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Pensions, power & development performance

Elias Masilela's picture
Woman who works in the daycare kitchen of a local farm in Milnerton, South Africa

The investment of pension fund assets has moved from an obscure topic for actuaries, to an issue which raises political attention at the highest level.

This is for the simple reason that it directly touches the social and economic livelihoods of people.

Since the 2008 global financial crisis, developed economies have been looking for additional sources of long-term capital to fill the gaps which bank and government balance sheets can’t fill. This is a search that has engulfed the developing world for much longer if not for as long as they exist. Younger developing economies are starting to see their pension funds grow, side by side with an increasing awareness of the impact which productively invested assets can have on economic growth both today and tomorrow. If invested for the aligned intensions of social impact and financial return, pension funds can improve people’s lives today and secure their income in future. However, this isn’t a general phenomenon – applying only to larger funds which have invested in the intellectual capacity of their Trustees, and in countries which have understood and embraced the strong relationship between the macroeconomic performance and asset performance.

Redirecting pension investments from short-term assets (government paper, bank deposits) to investments with a long-term impact is key to delivering, not only improved, but sustained returns. Private equity (PE) - equity capital not quoted on a public exchange – is one such asset class. PE investment is increasingly in vogue as such capital is the foundation of all economies, and indeed leads to the development of robust stock markets. If structured with pension investors’ risk-return consideration in mind, it can deliver the diversification benefits which these investors need.  If properly targeted, such investments will be vital in meeting the Sustainable Development Goals, considering that 15 of the 17 SDGs have a focus on growth, development and sustainability (the last two being on implementation and capital resource origination). Active participation in investee companies by shareholders such as pension funds will be vital for ensuring a future sustainable and shared economy. In turn, for this to work optimally, requires conscientious and capable Trustees.

3 hindrances to expanding pensions in Kenya

Rose Kwena's picture

Did you know that in Kenya less than 15% of the population is covered with old age security? This means that many Kenyans are facing a vulnerability of retiring into poverty. But this is not accidental since established factors identified in studies commissioned by Retirement Benefits Authority (RBA) necessitate this situation.  

However, Kenya is starting to tackle some of these factors and to help increase pensions coverage to reach more Kenyans to help reverse the state of affairs.

1. A chief factor limiting pension growth is that the formal sector is creating fewer jobs. Despite the positive economic growth registered in the country, employment growth in the formal sector is slow. For example, only 128,000 out of the 841,600 new jobs created in 2015 were formal. This has a direct effect on the pension services since the structure of the industry is still highly biased towards the formal employment model.
Transactions that facilitate employers and employees to contribute are generally conducted from the pay slip, and formal employers adhere more to the regulations and legislation on the issue compared to those who operate informally. As a result, millions of citizens have been cut off from the pension system.   

Luckily, this gap is slowly being narrowed by Individual Pension schemes that are specifically targeting the informal sector workers. An example of this is the Mbao pension scheme. The Plan is an inventive idea that adapts a savings product to marginal population groups and contributes to their improved social and economic security.

Can developing countries increase pension coverage to prepare for old age?

Gloria M. Grandolini's picture

While many of us work hard to postpone growing old, ageing populations as a whole are inevitable, predictable and something countries can prepare for.

As developing countries prosper, their citizens will live longer and, hopefully, healthier lives. By 2050, the number of people in the world 65 and older will have doubled from 10% to 20%. By then 80% of the world’s elderly –nearly 1.3 billion people - will live in low-income countries.
Are these countries set up to care for these forthcoming senior citizens and ensure they have the resources to live in dignity in old age? Will countries be able to ensure fairness between the generations and resources?
Current pensions systems leave many pockets of society uncovered:
  • As countries become more urbanized and families have fewer children, traditional family-based care for the elderly is breaking down, without adequate formal mechanisms to replace it.   
  • Traditional employment-based pensions systems don’t cover most informal sector workers in developing economies. In some regions, these workers account for two-thirds or more of the working age population. Even for those with formal sector jobs, pension coverage has been declining for people who’ve entered the workforce since 1990 in terms of years contributed over lifetime, according to World Bank Pensions Database. This has a major impact on the amount of retirement income they will eligible to receive.

We’re Getting Old: Let’s Celebrate with a Paradigm Change!

Margaret Arnold's picture

Happy International Day of Older Persons! The United Nations established this day of observance in 1990 as a way to raise awareness about issues affecting the elderly and to appreciate the contributions that older people make to society. If we are not there already, we will all eventually be joining the growing global population of elders.  According to the World Health Organization, the proportion of the global population aged 60 and up will double from 11 percent in 2006 to 22 percent by 2050. 

The World Bank Social Develpment department’s upcoming report. Inclusion Matters: The Foundation for Shared Prosperity, details the impacts of social exclusion on people’s well-being and on society overall. Unfortunately, aging is typically viewed as decline, and our elders are often marginalized both socially and physically (in nursing homes or other institutions). 

My own eyes were opened to this about a year ago, when I met Emi Kiyota, founder and president of Ibasho, an NGO that develops simple and low-cost solutions to integrate elders into their communities. Having worked on disasters and resilience for some time, I have always advocated for empowering women and marginalized groups to drive their recovery process. But I had to admit that I still listed older people as a “vulnerable group” to be cared for. After learning about Ibasho’s work, I invited Emi to share her experience with World Bank staff. She provided a beautiful example of the benefits of providing opportunities for older people to actively take part in disaster recovery and community development.

Growing Older, Working Longer

Tehani Ariyaratne's picture

Courtesy Centre for Poverty AnalysisOn Jan. 7 from 2-4 p.m., there will be a live chat on Sri Lanka's aging population at Tehani Ariyaratne, from the Centre for Poverty Analysis, will be joining the chat. Here, she discusses her recent work on the subject.

The Centre for Poverty Analysis recently put the finishing touches on a photo documentary portraying an oft-forgotten side in the discussion on demographic transitions and the elderly: productivity.

In Sri Lanka, an individual above the age of 60 is considered 'elderly'. Our documentary focussed on individuals in two districts, Hambantota and Batticaloa, and captures a diverse, rural elderly population. During the course of our fieldwork, we met and spoke with many individuals about their ideas regarding the benefits of and constraints to maintaining an active lifestyle.