Findings of the recent Bright Africa Pensions research highlight the need for African policymakers to look at ways to innovate formal and informal savings. This is needed to accelerate the well-known positive impact that domestic investments can have on African economic growth. Mobile technology, innovation, early adoption and a youthful and economically active population would act as a potent economic driver and enable profound investment opportunities for institutional investors.
Not only do pensions provide a financial and social safety net to the elderly, but they also provide long-term capital for investment that can be used to develop infrastructure and provide job opportunities.
Yet only 8.5% of working-age Africans have pension coverage compared to 32.5% of their global counterparts. A big reason for this is the predominance of informal work, but it’s time to stop using that as an excuse, says Gerald Gondo, Business Development Executive at purpose-driven global investment firm RisCura.
Speaking about Bright Africa Pensions research, Gondo said that a growing and youthful population, fast adopters and ruthless disruptors would act as a potent economic driver and enable profound investment opportunities for institutional investors.
“There is an urgent need to innovate around formal and informal savings to accelerate the well-known positive impact that domestic investments can have on African economic growth,” Gondo said.
The latest Bright Africa Pensions research has revealed several important points for institutional investors, pensions regulators and trustees worldwide to consider:
- While the bulk of Africa’s population continues to be young (with a median age of 19.7 years), this is gradually changing, and certain African countries, like Mauritius, already must contend with the challenge of providing adequate coverage for older people (and their beneficiaries).
- In Africa, 92% of the pension assets are concentrated in South Africa, Nigeria, Kenya, Namibia and Botswana.
- In global terms, African pension assets remain comparatively small but are growing. With aligned and proactive regulatory reform and the ability to leverage digital and mobile technology to increase coverage, savings in Africa are set for compelling growth.
- A standard measure used to determine the significance of pension assets to a country’s economy is pension assets to GDP. The research looked at 10 countries that represent 80% of Africa’s pension assets and found that, at 116%, Namibia had the highest ratio of assets under management (AUM) to GDP, South Africa came in second at 68% (surpassing the OECD’s 60% average), and Botswana was third at 65%.
- Regulation continues to drive asset allocation decisions, with fixed interest being the dominant asset class across the continent. However, South Africa’s latest amendments to Regulation 28 of the Pensions Funds Act, which allows for up to 45% of a fund’s assets to be invested in infrastructure, is a hopeful sign and may encourage other African countries also to revise and allow for alternative assets in their pension legislation.
- Pension systems need to align with the worldwide digital revolution and take advantage of the early and wide adoption of mobile technology by Africans. In this way, the large informal economy across the continent can be tapped into to benefit the elderly and the country’s economies.
- The research highlights the achievements of Nigeria, the continent’s largest economy, where gains from the seismic pension reforms that commenced in 2004 show evidence of market acceptance and trust. The National Pension Commission (PenCom) of Nigeria reported consistent average growth in retirement contributions of 14% from 2011 to 2020, which compares favourably with the average GDP growth of 2% for Nigeria over this period.
“It is encouraging to witness the spirit of African innovation converging with the conundrum of financial inclusion for enhanced long-term African savings,” said Gondo. “Pension savings on the continent are growing, but this growth can be accelerated through paradigm shifts around pension policy, regulation, incentives and mediums to enable greater participation and coverage rates.”