Eradicating Poverty in Africa through Social Security

The International Labour Organisation (ILO) defines Social Security as the government's protecting individuals and households to ensure access to Health Care and income for retirees.?

It is a pivotal framework to ensure a decent life.?

Social Security programmes are the cornerstone of poverty eradication and opportunity equality.

Africa is grossly undercovered when it comes to social security.?

With its unique legacy challenges coupled with new dynamics such as:

1. The Gig Economy or informalisation of the workforce.?
2. Longevity and changes in population dynamics.
3. The evolution and disruption of financial services models such as public blockchain ledgers and mobile technology.?

Africa needs a unique solution for its unique needs.?

At the Africa-Insights Pension Conference, I was honoured to moderate a distinguished panel of leaders of Social Security Funds from across the continent to discuss these crucial issues.

The panellists were:

Shepherd Muperi, Director Social Security, The National Social Security Authority, Zimbabwe.

Prof Salamatu Idris, Economic Advisor to the Governor of Kaduna State, Executive Secretary, Kaduna State Pension Bureau, Nigeria.

Desmond Nikanor, Chairperson, GEPF, Manager: Strategy and Projects, GIPF, Namibia.

Kofi Eba-Miezah Polley, Chief Operations Officer, People's Pension Trust Ghana Limited, Ghana

Measuring the Impact of Social Security

Lawangee: How do Social Security Funds measure success?

Muperi: "In Zimbabwe, look at the poverty rates and see if they are decreasing. We focus on building resilience and where people will no longer need support. The impact of Social Security is evaluated every five years. The emphasis is on the effect of social security on poverty."

Nikanor: "Namibia focuses on coverage of benefits in the working population and what Income Replacement Ratios are being achieved. Namibia has been trying to establish a national pension fund catering to the self-employed and informal sector for the past twelve years. Hence, our focus is on coverage for now."

Polley: "Ghana focuses on coverage and whether coverage solves old-age poverty. We should go beyond coverage and consider the present situation. Retirement funds sometimes only focus on the future and not the current circumstances of members."?

Prof Salamatu:?"Nigeria's primary focus is on retirement benefit increases, the investment assets that underpin the benefits and the acceptability of the social security reform. Coverage is being addressed with the introduction of Micro-Pension, which tries to enhance the participation of the informal sector. The challenge in the informal sector is buying power of pensioners relative to inflation and the exchange rate in the face of the Naira devaluation. It is also essential to track the performance of the participating PFAs as this gives you the direction of the competition and how strictly the industry is regulated. In summary, Nigeria's focus is on the quality of service, including the payment of benefits. Members face an uncertain future at retirement as rising inflation and weakening Naira erode the value of their income."

Informalisation of the Workforce and the Gig-Economy

Lawangee: "The trend of informalisation of the workforce is continuing across the continent. The emergence of the gig economy exacerbates this. How is Social Security dealing with these changes in the structure and characteristics of the workforce."

Muperi: "This is a correct observation."?

Nikanor: "One of the key findings of the OECD report that came out last year stated that social security systems and models should cater for non-standard forms of work."

Lawangee: "Namibia has a proposed three-tier national scheme. One of the tiers caters for the informal workforce. How do you cater for a contribution model that is "pay as you go"?"

Nikanor: "Pay as you go system is about flexibility and transferability. For example, how will contract workers be able to transfer and maintain their accumulated savings."

Prof Salamatu:?"Yes, the informal workforce is a concern despite the launch of the Micro-Pension Plan in Nigeria (a voluntary pension scheme). Participation in the informal sector has not expanded since it was launched due to registration and funding challenges. One hindrance is the lack of incentives to attract the informal sector. There is low engagement by the participating Pension Fund Administrators due to poor commercial viability. Thus, the objective of the Micro-Pension Plan has not been achieved due to the low acceptability of the scheme. However, when we look at the industry in general, the Contributory pension scheme has registered 9.3million contributors (as of the 2nd Quarter report, 2021), with over?N13trillion pension assets. The implementation status of States also is encouraging. Currently, 25 States have enacted laws on CPS, 7 States are at the bill stage, 15 states have Pension Boards, and 10 states regularly remit their contributions."

Funding Mechanisms and Fiscal Burden

Lawangee: Given the magnitude of the liabilities in a Social Security scheme, a robust funding model is required. Careful management is necessary to ensure long-term sustainability to avoid Social Security becoming a fiscal burden. Africa generally has a young workforce needed for long-term cross-generational subsidisation. In contrast, developed nations are struggling with inverted population pyramids.?

Well-managed Social Security Schemes can use their investment underpin to invest back into the economy for the country's beneficiation.

South Africa has the Government Employees Pension Fund ("GEPF"), and its funding ratios have decreased due to the public sector wage bill increments. The GEPF could find itself underfunded due to the Defined Benefit underpin. A deficit in the GEPF will become a fiscal liability.

What has been the experience with funding mechanisms and long-term financial stability?

Muperi: "There's no fiscal burden in Zimbabwe. The contributions and collections have been managed. The schemes are self-sustaining. Suppose, for any reason, the fund cannot meet its obligations. In that case, the government must chip in with funding, and this is where the issue of fiscal burden arises, but we are lucky that the schemes are well managed. Zimbabwe has not had this issue for years."

Polley: "The funding status of the three tiers in Ghana: Tier one and two are compulsory. Tier One is doing well, and Tier Two has accumulated 4 billion USD as of December 2020. We haven't had any problems with funds being mismanaged. The challenges relate to opportunities to invest in infrastructure."

Prof Salamatu:?"There is no fiscal burden in Nigeria. The CPS is fully funded with both employee and employer remittances. The pension industry is the most strictly regulated in the financial sector, with 22 PFAs. At the federal level, presidential approval was given for the payment of outstanding pension contributions, which is quite a significant achievement. For instance, in 2021, about?N904.27billion was said to have been expended in the payment of Accrued Rights."

Social Security and providing access to Capital

Deresh: To eradicate poverty, we need to democratise access to capital. This Singapore 3 Pillar Social Security model exemplifies this notion and is credited for transforming Singapore into a first-world country. Citizens need capital to

1. Educate themselves or their children

2. Purchase a home

3. Start a business

What role can Social Security play in providing citizens with access to capital?

Muperi: "If we want to eliminate poverty by 2030 in terms of the SDGs, it cannot be based on the monthly social security transfers people receive. This income will not be adequate. People need to be resilient. Social security needs to play a role in providing access to capital so people can sustain themselves. In turn, this is what will grow the economy and eradicate poverty. The World Bank has focused on building resilience so people can survive economic hardships. Social security needs to do the same. We need to make some structural changes to legal frameworks to enable access to capital. Mechanisms like loans should allow people to access the funds before retirement."

Polley: "Social security plays an important role because it allows for the availability of long-term funds. But the important question is how we can make the funds available to people to improve their lives and ensure they pay back the money."

Prof Salamatu:?"Well, I agree with the speakers. However, looking at the governance structure in Africa and among its Leaders, accountability and transparency on which sectors the investment fund will be invested in is significant. When we invest, it must be in sectors that benefit the poor (Inclusive growth), and the sectors must be able to pay back. In Nigeria, having investment assets of over?N13trillion is great, but where and how do we invest it? Will it be a short-term or long-term investment? We usually focus on the short-term and forget the performance and potential of long-term investment. Institutional investors should consider long-term investment funding and less emphasis on the short-term. The focus will create opportunities for everyone."

How can we use the technological advances for operational efficiency, contribution collection, benefit disbursements, democratising access to information and general transparency within social security?

Nikanor: "Large pension funds must be mindful of their fiduciary duty when considering nascent technology. Funds such as the GIPF should monitor for now and not participate in the new technologies such as Bitcoin. These platforms are fine for small and medium-sized enterprises that can benefit from the efficiency.

Namibia has fully embraced digitalisation in terms of providing access to information to members about their funds and benefits."

Muperi: "Zimbabwe is embracing technology. We can distribute benefits using non-smartphones, and members can also use self-service portals from the comfort of their homes. During the COVID Crisis, we introduced Mobile technology, and our members have benefitted from the improved efficiency. "?

Polley: "Benefit coverage is 4% which is not good. Operational costs are the challenge; this is where technology comes in for collection purposes and to reach more people. The People's Pension Trust is pushing for more accessible contribution collection methods. Currently, via mobile technology, we have an automatic contribution collection system where members select the collection date and automatic withdrawals. We are also working on an app. Surveys were conducted where we sent an SMS to one group of people and a voice note to the other group. We noticed that the response was better from people who received the voice note. "

Prof Salamatu: "Automating all critical functions within the pension industry is gaining significant progress, similar to other financial institutions. However, more ICT capacity development is required within the pension industry. In Kaduna State, much has been done on digital governance and the automation of key MDAs to enhance the facilitation of Financial inclusion. For instance, at the State Pension Bureau, all pension administration payments have been automated and linked to the pensioner database. The use of Bank Verification Number (BVN) and National Identity Number (NIN) are key security identifiers for any transaction."

Conclusion

Social Security is a critical component in eradicating poverty in Africa. We all face similar challenges, such as adequacy and coverage. However, it is encouraging to see the progress on the continent in enhancing Social Security.