Mozambique – Rebuilding credibility and effectiveness of social insurance schemes • Zimbabwe building up after currency conversion • Mozambique putting in place systems and transparency 26

4: General • “Retirement” as a specific event less common in SADC: sustainable household 4: General • “Retirement” as a specific event less common in SADC: sustainable household survival strategies will require people to continue productive activities beyond any specific formal retirement age • The five potential components of a retirement system sometimes not seen and planned as complementary strategies but, at least in part, are seen as alternatives (social assistance v. social insurance; social insurance v. occupational). • Reach of formal retirement systems limited by large informal and agricultural employment & low average incomes – Means limited personal savings, constrained administrative & revenue collection systems/small financial sector fund management • In some countries social assistance used as mechanism to provide poverty relief (a basic income) to the elderly – Is expansion of social assistance appropriate to all countries? – Is social assistance enough? Do we need to move beyond poverty relief to income replacements and contributory systems incorporating the informal? 27

 • Conclusions 28 • Conclusions 28

Conclusions • In spite of challenges, some progress and best practice evident • Potential Conclusions • In spite of challenges, some progress and best practice evident • Potential to learn from each other and disseminate best practice • “Informal protection” still playing a very large role – but little systematic knowledge and consideration in policy making • While information is improving there is limited standardisation of data in order to do in depth comparative work and to start assessing relative cost and efficiency 29

Thank you 30 Thank you 30