PENSIONS AND SOCIAL SECURITY IN SUB-SAHARAN AFRICA
ISSUES AND OPTIONS1
Luca Barbone
Luis-Alvaro Sanchez B.
Summary
This paper presents an overview of Social Security reform issues in Africa, based on the
examination of a number of case studies for both Francophone and Anglophone Africa.
There are a number of conclusions that are drawn by the analysis of case studies:
 With very few exceptions (Mauritius, Botswana, and to a certain extent South Africa),
formal social security institutions have not been successful in fulfilling their main
mission, broad-based coverage of the population. What is more important, it is
unlikely that pensions and disability coverage will be extended to the informal sector,
which represents the vast majority of the employed population in Africa, within the
next generation. As has happened in Europe over the past century, only sustained
economic growth, formalization of the economy and reduction of the relative weight of
the agricultural labor force will create the basis for some form of universal coverage.
Thus, formal social security systems in Africa are at present a perquisite of the middle
class. This has implications for the strategy of reform, and, in particular, for claims of
public resources that can be made by existing institutions.
 Improving governance is the first order of business for existing formal social security
institutions, which have all too often failed to deliver on promises to their members due
to mismanagement (and sometimes outright pillage) of assets. The main tasks involve
increasing transparency, curtailing opportunities for corruption, and most importantly
protecting beneficiary rights. An important component of improving governance is the
creation of protective barriers around the social security organizations, to prevent
undue interference from outside interests, facilitate precise allocation of responsibilities
and their oversight and enforcement. The creation or strengthening of regulatory
institutions is an important step in this direction. Regulation is important whether
management of these institutions remains in public hands or is transferred to private
hands. Within the context of a strong regulatory framework, it will then be possible to
grant social security institutions administrative and legal autonomy within clearly
defined objectives. Further unbundling institutions according to the different services
or activities they provide helps fine-tune the relationship between objectives,
responsibilities, and incentives and thus improve governance.
1
Paper presented at the XIII International Social Security Association African Regional Conference, Accra,
Ghana 6-9 July 1999. Luca Barbone is the manager for Central Africa and the Indian Ocean in the Poverty
Reduction and Economic Management Network of the World Bank. Luis-Alvaro Sanchez B is a consultant
for the World Bank. The views expressed in this paper are entirely those of the authors and do not represent
the view of the World Bank.
1



Over the long term, formal social security institutions need increased membership to
thrive. This buoyancy will not be possible if an adequate set of incentives is not in
place. In many cases, rules today were developed in a context where government and
its enterprises were the main providers of formal employment. As a consequence,
contributions are high and benefits, at least as written, are generous. As the
environment changes and the private sector takes the leadership in economic
development, economic agents become very sensitive to the rules of the game. Social
security schemes designed for the stronger economic agents who can contribute more,
end up penalizing those at the margin--small and medium economic concerns--leading
to increased informality. It thus seems appropriate that compulsory contributions go to
finance minimum benefit standards and that additional benefits are the result of
voluntary agreements between the parts.
In pensions there are no boiler plate solutions. Much will depend on the initial
conditions (benefit defined, provident fund, the level of contributions, the stock of
reserves etc), the strength of the supporting institutions (finance), and the fiscal
situation. This paper emphasizes the need for pension systems to be fully funded
because of reduced fiscal risk and improved savings. But investing pension reserves is
a difficult issue and there are no easy solutions. Investing abroad, which probably
would be the best financially for the beneficiaries, is often politically unpalatable.
Countries need thriving economies and strong financial sectors to provide profitable
investment opportunities. When this is so, pension fund reserves can profit from the
opportunity. When financial sectors are weak, concentrating fund reserves in public
hands to protect them often leads pension institutions to try and become financial
intermediaries with dismal results, including the further weakening of the financial
institutions. This is an area where much work needs to be done. Hopefully, as pension
reserves, whether under public or private management, grow, financial institutions will
improve and the two can develop together. Already, as reported, countries in the
continent have managed to develop significant voluntary private pension sectors.
The transition to new designs has problems of its own and can affect the design of the
most adequate solutions to be adopted. It is important to undertake rigorous technical
work before settling down on a design. It is easy to find solutions that are appealing in
the short-term, but that have detrimental long-term effects. The experience of some of
the countries in the region already illustrated this trap. Improving administrative
performance is another challenge that has been difficult to meet. Reducing costs, better
service, and good record keeping is at the core of providing better services and
eliminating the opportunities for corrupt behavior. But this is easier said than done.
Worldwide experience shows that efforts to improve information management have to
be accompanied by changes in the way institutions are organized to be effective. Thus,
improving administrative performance will have to be part and parcel of the efforts to
improve governance. Institutions with fewer and clearer objectives are in a better
position to improve their performance and deliver better services. Lastly, issues like
pension portability will become more important as labor mobility increases.
2
I. Introduction
This paper reviews some of the main issues in social security reform in Sub-Saharan
Africa, with emphasis on pensions, and evaluates reform options available to countries in
the continent. This preliminary report is based on work the Bank is currently undertaking to
study the pension and social security systems in Sub Saharan Africa in an effort to help
countries arrive at improved social security designs suited to local characteristics. The
Bank is not alone in these efforts. Governments and other donors also seek ways to address
the social security concerns of broad segments of the population. Consensus exists with
regard to some critical areas. The importance of finding institutional designs that improve
governance and enhance credibility is readily acknowledged by all. The need to have a
broad view of social security, including those outside the formal sectors, is also a point of
convergence. But, in spite of all the substantive and abundant work undertaken so far,
much still remains to be done, especially when it comes to the design of equitable and
sustainable institutions. These are auspicious times as many countries are engaged or
thinking about substantial reforms of the social security systems.
The paper is organized as follows. It begins by outlining basic characteristics that frame
social security consideration in the continent. The population is young and working mostly
outside the formal sectors. Formal security institutions in many countries have lost
credibility and it seems as if only the culture of social solidarity extended throughout the
continent provides the basis to build a broad social protection umbrella. The paper then
provides a brief overview of the main characteristics of the current social protection
schemes. Finally, the paper presents an overview of the main challenges ahead and
comments on the options available and their relevance in the African context. Improving
governance is the most critical challenge. Given the problems in the past, often business as
usual is not the best option and new institutional setups must be found. The aim at the end
is to protect the rights of the beneficiaries by providing better services, reducing
administrative costs, raising the returns to investment, and contributing to overall
development by carefully considering the links with the rest of the economy. The overhaul
of social security institutions carries with it important transition considerations that if not
taken into account, will risk the sustainability of the designs.
3
II. Background
Well-designed social security policies can contribute to a better environment for economic
growth in Africa. It would be erroneous to think that social security is a luxury to be
afforded only when growth has taken place or when countries have reached a certain level
of per capita income. The fact is that there is a mutually reinforcing relationship between
economic growth and society’s ability to deal with the consequences of social and
economic uncertainty. Adequate frameworks to deal with uncertainty will help improve the
allocation of resources and hence contribute to economic growth. At low income levels
there are substantial market imperfections that prevent people from dealing adequately with
risks, and this determines the type of activities they undertake and the efficiency of their
investment. But it would also seem unwarranted not to take into account the limitations
that the level of income imposes on the ability of government to effectuate transfers across
groups. As income increases, it is easier for governments to tax and transfer resources to
help the less fortunate deal with the results of economic uncertainty. Disregard of the
budgetary effects and limitations will have harmful effects.
Straightforward application of external social security designs that do not take account of
the specifics of the African continent are likely to be inadequate, as the crisis of the
systems inherited from colonial times has shown. This section highlights some basic facts
that frame social security considerations in Sub-Saharan Africa. These pertain to the
demographic characteristics of the population, the basic organizational structures of the
African economies and the sources of economic uncertainty, the loss of credibility that
characterizes formal social security systems, and the cooperative culture of the African
continent.
Demographic
considerations.
Demographic characteristics are
important for social policy to
identify and measure the target
populations.
Social
security
difficulties are often associated with
aging populations, be it from the
viewpoint of pensions or health.
African populations on average,
however, are young compared to
other continents, as is shown in
Table 1. The ratio of the population over 60 to total population stood at 4.7 in 1995 in the
continent, the lowest ratio in the world. Likewise, the ratio of population over 60 to the
population between 15 and 60 stood at 9.3 -- also the lowest ratio in the world. African
populations are even younger that those of the low-income countries of the world. The ratio
of population over 60 to total population in low-income countries worldwide is 6.1.
4
Most of the countries in the continent have young populations. 2 Upper middle countries
have older populations, with ratios of population over 60 to total population at 7.1, but
there are only five such countries with small populations. (See Table 2 and Figure 1.)
Over the long-term, expected
changes in fertility and mortality
rates will reduce population growth
rates and eventually increase the
proportion of the elderly in the
population. But this transition will
take a long time; the bulk of the
African population will continue to
World:
be young for a while. In fact, in
Low Income
6.1
11.2
many countries the age dependency
Lower Middle
9.5
15.4
will decrease over the next twenty
Upper Middle
8.7
14.5
years. It will increase thereafter to
High Income
18.0
28.8
reach, by 2040, levels similar to
those of Latin America and the
Caribbean today. The aging of the population is expected to take place in the second half of
the next century. (See Table 3.) The variation among countries, however, will increase for a
while and decrease in the long run, 3 meaning that countries will get older at different rates.
Table 2. Aging and Dependency Indicators
By Income Level, 1995
Dependency Ratios
60+/Total
60+/15-59
Sub-Saharan Africa:
4.7
9.3
Low Income (n=38)
4.5
9.0
Lower Middle (n=4)
5.4
10.4
Upper Middle (n=5)
7.1
12.2
Table 3. Projection of Percentage of Population Over 60, Sub-Saharan Africa
1995
2015
2040
2060
2080
2100
Sub-Saharan Countries
4.7
4.4
7.5
12.8
19.4
22.9
Low Income (n=38)
4.5
4.2
7.1
12.3
19.1
22.7
Lower Middle (n=4)
5.4
5.3
10.0
16.3
22.1
24.4
Upper Middle (n=5)
7.1
7.7
15.0
21.0
24.7
26.6
Within countries, populations split into different demographic profiles. Fertility and
mortality are higher among the poor and life expectancy lower. These differences affect
behavior and the demand for social security services by the different income groups. Health
and prevention for epidemic diseases may be a greater concern for the poor. AIDS is
shortening life expectancies in all groups and again altering the demand for social
protection. Still, differences in mortality rates tend to disappear as people get older. Life
expectancy for elderly people is similar regardless of the level of income. Thus, people
that have reached retirement age are likely to live over a decade more, regardless of socioeconomic status. So provision for the old is also a concern for the poor.
2
A set of appendix tables presents detailed population information by country.
The variance over the mean of the population over 60 total population increases for a while to converge in
the long-term. (See Table 3.)
3
5
Structure of the economy and sources of economic uncertainty. Social security policy
addresses problems that arise when markets do not provide adequate mechanisms to deal
with economic uncertainty or when shortsighted behavior exposes individuals to
controllable risks. It is then necessary to ascertain the nature of the risks individuals face in
a given society to tailor adequate policies. Many of the operating instruments for social
protection in the world today have been designed to address problems characteristic of
industrial economies, where large segments of the population have regular employment. In
Africa, rural and informal economies are very important. The formal sector (where people
have continuous employment and income) is very small. Moreover, in some countries,
employment in the formal sectors continues to be highly dependent on the state, be it
directly or through state enterprises.
Table 4. Percentage of Economically Active
Most of the people in Sub-Saharan
in Agriculture, Sub-Saharan Africa, 1990
Africa are still employed in agriculture,
Sub-Saharan Africa
68
whether they are classified as living in
Low Income (n = 38)
75
Lower Middle Income (n = 4)
48
the rural or the urban areas. In 1990, 68
Upper
Middle
Income
(n
=
5)
32
percent of those economically active
derived their income from agriculture or
agriculture related activities. This
percentage was even higher, 75 percent, for low-income countries in the region. (See Table
4) Even when people move to urban centers, they are likely to continue to derive their
income from agriculture. Urban centers have yet to generate significant sources of steady
employment. So most people’s incomes are subject to the variations proper of agricultural
activity or the fortuity of informal activities, which themselves may fluctuate considerably.
Add to this environment, the regular calamities of nature and man, and the uncertainty of
life is enormous.
It is often said that traditional societies have developed mechanisms to deal with these
uncertainties, and considerable amount of work has been done to describe the social
protection mechanisms. The adequacy and coverage of these mechanisms is not sufficiently
understood. Whatever the social protection mechanisms in traditional societies, the case is
that the elderly work longer later in life in low income countries, where over 60 percent of
the people over 60 years of age are economically active. (See Appendix-Table 3) That is,
the elderly have to provide for themselves either totally or partially. Moreover, traditional
societies are in the process of transformation and social cohesion may be deteriorating.
Already it is reported that poverty among the elderly remaining in the countryside may well
be on the increase.
6
Lack of credibility of the formal systems. In many of the countries in the continent, formal
institutions, public or private, lack credibility. This extends to social security institutions,
especially pensions, and derives from the poor services provided to beneficiaries and the
mismanagement of pension reserves. People came to view social security contributions
more as a tax and sought to develop, within their means, alternative protection schemes. At
the same time, financial institutions are not trusted as a result of periodic sector crises. This
generalized lack of credibility severely constrains the development of social protection
mechanisms that necessarily have to rely on savings and insurance to meet economic
uncertainties. Rebuilding credibility in social security and finance institutions requires
addressing severe governance shortcomings in the public and the private sphere.
A culture of solidarity. A common observation made by both local and external observers
is the importance social solidarity plays in the workings of African societies and how
traditional societies have developed mechanisms to deal with economic uncertainty. With
the transformation that is taking place and people moving to the urban areas, reportedly this
culture of cooperation has been transformed into new mechanisms of cooperation. The
question is how strong a role can these informal mechanisms play on improving social
security among the population. The Bank now seeks to identify and classify the different
types of risks that characterize these economies and the social protection mechanisms that
exist. Hopefully this work will serve as the basis to help improve social protection policies
in the continent. In any case, this culture of solidarity stands in contrast to the credibility
problems of the formal institutions, and could be a base upon which to build new schemes
of social security protection. These ideas remain to be fully developed and applied.
7
III. The Current Situation.
While most Sub-Saharan countries share broad demographic, economic and institutional
characteristics, as discussed above, there are also significant variations in the design and
performance among the existing pension and social security arrangements, formal or
informal. This variety of institutional designs and outcomes prevents easy generalizations
as to the most adequate social security designs. Careful study and review of existing
systems is an important pre-requisite for reform. This section looks the variety in designs,
the following sections will seek to identify key issues. 4
Variations in formal social security systems arise from how they were initially designed
and how they have evolved over time. Many of the arrangements were inherited from
colonial times or adapted from foreign designs, often from industrialized countries. Still, it
is the case that even countries that shared a common origin have tended to diverge over
time.
Most African countries have some form of social security arrangements for people working
in the public sector, in state enterprises, or in the enterprises in the modern sectors. The
parallel systems operating in each country are often dissimilar. Table 5 describes several
features of the main social security arrangements for a broad set of countries, taken from
indirect sources.5
Social security arrangements. Most of the countries provide a broad range of social
security arrangements that include pensions and other benefits. French-speaking countries,
for instance, tend to fall in this category. In these systems, pension arrangements are of the
defined-benefit type.6 Besides pensions for retired and pensions for widows and surviving
children, other benefits include work accidents, maternity and children allowances.
Ejuba, Ewane J ( “Pension Schemes in Africa” 1999 ) presents an overview of the current social security
systems of the African countries (including North Africa).
5
Additional information is provided in Appendix Tables 4, 5, 6
6
The pension benefits in the defined-benefit approach are calculated based on formulae that include the
length of contributions, reference salaries, minimum number of years for eligibility, etc. In defined
contribution systems resources available for retirement come from savings accumulated during the lifetime
plus their return minus administrative charges.
4
8
Table 5. Contribution Rates for Social Security Programs
Types of
Total Contributions
Employer Contribution Shares
Soc. Sec.
All
Pension Social
Share of Share of
Programs Soc. Sec. Pension as % of Security Pension Soc. Sec. Pension
Incl. 1/
(a)
(b) Soc. Sec.
(c)
(d)
(c/a)
(d/b)
Benin 4/
O, S,W,F
23.2
10.0
45
19.6
6.4
84
64
Burkina Faso
O,W,F
23.0
9.0
39
18.5
4.5
80
50
Burundi
O,W
10.5
8.5
81
7.5
5.5
71
65
Cameroon
O,W,F
19.0
7.0
37
16.2
4.2
85
60
Cape Verde
O,S,W,F
27.0
10.0
37
20.0
7.0
74
70
Cent. Af. Rep. O,W,F
20.0
5.0
25
18.0
3.0
90
60
Chad 4/
O,W,F
14.3
6.0
41
12.3
4.0
86
67
Congo, D.
O,W,F
18.28
7.0
56
15.88
3.5
87
50
Congo, R.
O,S,F
18.48
6.0
32
13.83
3.6
75
60
Côte d'Ivoire 4/ O,S,W,F
15.1
4.0
27
12.9
2.4
85
60
Eq. Guinea
O
26.0
21.5
83
Ethiopia
O
10.0
6.0
60
Gabon 2/
O,S,W,F
22.6
7.5
33
20.1
5.0
89
67
Gambia 3/
O,W
20.0
19.0
95
19.0
19.0
95
100
Ghana
O
17.5
12.5
71
Guinea
O,S,W,F
23.0
6.5
28
18.0
4.0
78
62
Kenya
O
10.0
5.0
50
Liberia
O,W
7.75
6.0
77
6.0
3.0
77
50
Madagascar
O,W,F
14.0
4.5
32
13
3.5
93
78
Mali 4/
O,S,W,F
23.0
9.0
45
21.0
7.0
91
78
Mauritania
O,S,W,F
16.0
3.0
19
15.0
2.0
94
67
Mauritius 5/
O,
9.0
6.0
67
9.0
6.0
100
100
Niger
O,W,F
17.0
4.0
24
15.4
2.4
91
60
Nigeria
O,S,
7.5
5.0
67
Rwanda
O,W
8.0
6.0
75
6.0
3.0
75
50
Sao Tome
O
10.0
6.0
60
60
Senegal 4/ 6/
O,S,F
35.0
14.0
40
8.4
72
60
South Africa
O,U
2.0
0.0
1.0
0.0
50
0
Sudan
O,W
27.0
25.0
93
25.0
17.0
93
68
Swaziland
O
10.0
5.0
50
Tanzania
O
20.0
20.0
100
20.0
10.0
100
50
Togo 4/
O,S,W,F
20.5
6.0
29
18.1
3.6
88
60
Uganda
O,W
15.0
15.0
100
10.0
10.0
67
67
Zambia
O
10.0
5.0
50
Zimbabwe
O
6.0
3.0
50
Source: U.S. Social Security Administration, 1997, except where indicated.
1/ Only includes social security programs financed through earnings related contributions. O is for old age, disability and
death. S is sickness and maternity. W is for work injury. F is for family allowances. When contributions consist of a range,
the highest value is shown. Blank spaces indicate that some or all of the contributions in column (a) are not earnings related.
2/ Gabon also has the “retraite viellesse” (ACE) program, where the insured pays 5% and the employer pays 2%.
3/ Pension scheme shown. Gambia also has a provident fund where insured pay 5% and employer pays 10%
4/ Source: CIPRES, 1999
5/ Earnings related pension shown. Mauritius also has an universal pension which is entirely financed by the government.
6/ Regime General shown. Senegal also has a pension regime complementaire (insured 2.4%, employer 3.6%)
9
The overall contribution rates in these systems tend to be high, as they cover pensions and
other benefits. They reach up to 31/35 percent of salaries in Senegal and quite a few
countries hover above 20 percent. The average total social security contribution stands at
around 19 percent, and the median at 20 (See Table 5 column 1.) 7 Pension contributions
can be quite low in some countries. The lowest are Mauritania, Côte d’Ivoire and
Madagascar, where the contribution for pensions stands at 3, 4 and 4.5 percent respectively
(Table 5, column b). Of the 35 countries included in Table 5, 28 have pension contribution
rates at or below 10 percent. The low pension contributions follow from the fact that
initially the resources needed to pay pension benefits were small. The receipts from higher
social security contribution rates have gone to finance generous family benefits. As pension
outlays have grown at a rate faster than the allotted contributions, internal transfers have
been necessary to finance pension obligations. (More on this below) Employers pay the
bulk of the contributions, both for overall social security and for pensions (See Table 5).
Retirement ages range between 55 and 60, but most systems allow early retirement at about
50 years. The minimum number of years to qualify for a pension can be quite high,
reaching 20 years in some countries. Failure to reach this benchmark means that the
contributors can get back only his/her nominal contributions. In some countries pensions
for widows and survivors can be quite generous. Replacement rates vary with contribution
rates. It can reach 80 percent for public servants in some countries (Côte d’Ivoire, etc.). In
most countries the difference between basic and total wages (basic plus allowances) is a
source of ambiguity that creates opportunities for evasion.
Provident Funds. Provident funds focus exclusively on retirement and do not include other
benefits. They operate as compulsory individual savings accounts, with beneficiaries
entitled to a lump sum at retirement. Although annuities are possible, often people prefer to
take the lump sum. Several provident funds have been transformed into social security
arrangements with pensions organized around a defined benefit principle. This has already
happened in countries like Ghana and Nigeria. Most recently (1998) in Tanzania,
Parliament approved a law transforming the National Provident Fund (NPF) into a broad
social security arrangement covering pensions and other benefits (including possibly health
insurance) —National Social Security Fund. This transformation has yet to be fully
implemented. Kenya and Uganda retain the provident fund design. Contribution rates
among provident funds vary considerably and are very high for the NPF in Tanzania--20
percent of salaries.8 Contributions to the Uganda provident fund stand at 15 percent--10 for
employers and 5 for employees. Kenya’s contribution stands at 10 percent, but with an
effective ceiling for most workers--around three dollars, half for the employees and half for
the employers. This extremely low level is the result of contribution rates fixed in nominal
terms during the years.
Additional information on SSA’s pension systems is available in the appendices.
The NPF is now the NSSF. Besides the NPF, there is the PPF, covering parastatals, with a defined benefit
scheme since its creation in 1987. As parastatals are privatized, PPF has sought to continue covering the
emerging private concerns and to extend its coverage beyond in the private sector.
7
8
10
Other type of systems. Mauritius has a different history. The National Pension Fund (NPF),
created in 1978, is a contributory arrangement, partially funded, where the members
purchase pension points with their contributions, to be redeemed later for pension benefits.
The basic ratios are roughly indexed to inflation and have remained relatively constant over
time. In Mauritius, the standard contribution to the NPF is 9 percent--6 for employers and 3
for employees. However, there is a cap at a relatively low level of income and the effective
contribution for medium and high salaries is much lower.
Public Pensions. Civil servants often have one or more social security arrangements. In a
good number of cases pensions are paid out of the budget and there is no pension fund per
se. Often the pension rules covering civil servants or public employees vary considerably.
In Cameroon around seven different regimes for public servants can be found. In countries
like Kenya, Uganda, and Tanzania, local governments have their independent pension
arrangements. In French speaking countries, not all public employees are covered by the
civil service rules; some of them belong to the funds covering private employees. All of
this creates a lot of confusion and inequities.
Universal pensions. Mauritius pays a pension out of the budget to anyone over 60 years
old. Initially Mauritius experimented with a means-tested pension scheme out of the
general budget. Application complications led to the introduction of a universal pension,
which has become pretty much ingrained in the population. This pension is adjusted
regularly, although no precise formula exists. The universal pension covers roughly one
third of the average wage. Total expenditure on the universal pension stands at 1.3 percent
of GDP, and surveys show that it is an important instrument to sustain income of the less
fortunate. South Africa has a means-tested universal pension. Gabon also has a universal
pension.
Private sector arrangements. There is a wide variety of private pension arrangements in
Africa. Some are set up by individuals and some by companies, with contributions both by
employers and employees. Three factors seem to favor the emergence of private pension
arrangements: (1) low contribution rates to the public funds, (2) adequate tax treatment,
and (3) a working financial sector with some tradition in the management of pension
accounts. These pension accounts can be of different types: defined-contribution, definedbenefit, and provident fund. Private non-compulsory private arrangements are strong in
Kenya, where more than a thousand can be found. Reportedly, the preferred private option
in Kenya is defined-contribution. Defined benefit arrangements have decreased in
popularity, because they require the employer to balance the funds, if needed after periodic
actuarial examinations.
The assets under management by private pension funds stand at 10 percent of GDP,
roughly the same percentage as the public provident fund (NSSF). In Kenya there is a welldeveloped infrastructure of brokers, fund managers, and insurance companies and
significant competition in the sector. As already mentioned, the contribution levels are low
and tax law allows a deduction for investments in pension funds both for employer and
employees. This industry could play a very important role in the region. These remarkable
11
developments not withstanding, some concerns remain regarding (1) the coverage of the
combined public/ private arrangements, and (2) the transparency of the existing private
schemes--costs, for instance. Still, quotes obtained from different sources would suggest
that the total costs of administering pension funds in the private sector stand at around 1.5
percent of assets, which seems reasonable given the size of the market.
Mauritius has also developed a significant sector of complementary private pensions. The
office of the Income Tax Commissioner reports over 900 independent arrangements,
additional to around 70 covered by the Parastatal Pension Act. The information on the
private arrangements is limited and it is difficult to estimate its size from available
information. It is likely that jointly, the private and the parastatal arrangements have assets
equal to half of the assets under NPF management. The private arrangements are
complementary to the public schemes and reportedly cover mostly medium and high level
employees, even though the law orders full employee coverage to be eligible for tax
benefits.
Zimbabwe also has significant private sector pension arrangements. They are not
customary in Tanzania and Uganda, probably as a result of the high contribution rates to
the public pension systems, (which are 20 percent for Tanzania and 15 percent for
Uganda), and credibility problems of the financial sector. In French-speaking Africa and
where contribution to the public pension system is low, private pension funds can also be
found. Countries in these regions tend to have favorable tax treatment for private pension
funds. Overall, there is limited information of the extent to which private arrangements are
used to provide for pensions.
12
IV. Key Issues
This section reviews key pension and social security issues that have been identified in the
sample countries under study. These issues are not intended as generalizations that apply to
all African countries. Exceptions can readily be found. The intent rather is to present a
sample of the challenges faced by countries that seek to reform or improve their social
security systems.
Credibility Problems. A good many formal social security systems of Sub-Saharan Africa
have experienced serious credibility problems due to many factors, such as low benefit
levels, long lead times to process claims and poor services. Credibility problems have
affected all systems--provident fund or defined contributions. Provident funds problems
derived from the fact that the benefits they provide correspond to contributions plus
returns, so that all risks are shifted to the beneficiaries. Thus the mismanagement of
reserves, administration costs, and poor administrative performance led to meager
pensions, in the best of cases. In many other cases, records can’t even be located. These
problems help explain the move away from provident funds that has taken place in some
countries.
The credibility problems of the defined benefit schemes are similar to those of the
provident funds regarding services provided. However, since benefits are defined, the risks
of poor performance, mismanagement of funds, etc. are transferred to the government or to
future generations. Unfortunately, however, beneficiaries have not been protected as well
as one would expect from theory. The reason is that often governments, either by fiat or
neglect, adjust benefits downward by failing, for instance, to index them to inflation. In
such cases, the consequences of poor performance are partially transferred to beneficiaries.
Serious governance problems underlie the loss in credibility. At the root of the poor
governance is a faulty institutional design. In many countries, the key problem has been the
interference of the government in the management of the funds. This interference has been
encouraged by institutional designs that give government control of governing boards and
the social security administrations. Besides government interference, administrations
themselves are often times captured, distort the social security agencies and their statutory
objectives and use them for their own purpose.
Limited coverage of the formal social security systems. Formal social security systems
cover a small percentage of the population in most African countries. In pensions, coverage
is low, both in terms of the total number of contributors over the economically active labor
force, and the number of beneficiaries over as compared to the population over 60 (Table
6.) That the coverage in relationship with the overall population is low should not be
surprising, since, as we have seen, the size of the formal labor force is small to begin with.
Coverage in terms of the relevant target population is substantially higher, especially when
formal sector employment is dominated by the public sector. Pension expenditure in
13
relative terms is still small in Africa. The average ratio of pension expenditure to total GDP
for the countries included in Table 6 stands at 0.55 percent.
Formal social security systems highly dependent on the state. The state has played and
continues to play an important role in the development and the characteristics of the formal
pension and social security systems. The oldest arrangements have been those covering
public servants. Some of these remain from former colonial times, with few changes.
Moreover, in many countries a considerable percentage of the people covered by formal
social security schemes are either employed by the state or by state enterprises. In Togo, for
instance, only one third of those covered by formal social security arrangements can be
considered to be working for the private sector. Although this percentage is higher in other
countries, public employment policies still have a significant effect on the development of
formal social security schemes.
High Administrative costs and poor administrative performance. The cost of administering
social security systems in SS-Africa appears to be high. In the countries reviewed the ratio
of administration costs over contributions varies considerably. It can be as low of 12
percent in Mauritius when considering just the public pension fund and around 3 percent if
the transfers for the universal pension are taken into account (1995). It reaches over 100
percent in Kenya (1997)9. Certain care should be taken in interpreting this type of data.
This indicator, administration costs over total collections, depends not only on
administrative performance but also on the contribution rates. Thus, for instance, in Kenya
administrative costs exceed contributions, but the contribution rate is extremely low. Thus
while indeed it may be a fact that administrative expenditures are relatively high, the
indicator exaggerates the extent of the problem in this case. Also, systems that provide a
broad range of benefits will have to have, on average, lower ratios of administrative
expenditures over revenues. While it may be difficult to judge the efficacy of one
organization compared to another (within a country or across countries) using broad
indicators, it is still the case that in most countries social security organizations in SubSaharan Africa face considerable administrative difficulties. A complete set of consistent
comparative administrative costs for the countries in the continent have yet to be put
together.
Explanations of the poor administrative performance will vary from country to country.
Often there has been a lack of incentives for the boards and management to improve
administrative performance. Existing incentives on the contrary have led to extensive
employment, nationwide networks, and considerable expenditures on building and
infrastructure. The absence of hard budget constraints on administrative expenditures has
contributed to the deterioration of pension reserves.
In between, the ratio of administrative expenditures to revenues stands at 13 percent for Uganda’s NSSF,
24.5 percent and 18 percent for Tanzania’s NPF and PPF respectively, and around 40 percent for Cameroon’s
CNPS.
9
14
Table 6 Labor Force and Pension Coverage
Benin
Burkina Faso
Burundi
Cameroon
Cen. Af. Rep.
Chad
Congo, D.
Côte d'Ivoire
Gabon
Ghana
Guinea
Kenya
Madagascar
Mali
Mauritania
Mauritius
Mozambique
Niger
Nigeria
Rwanda
Senegal
Tanzania
Togo
Uganda
Zambia
Labor
ContribForce
Year
utors
Coverage Year
1989
1989 152,443
3.7 1993
1990
4.7 1993
1989 597,452
13.7 1993
1989
1990
1.1 1990
1992
1989
9.3 1989
1991
1989 1,100,000
13.3 1993
1993
1990 1,400,000
14.7 1993
1990 261,469
5.4 1993
1990
2.5 1990
1989
1989
1986
1,248
0.5 1993
1990 108,656
2.8 1992
1990 1,000,000
2.4 1993
1989 315,217
9.3 1993
1990 220,542
6.9 1992
1990 642,600
5.1 1992
1993
1989
1989 359,620
13.8 1994
Covered
Contrib- PensPensWage Pension
utors/ ioners/ Ioners/
Bill/ Spending Labor persons ContribGDP
/GDP
Force over 60 Utors
3.5
0.4
0.3
3.1
2.4
9.5
5.0
0.2
3.3
8.7
23.4
5.5
0.3
13.7
3.9
2.3
0.0
1.1
0.9
5.8
11.0
9.3
5.7
12.3
7.3
5.7
0.1
7.2
1.5
6.8
0.5
25
5.4
4.1
8.0
0.4
2.5
6.5
0.2
20.3
2.8
100
0.0
5.0
0.1
1.3
0.1
1.3
9.7
9.3
5.6
4.9
6.9
4.3
0.5
6.6
5.4
0.1
0.8
0.1
10.2
Source: International Patterns of Pension Provision. Palacios/Pallares 1998, ILO, EPF, Staff Estimates and CIV.
Besides the high administration costs, there have also been problems with the quality of the
services delivered. Good record keeping, which is crucial to a well-managed social security
administration, has been lacking. Funds have had problems tracking individual accounts or
producing updated valuations of their assets. The end result has been long lags between
retirement and the time beneficiaries begin receiving pension payments. Also, the lack of
adequate record keeping provides an opportunity for corrupt practices as it makes it
difficult to control the oft-found practice of creating fake employment files to collect
pensions.
Many social security institutions have sought to improve their administrative practices,
often with external technical assistance and have centered on information management and
record keeping. While progress is reported, continued administrative difficulties suggest
focusing first on the basic institutional design, before engaging in micro administrative
reforms. For instance, social security institutions undertake a wide variety of tasks
including collection, account management, investment of reserves, benefit payments, and
15
often other tasks on behalf of the government. To carry out multiple missions within a
single organization has proven complex.
Difficulties managing pension reserve funds. Most pension funds in Sub-Saharan Africa,
provident or otherwise, have generated surplus resources. Management of these reserves
has proven problematic and has contributed to existing and forthcoming difficulties. There
are multiple reasons why management of funds has been difficult. To begin, governments
have had a considerable degree of say on how pension surplus funds are utilized. In almost
all countries, government has either borrowed or appropriated resources from the pension
funds. The ways in which this was done vary by country. Only in a few countries and very
recently, have treasuries issued debt at market interest rates to the pension funds. As a
consequence, in many cases the interest rates were below market returns, and in some cases
below inflation. Countries are finding it increasingly necessary to clarify the accounts
between the government and the pension funds. 10
Besides the direct use of resources by the public treasury, governments have also directed
pension funds to invest in specific projects or companies. These investments have not
always been fortunate. There have also been problems with the decisions of fund
management regarding where to invest. A favorite area of investment has been real estate.
Problems in this area have come from inflated purchase prices and high construction costs.
The end result has been that pension funds are not adequately funded. This shows up and
poses different problems in provident funds and in defined-benefit arrangements. In
provident funds, the impact of fund mismanagement falls on the contributors. Thus, the
returns to investment that are credited are often below the market rate of return. Even so it
may be that not enough funds are available to cover the obligations in the books to
beneficiaries—the sum total of savings plus the returns. In this case the provident fund
itself is unfunded.11 In cases like Kenya and Uganda, the extent to which provident funds
can actuarially cover their obligations to the beneficiaries depends on successfully finishing
on-going real estate projects and the returns to previous real estate investments.
The problems that follow in defined benefit schemes are slightly different. Poor reserve
fund management will affect the extent to which the funds are balanced, but not necessarily
the benefits extended to the beneficiaries, at least in principle. The fact is however, that
loss in reserves ends up pressuring an increase in the level of the contributions or lowering
benefits indirectly, such as failing to adjust pensions for inflation, or adjusting them too
late.
10
In addition to the misuse of pension reserves, in some countries, governments or their enterprises often fail
to pay their contributions to the funds.
11
This is so, because it has been difficult for provident fund administrators to keep an accurate and up-to-date
value of their investments and their returns.
16
Lack of investment opportunities. The problems with the management of pension reserve
funds do not arise exclusively from bad governance. It has also been the case that over the
last decades investment opportunities have been very limited. It appears, in fact, that
investment returns in the sub-continent have been low if not negative over the last decades.
The profitability crisis and the crisis of the financial sector have not been any less dramatic
than the social security crisis. The result has been a loss of credibility in both the public
and private sectors.
Issues specific to the defined benefit schemes. Defined benefit schemes as found in Frenchspeaking Africa face their own specific problems. These systems, as mentioned, combine
pension and non-pension benefits, and pension contribution rates have been low, as pointed
out above. Initially, these schemes generated operating surpluses. Over time, however,
pension obligations have grown faster than contributions. This may appear odd in countries
with young populations and fast growing economically active populations. However, the
demographics of the formal pension systems are considerably different from the population
Figure 2. Pension Contributions and Benefits in Cote d'Ivoire.
40,000
35,000
Millions of Franc CFA
30,000
25,000
20,000
15,000
10,000
5,000
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
at large. The number of beneficiaries contributing to the formal pension funds stagnated
over the last decade, while the average age of its membership increased. As a consequence,
the ratio of beneficiaries over contributors increased dramatically over time12, resembling
the characteristics of a quickly maturing pension system. In Cameroon, between 1991 and
1996 the ratio of total beneficiaries to contributors increased from 8.8 to 16. In the public
sector the same ratio has gone from 9.7 in 1990 to 31.25 in 1997. In Côte d’Ivoire the
12
Also, the ratio of beneficiaries to contributors in the population is much higher than the ratio of over 60 to
the overall labor force.
17
number of beneficiaries has grown over the last ten years at 7.9 percent, while the number
of contributors has remained stagnant.
It is likely that this situation will worsen in the near future, as membership in the formal
pension systems is still linked to public sector employment and civil service reforms and
privatization are slowing or even reducing the employment provided by the public sector
and its institutions. Over the longer term, much will depend on the evolution of the formal
sectors as economic recovery gets underway. In some countries, like Cameroon, recent
growth has taken place outside the formal sectors, and so membership and contributions to
the social security institutions has not picked up.
So far the solution has been to redirect resources from other benefits to pay for pensions. In
some countries this is no longer feasible. In countries like Cameroon, Togo, and Côte
d’Ivoire, pension expenditures already equal pension revenues, so that they do not cover
administrative expenditures. (See Figure 2 for the case of Côte d’Ivoire.) Now countries
face hard choices. The expedient solution is to increase the contribution rates. This
however, can have undesirable side effects in the medium term, as it can contribute to a
continued stagnation of the membership. Also, it can create pressure to increase the
benefits (replacement rates) with the consequence that the beneficial effect of the increase
in rates will only be short-lived. A more considered approach will have to include
rethinking the level of other benefits, reaching an understanding with government on the
outstanding obligations and the form of payment, and, most importantly, taking measures
to improve governance and performance before committing to increase pension
contribution rates.
Public service pension obligations. Social security and pension obligations for public
employees raise important problems of their own. When there are independent pension
systems for public employees, a problem has been that governments did not pay their
contributions, thus de facto appropriating the surplus that would have been generated. With
pension funds in problems, it is necessary to clear the accounts between the government
and the funds, and agree on mechanism for reimbursement.
In the absence of a public pension fund, all of the current obligations fall on the budget.
The end result has been that the payments for pensions have been increasing. This has been
further accelerated by retrenchment. Additionally, civil service reforms have implied
substantial salary increases, leading to higher pension outlays now and in the future. This
has led some countries to try and set new public pension funds. Salary increases have been
used to allow employees to contribute to the funds. Uganda is going through this process
now.
Provident fund difficulties. Some of the problems with provident funds have already been
mentioned. The consequence of administrative and financial mismanagement falls on the
beneficiaries. Low pension benefits made the contribution seem like a tax. The result has
been the tendency to move away from defined benefit schemes. It is clear that the
beneficiaries did not have the mechanisms to monitor management and the government.
18
An option would have been to allow employees and/or employers to exit and form
complementary or substitute funds. While this could have been possible (it has happened in
other countries outside Africa with provident fund designs) it did not happen to a
significant extent. In some countries, like Uganda, the public pension fund successfully
argued against these options.
Pension Portability. In most countries under review, movement from one pension system
to another is likely to imply a loss of pension benefits. This results from two facts. Usually
it takes a long-time to be eligible for a pension. Also, countries do not have provisions
allowing contributors to carry benefits from one pension system to another. The most
obvious example is when moving from the public to the private sector or vice-versa.
Unless the contributor has met the minimum years of work to qualify for a pension,
movement will imply a loss, since often the person can only take his/her contributions and
not the employer’s. There are other examples. Movement across countries, as in West
Africa, will imply loss of accrued benefits. Portability is also important in company
pension schemes. Movement from one pension to another will imply a loss of pension
benefits, when the employee can only take its contribution and not the employer’s. Lack of
pension mobility then becomes a mechanism to retain labor.
Regulation. There is very limited experience in pension regulation in Sub-Saharan Africa.
Public pension schemes are subject to the laws that created them. The Ministries of Labor
and Finance often exercise oversight. Private pension funds often fall under the jurisdiction
of insurance regulators. Pension specific regulation has recently been introduced in Kenya.
In French-speaking Africa, CIPRES plays the role of a regulator, but is still in a developing
stage.
19
V. The Path of Reform: Challenges and Options
The challenge in many African countries continues to be the building up of credible and
sustainable social security institutions, anchored on a clear concept of equity and supported
by rules of the game that assure adequate governance. Development of a broad approach to
social security that includes all persons both inside and outside the formal system, can only
be developed gradually and as a result of the efforts countries undertake to design and
implement new social protection schemes.
The initial focus will in most cases be on the reform of formal social security
arrangements, to an extent greater than is probably warranted. But, there is hardly any
choice given the current difficulties with formal social security systems. In doing so, it is
necessary to proceed gradually and by taking careful stock of the existing situations. Social
security reform is a difficult area of social policy, since the entitlements it creates are
difficult to reverse later on, and long-term effects are difficult to visualize without the
support of detailed technical analysis. Solutions that may appear attractive in the short-term
can end up having very negative long-term effects. Countries must avoid at all costs
strategies that can not be sustained over time.
Improving social protection for the informal and traditional societies is going to take time,
as it requires identifying mechanisms that are tested and feasible. This can only be done by
using the lessons that will be gathered from the multiplicity of efforts to improve social
protection coverage in the continent. Overtime, it is likely that the problems with the
elderly in the informal sector will increase. By then, hopefully the mechanisms will be in
place to allow societies to supply them with adequate protection.
The overriding motif of what follows is governance understood in a broad sense.
Welfare considerations: Equity
The objective of social security policies is to help individuals and families deal with the
uncertainties of economic life and correct myopic behavior. Equity considerations are at
the heart of social security policy. The poor are the most exposed to the uncertainties of
economic life and the least prepared to deal with them. The government has basically two
instruments to carry out social security policy. It can use the budget, which is the basic
element of solidarity in an economy. Taxes are collected to be spent according to a variety
of criteria that should include protection of the most vulnerable--children, mothers and the
elderly. Besides the budget, countries can set up mechanisms to provide protection for
limited groups. The state participates by creating an enabling environment and overseeing
or enforcing its implementation, without necessarily providing budgetary support. Classic
systems are Pensions, health, accident insurance, and family support.
20
The limited coverage of the formal social security systems in Africa raises serious equity
issues, in the sense that valuable resources and efforts may be targeted to a small and
privileged segment of the population. This is a very valid concern and certainly exclusive
emphasis on the formal system would be unwarranted at the present time. Unfortunately,
however, countries need to meet head-on the difficulties of the on-going social security
concerns and, in some cases, doing so requires substantial budgetary transfers to meet past
obligations—contributions that were not paid or resources taken that have not been
returned. Moreover, honoring entitlements in the current benefit schemes may require
additional budgetary transfers, if increases in contribution rates are not desirable or
feasible.
Towards the future, states will have to depart from previous practices that have used
arguments of equity and solidarity to the benefit of a few. This is very germane for
countries considering significant overhauls of their social security systems. The danger
now as in the past is to increase entitlements without regard for budgetary limitations or
concern for those excluded from the formal systems. For even though social security
arrangements appear as mechanisms of solidarity amongst clearly defined populations, the
fact is that often the state ends up guaranteeing the benefits promised. For instance, in the
case of compulsory defined benefits pension schemes the state, in many countries, has in
effect been liable for pension benefits when the funds have not been available to meet
them.
Governance
The foremost priority in the reform of formal social security systems in SS-Africa is to
improve governance and by doing so, build up their credibility. If governance issues are not
forcefully addressed, other actions to deal with the present problems will only have a shortterm and limited effect. For instance, contribution rate increments to eliminate deficits will
serve only as temporary palliatives and problems will resurface later on. Indeed, it is
advisable that governments first address governance issues before or as part of engaging in
social security reform.
Experience worldwide shows that social security systems (particularly the pension
components) have easily been captured by special interests that proceed to distort the
original intent of the institutions. These special interests include the government-- Ministry
of Finance and Labor or even higher offices--and the administrations of the social security
services. The end result has been high administrative costs, low returns to investments,
poor benefits and service for the beneficiaries. To this there are exemptions, as is the case
of Mauritius.
The institutional design should seek overall to protect the interests of the beneficiaries.
Since these interests are dispersed, it is necessary to set up the mechanisms to monitor
performance, enforce the rules of the game, and provide transparent information to the
beneficiaries. The arrangements so far in many countries have fallen far short of meeting
21
these criteria. Often yearly balances are not produced or mandatory audits are not
performed. Today, in many countries, it is difficult to know the value of the assets or the
outstanding obligations to beneficiaries. Clearly, the mechanisms to enforce the rules of the
game have not been effective. Governments lacked the incentive to pressure for
transparency, as they themselves were culprits in the mismanagement of these institutions.
Employer and employee representatives, most often appointed by government, are in a
minority position. The only option for beneficiaries has been to exit the system, if possible,
or simply take contributions as a tax and make alternate arrangements.
On-going social security reform activity all over the world, especially in the pension area,
is seeking to grapple with these issues. To do so, reforms have sought to radically overhaul
the governance structures. Key elements have been:








Redefinition of the role of the state, focusing priorities on the provision of adequate
social security frameworks and limiting direct management and financial exposure.
Unbundling the provision of social security services, to facilitate management, increase
transparency and facilitate clear assignment of responsibilities.
Redefinition of the role and composition of the managing boards providing
administrative and legal autonomy, defining clear responsibilities, and introducing
oversight and control mechanisms.
Making explicit any intra and inter generation transfers.
Introduction of competition into the management of social security reserves.
Providing beneficiaries with a greater menu of options, either by allowing them to
select the pension provider or by having various pillars to introduce diversification.
Introduction of regulatory frameworks to guarantee that resources are well managed,
that the state is kept at arms length, and that beneficiaries are well informed on funds
performance.
Taking account of the consequences of social security reform on other sectors, like
labor and financial markets.
The adequacy of these reforms can only be considered on a country by country basis.
However, in all there is an urgent need to improve governance.
Unbundling
A useful first step of where to begin the reform of the formal pension system is to take
stock of the different services provided by the various social security institutions and
evaluate the convenience to have the same institution provide them. In the simplest case,
that of a provident fund, the institution: (a) collects contributions, (b) maintains
contributors and the beneficiary’s records, (c) assesses the pension benefits and pays them,
and (d) manages the reserves. More complex social security organizations like those found
in French-speaking Africa, must additionally administer family benefits and work accident
insurance. All of these functions are often not undertaken with separate administration and
accounting. As has been shown, unintended cross-subsidies between activities (pensions,
family benefits, and work accidents) can emerge. The multiplicity of objectives and the
22
lack of clearly defined responsibilities among different activities make it very difficult to
manage these multi-purpose institutions.
To address these difficulties, the tendency has been towards unbundling the management of
the different services provided by social security institutions. To begin this can be done by
breaking up the provision of the different services into separate organizations or under an
umbrella organization. Some further unbundling may be necessary at the level of each
service. Countries like Cameroon and Côte d’Ivoire have been considering reforms along
these lines.
The size of the Formal Social Security Sector
As has been shown, the formal economic sectors are small in most Sub-Saharan African
economies. Social security contributions center on a limited number of incorporated
enterprises and the public sector. Over the long-term, countries should look for the social
security systems to expand at rates equal to or greater than economic growth. High and
sustained growth will come under the leadership of the private sector. A buoyant social
security sector will come about only if the economic agents have the incentives to
incorporate and work in the formal economy that provides continued employment and
salaries. This will not happen if the appropriate set of policies is not in place.
There is a long-term trade-off between the size of the formal social security system and its
coverage. Policies that seek extended and sizeable benefits for formal sector employees
will have the effect of reducing the contributory base. The reason is that higher
replacement rates, for instance, require larger contribution rates, that in turn have negative
consequences on the labor market. Participation in the formal system decreases. This is a
problem everywhere but more so in Sub-Saharan Africa where the supply of capital and
labor to the formal sectors is very elastic.13 Solutions can be tried to mitigate these effects.
For instance, they can increase investment in enforcement, but at some point the higher
administrative expenses can significantly reduce the resources available for benefits.14
Benefits can be tailored to induce people to remain in the system—minimum pensions and
family benefits are an example. But this itself is limited by the budget available to provide
these incentives.
13
Wage surcharges, either from the employer or the employee, to finance social security contributions have
an effect on the labor market leading to a reduction of wages or employment. Some labor groups often think
that increased benefits amount to a transfer from employers to employees and disregard the side effects. This
analysis may be relevant for a limited group of workers at a given point in time, but not for the aggregate
labor force in the long-term. Compulsory rules that cover all the labor force should take account of how
policies affect the marginal contributor. Special cases where employers and employees agree to additional
benefits, because of the specific industry characteristics, are best left to be arranged between the concerned
parties on a voluntary basis.
14
Experience from taxation shows tax rate increases have to be accompanied by increases in enforcement
expenditures, if government want revenues to increase proportionally. At some point compensating increases
in enforcement expenditure will not be enough.
23
These considerations are quite timely given that African countries face pressure to increase
social security contribution rates to close fiscal gaps or improve benefit coverage. There is
not a precise mathematical formula that can be used to calculate adequate contribution
levels. Experience shows that the level of the social security contributions to the
compulsory systems goes up with per capita income, partly because it is easier to collect
contributions. From a more substantive perspective, it must be noted that highly
competitive economies take care not to distort factor prices unduly. Mauritius, which is a
highly competitive economy, has contribution rates that on average are around 6 to 7
percent.
There are many ways in which a social security system can be adjusted to meet financial
crises without having to increase unduly contribution rates. Options include increasing the
retirement age, eliminating exemptions and broadening the contribution base, introducing
more stringent rules on early retirement, and streamlining non-pension benefits. Moreover,
greater administrative efficiency and improved returns on fund reserves have powerful
effects in the long-term.
Of course, total social security coverage is not determined exclusively by the compulsory
formal system. Complementary arrangements between employers and employees or by
employees themselves play an important role in developed and developing countries, and
have to be taken into consideration when taking stock of social security coverage.
Pensions
The three-pillar pension framework has become a standard reference that can serve as a
framework within which to analyze the options available to Sub-Saharan countries.
Options, however, are rarely independent of the existing conditions, because transition can
be costly and difficult.
The Three Pillar Framework
The first pillar of a pension system seeks to provide a minimum income to the elderly,
usually defined as those over 60 years of age. Countries often finance this pillar from the
general budget, but do not cover all of the elderly and use means testing to determine
eligibility. As mentioned above, Mauritius and to a lesser extent Gabon provide a universal
pension. For most Sub-Saharan countries, fiscal limitations and difficulties with means
testing prevent consideration of this option for a while. However, limited support can still
be given to the elderly in the context of anti-poverty programs. (See below.)
A limited version of the first pillar seeks redistribution among those contributing to the
formal pension system(s). Different degrees of redistribution are possible, including
providing uniform pension to the members. But, redistribution mechanisms have incentive
consequences whose effects have to be taken into account when considering the design of
the pension system. Certainly a minimum pension provides an incentive to those with low
24
incomes to remain in the system and contribute, if the minimum requirements for eligibility
are enforced, which is difficult in countries with poor record keeping. On the other hand
redistribution represents a tax for the high-income groups and, as all taxes, negatively
affects their participation, limiting the degree and amount of resources available for
redistribution. For this reason, countries often cap the contributions to this pillar. These
considerations limit the extent of the redistribution and the size of the first pillar.
In countries with very broad formal sector coverage the government can transfer resources
to help with the pension equalization. When the coverage of the formal pension fund is
small, however, financial support from the general budget to the funds would seem
unwarranted on equity grounds. As a general rule, then, a first pillar based on redistribution
would best be of limited size.
Countries with defined benefit pension systems have the basis in place for a first pillar and,
in fact, some of countries in the region already have redistributive elements in their pension
designs, including a minimum and a maximum pension. Note, however, that a first pillar of
the type described above is also possible within a defined contribution system. This is
obtained, for instance, by taxing participants above a certain income to provide transfers
for low-income members. Thus it is not necessary to have a defined benefit pension
arrangement provide for intra generation solidarity.
The second pillar is a defined contribution system operating as a compulsory or forced
savings mechanism of individual accounts. Beneficiaries receive annuities upon retirement.
On the surface there are similarities between defined contribution schemes and provident
funds, as these are also schemes of individual savings accounts. A major difference
between the two is the institutional design that supports the contributory systems as
currently implemented. This institutional design introduces rules or norms to prevent poor
pension fund management. Key elements are the creation of a regulatory body to oversee
pension funds and the introduction of competition for the management of the funds. Hence,
the poor performance of the provident funds is not a sign that defined contribution schemes
would not work in the African context. In fact they have performed well as voluntary
private arrangements in countries where public provident funds have experienced
difficulties, as has been the case in Kenya.
The third pillar covers voluntary private pension arrangements. As mentioned, voluntary
pension arrangements already thrive in African countries like Kenya, Mauritius,
Zimbabwe, and to a lesser extent in several other countries. A key factor that has facilitated
the emergence of private pension arrangements has been tax rules. Countries in the region
exempt from taxation contributions and interest returns and tax benefits. Even though this
form of taxation is formally neutral, it has been the subject of some controversy, as it may
end up implying a transfer for those taking advantage of the tax provisions who are likely
to be relatively well off. Tax issues aside, the important point to highlight is the ability of
the financial sector in these countries to organize and manage private savings accounts.
However, because private arrangements may not be as transparent, regulation is a necessary
complement.
25
Countries will do best to build on existing private pension systems rather than crowding
them out with the introduction of compulsory arrangements, either defined contributions or
defined benefits. It is advisable to take stock and account of private pension arrangements
when undertaking reform. Doing so will greatly help the development of the financial
markets.
While the three pillars provide a general framework that allows for a wide variety of
designs, much remains to be decided regarding the level of the contributions, the
distribution among pillars, the selection between defined benefit and defined contribution
approaches, governance, etc.
Defined benefit and Defined contribution. Given the controversy surrounding the relative
merits between defined benefit and defined contribution approaches, it is appropriate to
revisit the issues and try and dispel some misunderstandings.
One critical difference between the two approaches is as follows. In defined benefit
schemes, the fund guarantees a pension based on a set of rules that include the years of
contribution, the levels of contribution, and the reference salary for pension calculation. In
the defined contribution scheme the pension to be received by the beneficiary will depend
on the contributions, the returns, administration costs, and the costs of setting up the
annuities. It could be said that the defined benefit approach seeks to smooth out some of
the risks of the financial markets and of administrative mismanagement. The pension fund
takes these risks and eventually passes them to the government or to future generations.
Unfortunately, in many developing countries, defined benefit schemes failed to keep their
promises and have adjusted their balances by reducing benefits; failure to correct for
inflation is a typical mechanism. Thus defined benefit schemes have not been a guarantee
of more secure pensions.
Since effective pensions in the defined contribution approach can be risky as they depend
on the financial returns and costs of administration, its designers have sought to address
these potential difficulties through regulation. Some countries guarantee a minimum return
to investments, often requiring the fund manager to put up capital to cover low or negative
investment returns and by imposing strict rules on portfolio allocations. Limits can also be
set on administration costs. Lastly, the option for contributors to move among funds can
serve to improve management performance.
Another critical difference between the two systems is the structure of incentives. In the
defined benefit systems participants do not have incentives to improve management or
monitor performance if they perceive that their pension is guaranteed. The incentives for
doing so are with the government or with coming generations, since poor performance can
imply future budgetary transfers or higher contribution rates. But many times governments
do not take a long-term view, and future generations do participate in current policy
discussions.
26
With defined contribution systems, beneficiaries have a direct incentive to seek improved
management and will do so if the adequate oversight instruments are available. Also,
defined contribution systems have positive effects on savings and, in a growing economy
with high returns to investment, will need lower contribution rates to provide a given
replacement rate.
Differences between the two systems are not as sharp with regard to other issues. The idea
is that defined contribution scheme is fully funded; that is, its assets correspond to the
liabilities. But the defined benefit schemes can also be funded to different degrees. At one
extreme is a pure pay-as-you-go system that collects enough revenues to meet the
obligations and perhaps keep available some liquidity. In the long-term, this approach
requires increasing contribution rates, borrowing, receiving government transfers or a
combination of the above. This may be difficult to achieve and in Latin American
countries, for instance, the need to increase contributions to fund the formal pension
arrangements has been one of the reasons for the recent pension reform wave. This
illustrates how difficult it is to enforce inter-temporal contracts as future generations may
renege on initial agreements, once they see how funds have been performing.
At the other extreme is a highly funded scheme that seeks to keep assets equivalent to the
expected obligations to the beneficiaries. This requires periodic actuarial analysis to
determine needed adjustments to keep the fund balanced. This type of arrangement is
found in company pension funds all over the world. It is, however, difficult to manage and
implies additional risks for enterprises. Reportedly, this practice is being gradually
substituted by defined contribution schemes. As to public defined benefit schemes, while
they could be highly funded, the case is that at best in reality they are partially funded. One
reason is that when the schemes are introduced, pensions are paid to beneficiaries who
have not fully contributed. This generates a transfer across generations, which is not
necessarily a characteristic of defined benefit systems but that often accompanies them.
This transfer operates as a tax on younger generations and affects the level of benefits the
funds can provide.
Transition issues. In moving from one pension design to another, there are a variety of
transition issues, which themselves impact the availability of feasible solutions. It seems
opportune to consider some of these transition issues at this time, as countries in the region
are likely to face them at some point or another.
The type of transition that has been studied the most is that from defined benefit to defined
contribution schemes. This has been typical of Latin American countries that have adopted
defined contribution systems. The key issue here is the financing of the debt implicit in the
defined benefit scheme. This debt corresponds to value of the acquired rights of those that
have already retired plus those that have contributed to the pension system, minus the
assets of the fund. As the defined benefit is phased out, pension contributions are no longer
available to pay for pension obligations, and instead go into the individual savings
accounts. There are several options to finance the implicit debt. Existing fund reserves, if
they exist, can be used. Some countries have used proceeds from privatization. More
27
generally however, these obligations have to be met with resources from the general budget
or through borrowing, thus being paid by either current or future generations. The
obligations, of course, need not be met outright and can be honored by issuing bonds to the
beneficiaries to be paid as they come due in the future. In countries with small formal
pension systems the above strategy will imply a transfer from the general budget to a small
group of individuals, a point to be considered carefully. Transition from defined benefit to
defined contribution schemes requires very prudent fiscal management and thus a
necessary step in before undertaking a reform of this type is to calculate the implicit debt of
the existing defined benefit systems to get an idea of the fiscal requirements. Countries in
fiscal difficulties may find it difficult to undertake reforms of this type.
Transition from provident funds to defined benefit systems has been motivated by the poor
performance of the former and the meager pensions or lump sum payments it provided to
beneficiaries. The move to defined benefit is attractive because it allows the government to
improve outlays without increasing contributions. If the contribution rate is high enough, it
will even be possible to increase the number of benefits. This “miracle” will be possible
because of the fund moves from a funded to an unfunded scheme. The long-term
consequences need not surface for a while. If administration is efficient and if the returns
to investments are competitive, the fund can be financially sustainable for a considerable
period of time. But eventually the fund will begin using its reserves, and at some point it
will have to increase contributions or curtail benefits.
A provident fund can easily move to a defined contribution system. Key issues here are the
introduction of annuities, some form of life insurance, and adequate governance structure.
This transition can come about gradually. A first step can be to open pension management
to some competition under a regulatory framework. This can be done, for instance, by
allowing large enterprises to set substitutive pension arrangements and later on allow new
pension providers to come in.
A more difficult problem is found when, within a defined benefit, countries are unable to
increase contribution rates without simultaneously raising replacement rates. As a result,
the room provided for by the rate increase is only temporary; further increases are looming
down the line. This situation is partially alleviated if the government steps in to pay the
obligations it owes to the funds, so that they become highly funded. But if the government
does so the condition is set to move to defined-contribution systems.
Improving management of fund reserves. We have advocated the need for pension funds to
be funded, even if they are benefit defined. The advantage of being fully funded lies in
reducing the fiscal risk and avoiding negative effects on savings. But as we have seen
already, the management of pension reserves has been highly problematic in the past, so it
is fair to ask what conditions will guarantee improved results this time around. This is a
very difficult question to answer satisfactorily.
A first step is to seek professional and specialized management of pension reserves. Some
countries seek to do this by setting special investment committees, usually under the
28
Ministry of Finance. A more aggressive move is to contract out management of pension
reserves, subject to a regulatory framework. This is roughly what defined contribution
arrangements do. Something similar could be done for the reserves of the defined benefit
arrangements.
Even if an appropriate governance framework is set up, the question of adequate
investment instruments remains. In the past, investment has not been highly profitable in
Africa. Financial products are very limited, even government paper. Direct lending or
investment in companies by the pension fund would require the internal development of
evaluating infrastructure, which amounts to converting pension funds in financial
intermediaries. This is a path full of difficulties.
No doubt, the limited investment opportunities have to be taken into account in the design
of the pension systems. One alternative is to invest part of the funds abroad. Some
countries allow this. But it is a politically difficult question, since policy makers associate
the availability of savings with domestic investment and development. Most countries in
Africa have weak and shallow financial sectors. This and credibility problems prevents
them from being a strong underpinning of privately managed pension system. On the other
hand, reserve funds in the hands of the government or the public pension institutions
weaken the financial sectors, as it subtracts valuable resources. If the environment for
private economic activity and the financial sector improves, it will be easier to find
investment outlets in the future. Since fund reserves will grow only gradually, it would
seem that the appropriate strategy is for the financial sector and pensions to develop in
parallel.
Pension reform and savings. There is a tight link between the design of the pension system
and the savings behavior of the population. Two observations are particularly relevant.
First, defined benefit systems that are scantly funded have negative consequences on
national savings. The reason is that the promise of a pension lowers the savings of the
beneficiaries. For this reason it is very important to have funded pension systems.15
Second, compulsory pensions that substitute for voluntary pension arrangements are likely
to have only limited net effects on savings. Thus, when introducing compulsory defined
contribution systems it is important to take into account the effect on private pension
schemes. The crowding out effect on savings will thwart financial development.
Administrative issues. Administrative reform is needed to improve the quality of the
services provided and to reduce costs. Improving quality will help rebuild the credibility of
the social security institutions. Reducing costs will help tremendously the finances of the
institutions over the long-term. Most countries need improvements in both areas.
Significant improvement most likely will not come about through traditional strategies that
have centered their efforts on the information management techniques, for instance. As it is
15
Some may argue that since the introduction of compulsory savings is partly to prevent myopic behavior,
then it can be safely assumed that people would not have saved in the absence of the pension scheme and
hence that there would not be a drop in income.
29
well known, effectiveness of new technologies will depend on the ability to streamline
processes and realign objectives and incentives within the institutions. This often requires
major reforms similar to those needed in tax administration.
Administrative reforms need to deal with the multiplicity of functions that social security
institutions undertake. Some of these areas are hardly related with each other. One of these
areas is the collection of contributions. Some institutions considered efficient by
international standards, like the social security administration in the US, focus on a limited
set of activities, mainly record keeping and providing services to beneficiaries. The Internal
Revenue Service collects social security contributions as part of the tax collection. Some
countries have recently separated out the collection of social security contributions and
assigned the task to a specialized agency.
There is a certain reticence in many countries, and not only in Africa, to trust tax
administrations with the collection of social security contributions. There are two main
reasons for this mistrust. The first is that social security contributions are likely to be a
marginal activity for tax agencies and thus they may not assign the sufficient resources to
enforcement and book keeping. Moreover, social security often requires keeping personal
accounts and tax agencies often do not keep individual records when taxes withheld by
employers are considered final. This is not suitable for pension schemes, like defined
contributions, that require personalized accounts. This may not even be suitable for defined
benefit systems, as accurate records of contribution are also needed. The second reason for
mistrust derives from the customary appropriation of pension reserves by ministries of
finance. The price for this mistrust is high. Social security institutions fail to take
advantage of the economies of scale and specialization provided by the tax agencies. Under
these circumstances, it is advisable for countries to consider assigning collection
responsibility to one specialized agency subject to a hard budget constraint. 16
Improving portability. Portability is increasingly becoming a problem in most countries
and has negative effects on labor mobility. The way pension systems are designed often
implies that people end-up losing benefits when they move from one pension system to
another. This issue is important within as well as among countries. Within countries, there
is the mobility between the public and private and pension systems. Some countries, like
Côte d’Ivoire, are taking measures to assure portability. The basic idea is to permit
contributors to sum up the number of years worked in each system in determining
eligibility for benefits. Since the two systems offer different benefits, final pensions are
paid in proportion to the years worked by each one of pension institutions. Pension
portability is also highly relevant in countries that have developed complex private pension
schemes. When moving from one employer to another, workers run the risk of losing
benefits. This mechanism can be used to block labor mobility and hoard labor. Mauritius
has introduced legislation mandating mobility in new pension arrangements. Portability
problems are also important between countries. This is particularly the case when there is
16
In the case of autonomous civil servants pension funds, a way to minimize costs is to use government
infrastructure for the payment of salaries and record keeping, rather than duplicating it.
30
considerable labor mobility among countries, like in French-speaking Africa. Here workers
can work a lifetime and not qualify for any pension benefits.
The relevance of pension regulation. It is difficult to overstate the importance of adequate
regulation in improving governance of social security arrangements, pensions in particular.
Regulation is relevant both for private as well as publicly mandated systems. In the case of
private arrangements (be it individual or enterprises), regulation is important to increase
transparency and protect beneficiaries. Private pension arrangements as they have emerged
in some countries often fail to provide accurate information regarding costs, returns and
balances, making it difficult for beneficiaries to compare among different providers.
Insurance companies as part of their life business often provide private pension
arrangements. Insurance regulation not only tends to be new but also does not have the
expertise to monitor private pension providers. Pension specific regulation can help.
Regulation is also important and relevant for the mandatory social security schemes.
Traditionally, the statutes that created them bind formal social security arrangements, and
oversight and control corresponds to the oversight Ministry, often Finance, Labor or Social
security. In some cases there is dual oversight. In Mauritius, for instance, the general
oversight is the responsibility of the Ministry of Social Security, but the investment
committee is under the Ministry of Finance. Board composition is often heavily laden in
favor of government representatives, with token representation from employers and
employees. Efforts to reform these arrangements are underway in several countries. Boards
have been given the authority to appoint management in Kenya. The participation of
employees and employers through representative organizations has been increased. Some
countries are thinking of handing management and responsibility to employees and
employers to manage these institutions within the framework of the law. These ideas
however will fall short in the absence of appropriate regulation.
Regulators can put a fence around these institutions and protect them from external or
internal perils. As already mentioned, beneficiary interests are highly dispersed. Employee
or employer representation is not enough, as the representatives have limited interests. The
regulator has to protect beneficiaries very much as capital market regulation seeks to
protect the rights of small stockholders.
The pension regulator must pay attention to all business aspects verifying implementation
of the regulations. Regulation can set bounds on administrative costs, set investment
guidelines, and require minimum financial returns. It can also set rules to increase
transparency requiring timely production of yearly balances and mandatory actuarial
reports. The regulator can also solve disputes that arise between parties in the sector. Aside
from enforcing regulation, the regulator can take a pro-active role in the development of
social security framework over time.
Kenya has recently introduced pension-specific regulation--the Retired Benefits Authority
(RBA)-- to oversee all pension arrangements, including NSSF and public service. The
31
results will provide a valuable input the development of other regulatory agencies in the
continent. The tasks faced by the new regulatory agency are considerable, and they have
chosen to implement legislation gradually. The Kenyan experience shows that there is
considerable overlapping between pension, insurance, capital markets, and banking
regulation. This points to the need to consider a broader regulatory agency covering all of
these areas, as has already happened in other countries. Indeed, Kenya is planning to
introduce a Financial Services Authority that would include all financial sector regulation.
Similar plans are underway in Mauritius. CIPRES, in the French-speaking Africa,
reportedly plays the role of regional regulator.
A Broad Social Security Net
A sizeable percentage of the children born today in Africa will spend their lives in the
traditional or informal sectors, with little hope they will be covered by formal social
security arrangements. Thus, the most pressing challenge in most African countries is the
development of a broad social security umbrella that covers a significant portion of the
population. Many isolated efforts are taking place. These include the reform of the formal
systems, as discussed above, and initiatives to develop forms of social security coverage in
the informal and traditional sectors. Communities, NGOs, governments, and international
donors have been involved in these initiatives. Comprehensive and feasible social security
strategies have yet to be developed.
Expansion of formal institutions to the rest of the population does not appear a feasible
strategy. The best that can be done in this regard is to try and cover all areas of formal
employment. But, even here the administrative costs of enforcing rules among very small
enterprises may outweigh the benefits. (Already some countries have introduced special
collection methods for small enterprises.) Expansion to the self-employed and the informal
sectors is definitely problematic and probably not advisable, especially when the credibility
of formal institutions is at the low end. But there are technical problems as well.
Traditional and informal sectors do not generate smooth income flows and thus individuals
can not commit to steady contributions. This creates difficulties for the publicly mandated
systems and for private arrangements as well. Pension/Saving plans where individuals
commit to regular contributions over a long period of time have fallen into difficulties
when economic activity slows down with heavy penalties for individuals and problems for
the financial intermediary.
The alternative is the development of different institutions, which build on a culture of
cooperation and existing community or extended family arrangements. The relevance of
social protection mechanisms in traditional societies has been recognized for a long time,
and research in this area has been increasing. These institutions could help solve problems
of credibility and enforcement. Unfortunately, most information on existing arrangements
is descriptive and thus it is difficult to ascertain their coverage and effectiveness. Still,
some broad observations can be made. Traditional or informal social security arrangements
generally focus on specific products rather than broad coverage schemes. For instance,
tontines (in West Africa) represent alternative saving mechanisms. Often the members of a
32
tontine make a cooperative arrangement to help procure medicaments or pay for basic
medical expenses. Community organizations may procure medical service packages for
their members for specific interventions—malaria, etc. Pooled resources are often used to
address critical bottlenecks such procuring ambulance services to guarantee reaching
hospitals in time.
All of these isolated packages point to the areas of importance to the communities, as well
as the ease to contract and enforce obligations. Income smoothing and health concerns are
definitely a priority. The parallel financial arrangements found in the informal sector result
from the lack of credibility in the formal institutions and the high transaction costs in using
them. That is, people perceive a high risk of losing their savings and an inability to provide
resources when in time of need. Thus, the development of credible and efficient financial
systems that takes into account the needs of the poor and those in the informal sector is a
necessity to help people smooth their income flows and have resources to deal with
uncertainty. This requires creating legal and institutional frameworks that allow the
informal institutions to operate without burdening them with excessive formal
requirements, and providing security for the participants. Community or group financing of
health services must be an integral part of country health strategies.
As opposed to income smoothing and health insurance mechanisms, the emergence of
pension arrangements in the informal and the traditional sectors is far more difficult.
Reportedly, traditional agricultural societies have mechanisms to provide for the elderly.
These mechanisms vary from place to place, but generally are tied to the ownership of land.
The elderly retain control of the land as a mechanism to guarantee care from their
children.17 These mechanisms not withstanding, anthropological studies show that
increasingly the elderly are becoming destitute in the countryside. In the informal sectors,
pension arrangements are difficult to agree to and enforce because they are by nature longterm. 18Aside from enforcement difficulties, populations with low life expectancy will be
less willing to undertake long-term agreements. Moreover problems like AIDS introduce
uncertainty into formal or informal insurance.
The challenge for social policy is how to introduce designs that improve on the voluntary
agreements that develop naturally. The danger is that policy intervention will worsen
outcomes. These developments can happen when public policy alters incentives in such a
way that they reduce the social protection efforts now being undertaken. For instance,
children may stop providing for their parents because of availability of public support. A
consensus seems to be emerging that the government must operate through the
development of regulatory frameworks that facilitate the operation of community
organizations that provide social protection. These organizations tend to have credibility
and capacity to enforce agreements at the local level. The question is how to aggregate
17
In some cases the youngest will have the responsibility of caring for the parents and as compensation
inherits the main house and adjacent land.
18
Even governments have failed to enforce pension contracts in the formal sectors.
33
these efforts in such a way that credibility and ability to enforce are maintained in the larger
organizations. The larger organizations will be able to benefit from economies of scale and
scope and be in a better position to work with formal sector organizations.
It is likely that problems with the elderly in the traditional and informal societies can not be
solved through voluntary agreements and that at some point, states will have to provide
some support through budgetary resources. Given the limited availability of budgetary
resources and the multiple claims on them, it is likely that only very selective interventions
are possible. These selective interventions can take place in the context of anti-poverty
programs, be they developed by the countries or linked to debt-reduction programs. These
interventions would have to be based on some form of means testing and carefully targeted
to avoid perverse incentives.
Clearly this is an area where there is ample scope for countries to learn from each other
experiences.
Social Security, Pensions and the Bank
The Bank is increasingly focusing attention on social security and protection in SubSaharan Africa. Two initiatives are particularly relevant. The first focuses on issues of
social protection in traditional and informal sectors. To this effect, the Bank has developed
a framework identifying the risk face by populations and the mechanisms available to
mitigate them. It has also issued guidelines for social protection work in the region. This
work is intended to identify the effectiveness of social protection institutions and existing
gaps. The challenge is for governments to build institutions that protect broad segments of
the population with the cooperation of civil society. An in-depth pilot study has been
initiated in Togo this year.
The second area of work is pensions. The Bank has already provided or is providing
support to several countries for the reform of their pension systems. The Bank intends to
deepen its involvement in Pension and Social Security Reform, as Sub-Saharan African
countries have begun to focus on the reform of their formal social security systems. To
begin, the Bank is taking stock of the pension and social security issues in Sub-Saharan
Africa. Some of the observations presented here are the result of this work. As the
diagnosis of these issue advances, the Bank will involve countries in the region in a dialog
to develop broad social protection strategies and improve governance of formal social
security institutions.
34
Conclusions
This paper has emphasized the urgency of improving governance of formal social security
institutions and doing so within the broad framework of a social protection strategy. A
broad social protection strategy will take time to develop, and in the meantime the priority
is with the formal arrangements. Improving the social security governance is truly a test of
a government's commitment to institutional reform. The main tasks involve increasing
transparency, curtailing opportunities for corruption, and most importantly protecting
beneficiary rights. Since governments and even social security administrations have
contributed to the mismanagement of social security institutions, an important component
of improving governance is then to create protective barriers that foster good governance
and penalize poor governance. The creation or strengthening of regulatory institutions is an
important step in this direction. Regulation is important whether management of these
institutions remains in public hands or is transferred to private hands. Within the context of
a strong regulatory framework, it will then be possible to grant social security institutions
administrative and legal autonomy within clearly defined objectives. Further unbundling
institutions according to the different services or activities they provide will help fine-tune
the relationship between objectives, responsibilities, and incentives and thus improve
governance.
Over the long term, formal social security institutions need increased membership to thrive.
This buoyancy will not be possible if an adequate set of incentives is not in place. In many
cases, rules today were developed in a context where government and its enterprises were
the main providers of formal employment. As a consequence, contributions are high and
benefits, at least as written, are generous. As the environment changes and the private
sector takes the leadership in economic development, economic agents become very
sensitive to the rules of the game. Social security schemes designed for the stronger
economic agents, who can contribute more, end up penalizing those at the margin--small
and medium economic concerns--leading to increased informality. It thus seems
appropriate that compulsory contributions go to finance minimum benefit standards and
that additional benefits are the result of voluntary agreements between the parts.
In pensions there are no boiler plate solutions. Much will depend on the initial conditions
(benefit defined, provident fund, the level of contributions, the stock of reserves etc), the
strength of the supporting institutions (finance), and the fiscal situation. This paper has
emphasized the need for pension systems to be fully funded because of reduced fiscal risk
and improved savings. But investing pension reserves is a difficult issue and there are no
easy solutions. Investing abroad, which probably would be the best financially for the
beneficiaries, is often politically unpalatable. Only countries with thriving economies and
strong financial sectors can provide profitable investment opportunities. When this is so,
pension fund reserves can profit from the opportunity. When financial sectors are weak,
concentrating fund reserves in public hands to protect them often leads pension institutions
to try and become financial intermediaries with dismal results, including the further
weakening of the financial institutions. This is an area where much work needs to be done.
35
Hopefully, as pension reserves, whether under public or private management, grow,
financial institutions will improve and the two can develop together. Already, as reported,
countries in the continent have managed to develop significant voluntary private pension
sectors.
The paper presented a brief review of the three-pillar framework and commented on each
pillar, taking into account the experience in African countries. A broad first pillar, financed
by the budget and based on means testing, would seem to be out of the reach of most
countries in the region. Moreover, some would argue that there are more important
priorities where such resources could be spent. A first pillar limited to those contributing to
the formal sector is possible within defined benefit or defined contribution schemes. The
size and convenience of such a scheme will depend on the need and possibilities for
redistribution. If the pillar is targeted only for redistribution, as suggested here, the pillar
will be small. The second and third pillars are highly related. Often purely voluntary
pension schemes do not provide extended coverage, and leave people out in lower ranks or
in small enterprises. Compulsory defined contribution schemes address this difficulty, but
place the resources in few hands. The solution in some countries has been to engage the
private sector in the management of the reserves. Management in a third pillar is more
dispersed and hence could lead to high administration fees. However, it provides muchneeded diversification and can help the development of the financial sector. This subject
has to be further researched by studying conditions in countries with extended voluntary
pension plans, like Kenya.
The transition to new designs has problems of its own and can affect the resulting
institutional arrangement. It is important to undertake rigorous technical work before
settling down on a design. It is easy to find solutions that are appealing in the short-term,
but that have detrimental long-term effects. The experience of some of the countries in the
region already illustrated this trap. Improving administrative performance is another
challenge that has been difficult to meet. Reducing costs, better service, and good record
keeping is at the core of providing better services and eliminating the opportunities for
corrupt behavior. But this is easier said than done. Worldwide experience shows that
efforts to improve information management to be effective have to be accompanied by
changes in the way institutions are organized. Thus, improving administrative performance
will have to be part and parcel of the efforts to improve governance. Institutions with fewer
and clearer objectives are in a better position to improve their performance and deliver
better services. Lastly, issues like pension portability will become more important as labor
mobility increases.
This paper has merely scratched the surface of social protection issues in Sub-Saharan
Africa. A broad agenda remains ahead. Work under way will examine in detail individual
country cases in an effort to develop the capacity to support countries in their reform
efforts.
36
Appendix Table 1. Demographic Indicators, Sub-Saharan Africa, 1997
GNP
Total
Growth
Infant Fertility
Life
Death Rate, HIV
Income Per Cap Populatio Rate 2/ Mortality Rate 3/ Expectancy
crude
AIDS
Class.
Atlas
(mills)
1997-2010
Rate
(thou.) at Birth
(per 1000) Rate 4/
n
(1000)
Angola
L
260
11.7
48.6
125
6.7
46.5
18.6
1.0
Benin
L
380
5.8
45.4
88
5.8
54.7
12.2
0.9
Botswana
UM
3,310
1.5
35.2
58
4.2
50.3
13.2 12.5
Burkina Faso
L
250
10.5
53.9
99
6.6
46.0
17.9
3.3
Burundi
L
140
6.4
41.4
119
6.3
47.1
16.6
4.1
Cameroon
L
620
13.9
44.5
52
5.4
56.5
11.2
2.3
Cape Verde
LM
1,090
0.4
38.8
56
3.6
66.5
6.9
Cen. Afr. Rep.
L
320
3.4
32.1
98
4.9
48.6
16.6
5.3
Chad
L
230
7.2
29.4
100
5.5
48.6
16.9
1.3
Comoros
L
400
0.5
93.2
65
4.6
59.8
9.1
Congo, D.
L
110
46.7
51.4
92
6.2
52.9
13.7
2.0
Congo, R.
L
670
2.7
46.9
90
5.9
50.9
14.9
3.6
Côte d'Ivoire
L
710
14.2
35.6
87
5.0
53.6
12.3
4.9
Djibouti
LM
1/ 781
0.6
106
5.4
50.3
15.0
5.2
Eq. Guinea
LM
1,060
0.4
43.5
108
5.5
50.0
16.4
0.6
Eritrea
L
230
3.8
28.4
62
5.8
55.0
11.8
Ethiopia
L
110
59.8
51.6
107
7.0
50.0
16.2
4.3
Gabon
UM
4,120
1.2
31.8
87
5.0
55.1
14.2
2.0
Gambia
L
340
1.2
28.6
78
5.2
53.2
13.0
1.1
Ghana
L
390
18.0
46.4
66
4.9
59.1
9.7
1.2
Guinea
L
550
6.9
53.1
120
5.7
46.5
17.3
1.0
Guinea Biss.
L
230
1.1
32.6
130
6.0
43.8
21.2
1.1
Kenya
L
340
28.6
38.2
74
4.4
58.1
9.3
5.6
Lesotho
L
680
2.0
48.4
93
4.5
58.6
10.4
4.0
Liberia
L
..
2.9
55.5
116
6.3
51.5
15.4
1.8
Madagascar
L
250
14.1
68.7
94
5.7
58.5
10.5
0.1
Malawi
L
210
10.3
39.5
133
6.4
42.8
20.5
7.0
Mali
L
260
10.3
64.8
118
6.6
50.4
15.9
0.8
Mauritania
L
440
2.5
33.3
92
5.0
53.5
13.5
0.3
Mauritius
UM
3,870
1.1
19.9
20
2.1
71.6
6.3
Mozambique
L
140
16.6
53.1
135
6.1
45.5
18.2
6.6
Namibia
LM
2,110
1.6
38.9
65
4.8
55.6
11.7
9.3
Niger
L
200
9.8
52.4
118
7.4
46.9
18.0
0.7
Nigeria
L
280
117.9
44.4
77
5.3
53.5
12.3
1.9
Rwanda
L
210
7.9
25.1
124
6.0
42.1
19.2
6.3
Sao Tome
L
290
0.1
50
4.7
64.0
9.5
Senegal
L
540
8.8
41.1
70
5.6
50.7
13.8
0.9
Seychelles
UM
6,910
0.1
15
2.3
71.4
6.5
Sierra Leone
L
160
4.7
30.7
170
6.5
37.5
25.7
1.5
Somalia
L
* 120
8.8
81.0
122
7.0
49.0
17.6
South Africa
UM
3,210
40.6
41.1
48
2.8
65.2
7.4
6.7
Sudan
L
290
27.7
35.1
71
4.6
55.0
11.6
Swaziland
LM
1,520
1.0
28.9
65
4.5
57.4
10.3
9.3
Tanzania
L
210
31.3
42.9
85
5.5
50.1
14.3
4.4
Togo
L
340
4.3
43.3
86
6.1
50.1
15.0
3.9
Uganda
L
330
20.3
50.6
99
6.6
42.5
19.7
4.5
Zambia
L
370
9.4
26.8
113
5.6
43.4
18.9
9.1
Zimbabwe
L
720
11.5
35.4
69
3.8
55.4
11.0 12.8
Source: World Development Indicators Central, except where indicated. 1. RDB (Total GNP per capita divided by population).
2/ 2010 figures from ILO. 3/ LDB. For 1996. 4/ UNAIDS. * For 1990
37
Appendix Table 2. Projected Dependency Ratios, Sub-Saharan Africa.
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Cen Afr Rep.
Chad
Comoros
Congo, D.
Congo, R.
Côte d'Ivoire
Djibouti
Eq. Guinea
Eritrea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Guinea Biss.
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mali
Mauritania
Mauritius
Mozambique
Namibia
Niger
Nigeria
Rwanda
Sao Tome
Senegal
Seychelles
Sierra Leone
Somalia
South Africa
Sudan
Swaziland
Tanzania
Togo
Uganda
Zambia
Zimbabwe
1995
2015
60+ /
60+ /
60+ / 60+ /
total
15-59 Total 15-59
4.6
9.7
4.2
8.1
4.5
9.5
4.3
7.9
3.9
7.5
3.6
5.8
4.8
9.8
3.5
6.5
4.3
8.7
3.6
6.6
5.6
11.1
4.9
8.9
6.3
12.1
4.3
6.7
6.0
11.9
4.5
7.9
5.2
12.1
3.5
6.7
4.5
9.2
5.4
9.1
4.5
9.2
4.1
7.9
5.1
10.4
4.0
7.5
4.5
8.9
4.0
7.0
5.1
9.6
5.7 10.1
4.5
8.9
4.4
7.9
4.6
9.3
3.5
6.6
6.5
12.7
6.0 10.8
8.8
16.8
7.5 13.5
4.9
9.0
5.9 10.5
4.7
9.4
5.5
9.5
4.2
8.6
4.6
8.1
6.5
12.9
5.6 10.2
4.5
9.2
3.8
6.5
6.3
11.9
6.4 10.8
4.4
8.7
4.5
8.4
4.7
9.5
5.0
9.0
4.2
8.5
4.0
7.4
5.2
11.0
3.8
7.3
5.0
9.8
5.3
9.4
8.5
13.2
13.7 21.1
6.2
13.3
5.1
8.8
5.8
11.2
5.6
9.7
4.0
8.4
3.6
7.2
4.0
8.0
4.5
8.2
3.8
7.7
2.9
5.3
9.1
17.1
8.5 14.9
4.3
8.5
4.4
8.0
9.2
15.6
10.5 16.4
4.4
9.0
4.4
7.9
4.0
8.3
3.9
7.8
7.1
12.2
7.7 11.8
4.9
9.0
6.1 10.6
4.1
7.8
4.7
7.9
4.1
8.2
3.6
6.4
4.9
10.0
4.2
7.7
3.8
8.0
2.6
4.9
3.8
7.7
3.5
6.2
4.4
8.4
4.5
7.1
2040
2060
2080
2100
60+ /
60+ / 60+ / 60+ / 60+ / 60+ / 60+ / 60+ /
total
15-59 total 15-59 total 15-59 total 15-59
5.9
9.5
11.3
17.6
19.3
32.1
24.7
44.1
7.0
10.9
12.6
19.8
19.2
32.0
22.7
39.6
7.4
11.4
13.7
21.8
18.4
30.5
21.6
37.2
5.1
8.0
9.9
15.3
16.7
27.1
20.7
35.3
6.0
9.4
10.5
16.3
16.7
27.2
20.3
34.6
7.8
12.1
14.0
22.2
21.5
36.8
24.4
43.2
15.2
24.5
22.8
39.5
27.0
49.7
28.1
52.6
7.1
10.9
12.6
19.8
18.3
30.5
20.9
35.8
5.0
7.8
11.1
17.3
18.7
31.0
22.8
39.6
10.6
16.2
18.9
31.3
24.2
43.0
25.7
46.4
5.9
9.6
10.8
16.7
17.8
29.1
23.0
40.3
6.4
10.1
11.7
18.3
19.0
31.7
23.1
40.3
7.3
11.2
13.3
21.0
18.8
31.5
21.4
36.8
9.2
14.5
13.7
21.7
19.8
33.4
22.5
39.0
6.8
10.5
10.1
15.6
16.6
22.7
39.5
5.1
8.1
12.7
19.8
19.6 27.0
32.9
20.6
35.0
8.3
13.1
10.1
15.6
16.6
27.0
23.2
40.5
9.2
14.1
14.7
23.4
21.1
36.0
23.2
40.6
8.0
12.4
13.6
21.5
20.0
33.7
23.1
40.2
10.2
15.7
17.1
27.9
23.2
40.7
25.0
44.7
7.4
11.4
12.6
19.9
18.1
30.0
20.7
35.3
6.8
10.6
11.7
18.3
17.1
28.2
19.9
33.8
8.8
13.5
15.4
24.7
20.7
35.4
23.0
40.2
10.7
16.5
17.5
28.6
22.6
39.4
24.4
43.2
6.6
10.4
11.1
17.2
17.8
29.3
21.6
37.1
8.4
12.9
14.9
23.8
21.7
37.2
24.1
42.6
6.2
9.8
10.9
16.9
16.8
27.4
20.3
34.4
5.7
9.1
8.9
13.6
17.3
28.2
22.4
38.9
8.6
13.3
14.3
22.7
20.4
34.6
23.1
40.3
24.9
44.2
27.5
50.9
28.0
52.2
28.5
53.4
8.1
12.5
5.5
10.6
18.9
31.6
21.3
36.5
9.1
14.0
15.6
25.0
21.8
37.5
24.0
42.4
5.0
8.3
9.6
14.7
17.5
28.6
24.4
43.3
8.1
12.5
13.8
21.7
20.8
35.3
23.6
41.4
6.0
9.3
9.7
14.9
16.4
26.8
19.7
33.3
11.0
17.0
19.4
32.5
25.4
45.8
26.8
49.0
7.1
10.9
12.6
19.7
19.6
32.9
22.6
39.3
21.4
36.8
25.8
47.1
29.1
56.1
28.7
54.4
6.6
10.4
11.0
17.3
15.7
25.6
18.6
31.2
5.9
9.9
11.0
17.0
20.0
33.4
27.0
49.7
15.2
24.5
21.4
36.9
25.0
44.7
27.0
49.4
10.6
16.6
16.1
25.9
22.4
38.9
24.3
43.2
10.6
16.6
17.8
29.3
23.4
41.0
25.6
46.2
6.5
9.9
12.1
18.9
18.5
30.7
21.7
37.3
6.3
9.9
11.5
17.9
18.3
30.2
22.2
38.3
4.8
7.4
10.0
15.5
16.6
27.2
20.1
34.1
6.8
10.5
12.3
19.4
17.7
29.3
20.3
34.4
10.3
15.9
17.0
28.0
20.4
34.6
23.2
40.5
Source: World Development Indicators Central, except where indicated. 1. RDB (Total GNP per capita divided by population).
2/ 2010 figures from ILO. 3/ LDB. 4/ UNAIDS. * For 1990
38
Appendix Table 3. Aging in Sub-Saharan Africa.
Angola
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Cen Afr. Rep.
Chad
Comoros
Congo, D.
Congo, R
Côte d'Ivoire
Eq. Guinea
Eritrea
Ethiopia
Gabon
Gambia, The
Ghana
Guinea
Guinea-Biss.
Kenya
Lesotho
Liberia
Madagascar
Malawi
Mali
Mauritania
Mauritius
Mozambique
Namibia
Niger
Nigeria
Rwanda
Sao Tome
Senegal
Sierra Leone
Somalia
South Africa
Sudan
Swaziland
Tanzania
Togo
Uganda
Zambia
Zimbabwe
Population 60+
(thous.) Growth rate
1995
1995-2010
501
51.7
240
47.1
55
52.7
454
41.9
268
33.2
737
45.9
25
202
(4.0) 27.7
364
35.2
24
66.7
2,034
52.3
134
35.1
627
51.4
25
28.0
152
70.4
2,556
58.0
96
34.4
54
68.5
807
68.3
309
39.8
71
26.8
1,210
31.3
123
54.5
117
105.1
620
57.6
414
41.5
445
51.9
118
45.8
94
45.7
888
40.5
89
46.1
364
58.5
5,014
66.0
196
94.4
1/ 7,822
391
53.5
205
41.5
405
56.0
2,754
54.0
1,304
65.4
36
77.8
1,233
59.2
203
40.4
749
22.6
302
21.9
477
24.9
Source: ILO, except where indicated. 1. United Nations.
2. Palacios, 1996 (Data for 1990, not 1995).
39
% of 60+ that are
Economically Active
1995
2010
61.1
58.8
58.8
55.5
47.3
44.0
63.9
60.1
57.8
58.5
53.9
51.4
36.0
29.2
76.2
72.9
50.8
45.3
62.5
62.5
54.6
53.0
65.7
61.9
55.0
53.2
44.0
43.8
63.8
62.2
59.2
58.2
53.1
50.4
68.5
64.8
77.6
76.3
59.2
56.9
57.7
55.6
64.6
61.2
50.4
47.4
53.0
50.4
67.1
65.0
80.9
76.6
57.8
55.6
52.5
48.8
11.7
9.5
82.1
77.6
34.8
32.3
62.4
60.3
55.0
52.4
58.7
58.3
50.1
43.4
58.3
24.4
52.5
30.6
77.5
56.2
69.6
49.3
65.6
47.5
40.7
56.2
20.9
50.6
25.0
74.1
54.4
67.5
43.8
60.9
Appendix Table 4. Pension Structure, Sub-Saharan Africa.
Benin
Burkina Faso
Burundi
Cameroon
Cape Verde
Cen Af Rep.
Chad
Congo, D.
Congo, R
Côte d'Ivoire
Eq Guinea
Ethiopia
Gabon
Ghana
Guinea
Kenya
Liberia
Madagascar
Malawi
Mali
Mauritania
Mauritius
Mozambique
Niger
Nigeria
Rwanda
Sao Tome
Senegal
Seychelles
Sudan
Swaziland
Tanzania
Togo
Uganda
Zambia
Year
1986
1986
1985
1986
1986
Pension Pension
Spending Spending/
LCU,
GDP *** Year
mill.
7,040
0.40
4,800
0.30 1981
396
0.20 1981
17892
0.30
874
0.26
0.00
0.90
0.80
1986
1986
114
-
1986
1989
58
824
1987
1986
1986
1990
1986
1986
4021
615
1,043
73
1649
1989
496
0.90
0.70
0.10 1986
0.00
0.50 1989
0.42
0.40
0.20
2.80
0.04
0.10 1980
0.10 1988
0.26 1979
1989
1981
1982
1986
1990
1986
1989
4
1,263
-
Reserves
Payroll Tax % of recent avg.
LCU
Reserves/ for Pensions earnings paid as
thou.
GDP (%)
(%)
a pension*, 1991
9.0
60
3.6
9.0
40
1.3
8.5
50
11,814
7.0
45
1,190
7.0
5.0
45
6.0
48
6.0
6.5
50
4.0
26.0
10.0
45
0.6
4.0
3,182
11.5
6.0
51
19,764
4.5
0.43
0.21 1979
0.50 1980
0.80
0.10 1987
7.0
3.0
7,653
976
2,879
23,270
101
134
1,413
13,754
-
1.4
0.7
3.0
40
40
45
1.6
10.4
2.0
6.0
10.0
8.8
15.0
14.0
4.3
5.8
6.0
40
84-112.4**
50
5.8
Source: Palacios, 1996 and Chand et al, 1998
* After thirty years of covered employment.
** This is the replacement rate without adjustment for the commuted pensions gratuity (CPG).
*** Source: "International Patterns of Pension Provision" Placios/Pallares 1998, ILO, EPF, Staff estimates, and CIV.
40
Appendix Table 5 Summary of Old-Age Pension Programs
Special
Main
No. System for
Program
of
Public
Type
Types Employees
Benin
Soc. Insurance
3
Yes
Botswana
Pub. Employees
1
Only
Burkina Faso Soc. Insurance
1
Yes
Burundi
Soc. Insurance
2
Yes
Cameroon
Soc. Insurance
3
Yes
Cape Verde Soc. Insurance
2
yes
Cent. Af.Rep. Soc. Insurance
1
no
Chad
Soc. Insurance
Congo, D.
Soc. Insurance
3
yes
Congo, R.
Soc. Insurance
2
yes
Côte d'Ivoire Soc. Insurance
2
yes
Eq. Guinea Soc. Insurance
1
no
Ethiopia
Soc. Insurance
2
yes
Gabon
Soc. Insurance
3
yes
Gambia
Provident
2
yes
Gambia
Pension Scheme
1
Ghana
Soc. Insurance
1
Army
Guinea
Soc. Insurance
1
No
Kenya
Provident
2
Yes
Liberia
Soc. Insurance
1
No
Madagascar Soc. Insurance
2
Yes
Malawi
1
Only
Mali 2/
Soc. Insurance
2
Yes
Mauritania
Soc. Insurance
2
Yes
Mauritius
Soc. Insurance
2
Yes
Mauritius
Universal
1
Niger
Soc. Insurance
2
Yes
Nigeria
Soc. Insurance
2
Yes
Rwanda
Soc. Insurance
1
No
Sao Tome
Soc. Insurance
1
No
Senegal 2/ Soc. Insurance
1
Yes
Senegal 2/ Soc. Insurance
1
Seychelles
Soc. Sec. Fund
1
No
Seychelles
Pension Scheme
1
No
South Africa Soc. Assistance
2
Yes
Sudan
Soc. Insurance
2
Yes
Swaziland
Provident
2
Yes
Tanzania
Provident *
1
No
Togo
Soc. Insurance
2
Yes
Uganda
Provident
2
Yes
Zambia
Provident
2
Yes
Zimbabwe
Soc. Insurance
1
No
Source of Funds
Insured Employer
(% of
(% of
Payroll)
Payroll)
Total Gov't.
3.6
6.4
10.0
0
4.5
3.0
2.8
3.0
2.0
2.0
3.5
2.4
1.6
4.5
4.0
2.5
0.0
5.0
5.0
2.5
5.0
3.0
1.0
4.5
5.5
4.2
7.0
3.0
4.0
3.5
3.6
2.4
21.5
6.0
5.0
19.0
10.0
12.5
4.0
5.0
3.0
3.5
2.0
7.0
1.0
2.0
3.0
6.0
0.0
0.0
1.6
2.4
2.5
5.0
3.0
3.0
4.0
6.0
5.6
8.4
2.4
3.6
5.0
1/
Volunt. Rs50/mo.
0.0
0.0
8.0
17.0
5.0
5.0
10.0
10.0
2.4
3.6
5.0
10.0
5.0
5.0
3.0
3.0
Max Earnings
For Contrib.
& Benefit
Purposes
9.0
0 200,000 francs
8.5
0 80,000 francs
7.0
0
300,000 francs
10.0
0
5.0
0
6.0
0
7.0 Subsidy
6.0
0
(23,500 francs)
4.0
0 1,647,315 francs
26.0 25% SS
10.0
0
7.5
0 1,500,000 francs
19.0
0
15.0
0
17.5
0
6.5
0 400,000 francs
10.0
0 1,600 shillings
6.0
0
4.5
0 100,000 francs
9.0
3.0
9.0
0.0
4.0
7.5
6.0
10.0
14.0
6.0
25.0
10.0
20.0
6.0
15.0
10.0
6.0
0
0 35,000 ougiyas
0
Rs55,500
All
Rs55,500
0 250,000 francs
0
48,000 naira
0
0
0
600,000 CFA
0
600,000 CFA
0
0
All
0
0 400 emalangeni
0
0
0
0
K15,000
0
Z$4,000
Source: U.S. Social Security Administration, 1997
* Moving towards social insurance.
1/ 10% on first Rs1,000 of monthly wages, 20% on second Rs1,000, 35% on next Rs8,000, and 40% on wages in excess of Rs10,000
2/ Source: CIPRES 1999
3/ S is self employed, T is temporary workers, A is agricultural workers, and D is domestic workers.
4/ Parenthesis indicates a minimum instead of a maximum.
41
Appendix Table 6
--------- Qualifying Conditions --------Min. Length of Contribution
RetireYrs. Of Mos. of Over How Ment
Age
Insurance Contrib. Many yrs? Necess.?
55
20
60
10
yes
Benin
Botswana
Burkina Faso
Burundi
Cameroon
Cape Verde
Cent. Af. Rep.
Chad
Congo, D.
Congo, R.
Côte d'Ivoire
Eq. Guinea
Ethiopia
Gabon
Gambia
Ghana
Guinea
Kenya
Liberia
Madagascar
55
55
60
65(60)
55 (50)
55
63 (60)
55
55
60
55
55
55
60
55
55
60
60 (55)
15
15
15
3
20
15
5
20
10
10
10
20
5
20
15
180
8.3
15
Malawi
Mali
Mauritania
55
60 (55)
10
20
yes
no
yes
36
60
60
60
60
10
10
10
5
yes
yes
yes
yes
yes
60
10
yes
100
28
quarters
10
Yes
yes
yes
yes
60
10
yes
yes
240
Summary of Old-Age Pension Programs
---------------------- Benefits -------------------Old-age grant for
% increm. Minimu Maximum
Non-qualif. Contrib.
m
% of Avg. Base For every Pension
Pension
Benefit:
Min.
Monthly Period 12 mos. Of (% of (% of avg. Automatic Mos. wages
Mos. of
Earnings (yrs) Insurance
min Earnings) Adjustment
per year
Contrib.
30
3-5
2 wage)
60
80 Cost of liv.
1
12
*
20
3-5
1.33
60
80 Cost of liv.
2
30
3-5
2
60
80
1
30
3-5
1
50
80
1
20
5
1.50 4200 esc.
30
3-5
2/
1
60
80
1
12
30
3-5
1.2
60
80
1
1.67
**
50
Wage index 10 x annual pension
40
3-5
2
60
80 Cost of liv.
1
1.33
**
Yes
40
2
4/ 2
80
30
3
4/ 1
60
Yes
40
3-5
2/
1
1
Yes
50
3
2/ 1.5
80
contribs. @ T-rate interest
2
**
Yes
***
Yes
25
3/ 1
Yes
12
**** 30
min
1
60
40 Cost of
Proportion. 100 quarters
wage
living
Reduced
*
1.67
5
60
cost of liv.
20
3-5
1.33
60
80 cost of liv.
1
43
Appendix Table 6 Cont. Summary of Old-Age Pension Programs
--------- Qualifying Conditions ---------
Mauritius
Mauritius
Niger
Nigeria
Rwanda
---------------------- Benefits -------------------Old-age grant for
% increm. Minimum Maximu
Non-qualif. Contrib.
m
Min. Length of Contribution Retire- % of Avg.
Base
for every
Pension Pension
Benefit:
Min.
Yrs. Of Mos. of Over how Ment
Monthly
Period 12 mos. of
(% of
(% of Automatic Mos. wages
Mos. of
avg. Adjustment per year
Age Insurance Contrib. Many yrs? Necess Earnings
(yrs)
Insurance Min wage) Earning
Contrib.
s.?
s)33.3 min decree
60 12 yrs of residence after age
0.83 Contrib. Gov. adjust. Rs177/
18.
60
0
yes Rs1,055/mo
60
20
60
10
yes
20
3-5
1.3
60
80
1
60
10
120
yes
30
final
1.5
80
65
12
55
20
60
10
yes
30
3-5
1
50
Cost of liv. 50% of avg. monthly earnings
during the last 3-5 yrs of contrib.
Sao Tome
Senegal
Seychelles
Seychelles
South Africa
Sudan
Swaziland
Tanzania
Togo
Uganda
Zambia
Zimbabwe
62 (57)
10
120
no
35
5
1
30
Wage index
55
1
12
yes
1.33
**
63 5 yrs. residence preceding retirement.
Rs1,100
cost of liv. Rs1,100/mo
63 5 yrs. residence preceding retirement.
Based on worker’s voluntary contribs. to Pension Scheme.
65(60) Must be citizens
R470
60 (55)
12
50
5,250 pnds
75
yes (see sheets)
50
Yes
***
55
5/ 15
Yes
***
55
20
60
10
Yes
20
3-5
1.33
60
80 cost of liv.
1
55
***
50
***
1/12 of annual insurable earnings
60
10
1-1/3%
**
X no. yrs. of contrib. Up to 10 yrs.
Source: U.S. Social Security Administration, 1997.
Retirement ages in parentheses are for Women.
* Special system for public employees only.
** Multiplied by the number of years of insurance coverage.
*** Total employer and employee contributions, plus interest.
**** Plus 20% of average earnings during last 10 years.
2/ For every 12 monthly contributions in excess of 240.
3/ For every 10 monthly contributions in excess of 100.
4/ For every year of contribution over 10 years.
5/ Source: Ejuba, 1999
43