Should saving for retirement be a top priority for developing economies?

To begin with, first-world models of pension fund and income protection benefits assume that employees apply their income to providing housing, education, medical protection and income protection for themselves, their partner and their 2.2 children. By the age of 60, it is presumed that this employee will have adequate housing, and their children will be educated, employed, out of the nest and no longer a financial responsibility. This suggests that, at retirement, a member needs to only be concerned with providing funding for themselves and their partner for the next 20 some years.

In developing economies, such scenarios tend to be more the exception than the norm. More realistically, when the employee returns home with their wages, they are often having to fund the needs of a much broader lens of responsibility that typically spans across multiple generations. A second, equally important dynamic is the fact that there is no such thing as an average African – and yet many models for employee benefits and social protection are predicated on the notion that members all have similar interests and priorities.

Our other demographic challenge: there is no such thing as ‘average’ or ‘median’ in Africa.

In truth, diversification or fractionalisation in countries can be assessed from multiple perspectives: ethnic groups, language, political groups and economic groups. What we are trying to understand by looking at these indicators is the degree to which a lack of social cohesion in a country might affect economic performance or the effectiveness of government policies. In the table below, we reflect the outcomes from a number of different methodologies using mean values for the range of indices. The bottom line, though, is that, Africa and its constituent countries appear by every measure to have the highest level of diversity (or quite probably, the lowest level of social cohesion)

Assessing diversification from multiple perspectives

For benefits to really benefit members, they need to be relevant to their lives and needs. A closer look at the demographic and socioeconomic reality of sub-Saharan Africa suggests that funding for retirement takes a back seat to other more urgent issues.

If we assess where the real pressure point will come in Africa over the next 30 years, it will be less about servicing dramatic increases in the aged segment of the population and more about finding solutions for a burgeoning working population. In this environment, the focus for financial stability will be less about the retirement years and more about the whole journey. If we start with that mindset and then capitalise on the fact that technology can now provide scaleable solutions to meet highly diverse needs, the chances are high that we can create a benefit structure that provides a winning value proposition to all stakeholders.

Number of persons by respective age groups in sub-Saharan Africa in millions over time. Medium variant of the United Nations

When given a choice, such as in Namibia or South Africa, members of pension funds will vote with their feet. Because members in those countries are allowed to cash in those retirement savings when they change jobs, what was intended to be a savings scheme for retirement gets quickly converted into a short-term savings account. The LifeGuage chart below illustrates this point clearly. Each dot on the chart represents the projected replacement of income for a given member of the fund on their date of retirement. The fact that all these dots are currently in the red, in spite of the strong investment performances of their funds, suggests that employees had not transferred their retirement savings from their previous employer and had most likely cashed them in.

                                                                                      How could we make

                                                                   employee benefits and compulsory saving more meaningful to members?

Convert compulsory saving into a guided financial planning tool for employees, focusing on the journey of employment and not just the end-game of retirement.

African workers too often find themselves below the poverty line

Unemployment in the region is a major challenge for sub-Saharan policymakers, but creating enough jobs does not mean elimination of poverty. As seen below, of those Africans employed, over one-third still fall below the poverty line of $1.90 a day – almost three times the world’s proportion.

Perhaps an imperative that looms over all others is how close African workers are to the poverty line – even when formally employed. Without doubt, an important starting point for employers is to identify ways where they can help their employees find more effective ways to redeploy their income to create greater financial stability and mobility. Here is where company-sponsored financial well-being programmes can pay significant dividends.

Having started work on these types of programmes with employers in Southern Africa, preliminary results suggest that programmes such as these can provide a tangible contribution to the employer’s bottom line.

If saving for a retirement is not a top priority for employees, what do they see as more pressing needs?

At a 2015 United Nations-sponsored conference in Addis Ababa, the concept of 17 sustainable development goals was introduced as a way for countries around the world to create a baseline for a more ‘prosperous, equitable and sustainable world’. More than 190 world leaders committed to target these 17 SDGs as a way to ensure that we collectively work to end extreme poverty, fight inequality and injustice, and fix climate change. How would African citizens prioritise these imperatives?

United Nations Development Programme Sustainable Development Goals

What are the sustainable development goals?

The sustainable development goals (SDGs), otherwise known as the global goals, are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.

The study below¹ matches the declared priorities of African citizens with the SDGs that have been identified as critical targets for the future of our global society. If we are going to make benefit structures more meaningful in the context of Africa, surely these insights should provide a useful starting point. Note how work security, economic growth and health feature right at the top of the wish list.

Where will we go from here?
Once we have planted the seed that we can do so much better in providing safety nets and vehicles for social mobility for our employees, what then?

In the coming months Benefits^ALL Barometer Africa will be taking employers and policymakers through a range of discussions that will highlight exactly what challenges face the future world of work for Africans and the future world of life in Africa. In unfolding the narrative we will weave back and forth:

• FROM the more familiar approach of country-specific issues
• TO the more complex discussions of a continent configured not by the conventional colonial borders of the past but the exciting opportunities provided by economic zones of the future
• TO the decidedly controversial debates around how African governments can engage with both multinationals and foreign direct investment so that everyone benefits
• TO leapfrogging to the African reality of the future – where it will be less about accommodating the needs of the formal employment world (which currently accounts for only around 15% of employment on the continent) and more about accommodating the needs of the individual, their lens of responsibility and the collaborative arrangements that will likely help them fund their long-term financial needs.