Challenges facing public pension systems in Tanzania

BUSINESS TIMES Friday, June 24 - 30, 2011

CONSIDERABLE challenges face Tanzanian public pension systems. One of these challenges relates to inherited institutional design and the resultant governance problems. In Tanzania it is well known that there are  clear indications of excessive state intervention or interference. Our government often controls the composition and appointment of governing boards, as well as public pension funds administrations, the  management of funds and investment decisions. 

At the same time there are also increasingly positive experiences indicative of restrictions on government intervention. In many cases boards of directors and chief executive officers now enjoy substantial autonomy, subject to contractual and performance arrangements with an overall supervision by government departments. In the area of investment decisions government has several times directed these funds to invest in specific projects or companies. Fund managers also often tend to invest in assets which may not provide the best yield, such as real estate. In some public pension funds, however, direct  government control has been put at  arms length by, for example, the adoption of legislation that contains investment guidelines, and the establishment of separate investment committees.

One of the major sources of distrust in public pension institutions in this country has to do with the  mismanagement of these schemes. There is, for example, a tendency to redirect sources from certain benefits  to pay for other benefi ts, such as pensions. As we have heard through various media, high administrative costs and the absence of budget constraints on administrative expenditures have contributed to the
deterioration of fund reserves in some public pension funds in the country. 

Service delivery is an area which has generated substantial dissatisfaction among members and other 

beneficiaries of public pension schemes. Most of the complaints revolve around the inadequacy of benefits,  delays in payments, the lack of up to date information about the schemes and the amount of individual  contributions made and estimated benefits (i.e. benefit statements). Contribution records are often incomplete and apparently not always computerized.

On the positive side, the use of information technology and public awareness campaigns are contributing to  improving social delivery. But none of these public pension schemes are implementing this vital marketing communication strategy to improve public awareness, and if it is done it is of course in rare cases and not impacting to their target groups and to the public in general. 

Regulation of public pension schemes could play a significant role in forcing public pension institutions to perform in accordance with acceptable standards and to build trust in these institutions. Regulation of both the public and private environment is important to increase transparency and protect beneficiaries. However, there is little experience of this in all public pension schemes in the country. Usually public pension schemes are subject to their governing laws and the oversight of ministries of Local Government, Labour and Finance. And yet there are increasingly good examples of regulatory bodies that have been set up including Social Security Regulatory Authority (SSRA) which is in the pipeline to start operating, and it is not known whether is going to be the oversight of the ministries, though currently it is said to be handled by the Ministry of Labour. 

In addition to the specific matters referred  to above, there are other fundamental considerations which will play an important role in making public pension frameworks on the continent relevant and acceptable to the  population, as well as to members of the funds. The first consideration relates to the need for an appropriate conceptual context that would encapsulate, within a public pension framework, non-formal employment, informal forms of social security, the coverage of covariate risks and of immediate needs as
opposed to merely covering future needs or risks, African extended family concepts and gender neutrality.

A second matter which causes much concern to public pension contributors relates to the fact that they have been losing their social security coverage when they move between schemes, both within a country and across borders.

There are, however, commendable country examples of how universally accepted principles in this regard have been successfully implemented on the continent.

Thirdly, the public pension fund has been an area which has seen very little in terms of a conscious attempt to define comprehensive social policy regimes that are linked to economic policy.

There is a clear need for social and economic policies to reinforce each other. The aim of social policies in Tanzania, also in the area of pension funds, should be to reduce and alleviate poverty and inequality, and support the objective of a growing economy with a larger tax base for government revenues.

Of serious concern is the fact that public pension funds in Tanzania through limited coverage of those in the
formal sector, contributes to social differentiation. Pension funds are therefore often seen as serving the interests of the working elite, and not reaching out to those most in need of coverage.

Yet it is clear that the general picture in Tanzania reveals an increase in the informal sector and in structural unemployment, while the formal sector is generally shrinking. At the same time a big number of members of existing schemes are withdrawing their pension contributions while they are premature. Concentrating
attention on beneficial  reforms for that part of the pension fund system which covers a small part of the labour force at the expense of the informal sector and those who are unemployed is inherently unequal, as it directs government attention and other stakeholders away from a huge segment of the population with little social security coverage. In recent times, though, in Africa and elsewhere in the developing world, innovative and mutually supporting approaches have been adopted to extend protection to the informal sector. It is conducted through extending the social assistance system and the sphere of coverage of existing social insurance  schemes.It presumes acknowledging and factoring in the importance and potential use of existing informal social security arrangements, and through the establishment and support (by way of, for example, a subsidy) of public low cost social security savings arrangements. 

Finally, a conspectus of the reasons why public pension institutions in the country many lack trust and appreciation, leaves one with the clear impression that the absence of standards with which these institutions and governments should comply is one of the primary considerations. It is suggested that, in keeping with encouraging developments in the country, appropriate standard-setting at country and regional level through
appropriate human rights frameworks, the adoption of regional benchmarks and the introduction of international standards could do much to enhance the acceptance of public pension system in East Africa Community cooperation zone. 

Importance of education and public information on pensioners’ rights

BUSINESS TIMES PAGE 11 Friday, June 17 - 23, 2011

INSTITUTIONS which play an important role in the social, political and economic fields need to have public support, since statutory bodies alone, without the support of the population for which they are working for, can achieve very little.  Institutions which administer pension funds are in no sense an exception to this principle and, indeed, it may be said they  are the class of public body which needs to establish a good reputation. The principal means for them to consolidate their  reputation is by adopting the correct attitude towards beneficiaries, through quality and suitability of the services that they provide and through honest administration of their resources. However, in addition to their efficiency, which is the principal  foundation for building up a sold reputation without being demagogic or ostentatious. They have to inform the  public of their work, their programs and their achievements in the social field as well as in economic and scientific terms. Self-praise and publicity that is intended to gloss over the faults of the system have to be categorically rejected, and any  attitude that is hermetic, that provide disinformation or leads to isolation, thereby preventing a real and indispensable integration of the institution into the real situation in the country, also have to be refuted. 

Public pension organizations carry out functions that have such an impact on national life that what they are doing and how they are doing it cannot be hidden from the public. As protagonists in social development they need the support of a favourable public opinion; to achieve this support they need the give the necessary priority to the provision of information. The population as whole has a right to know what the institutions in social sector are doing, and these institutions have the duty to account for the way in which they are serving society.

This type of information is of mutual, benefit because it gives the public material for forming a judgment and enables the  institutions concerned to create opinion that is favourable to them.

In recent days, the real danger of disinformation in the field of social security has become evident in some local newspapers. Many criticisms have been directed towards the public pension sector, and its very raison d’etre is questioned. This stems from the fact that it is not supported by a solid basis of public opinion which is prepared to come to its defense at a time when its faults are more visible than its achievements. It is also frequently the case that public pension users and practitioners are unaware of its philosophy, how it works, the scope of its programs, its contributions to the
progress of the country and what it represents for the achievement of authentic social justice, without which social peace cannot exist.

Perhaps the most serious aspect of this “disinformation” is that it is to be found at all levels, including decisions makers at the state level, the man in the street and those who control the mass media. Its importance grows everyday as a result of development and technical progress made by communication through the press, through the radio, the telephone, television, satellites and the whole sophisticated world of information. 

Because insufficient information has been provided to explain the reasons for increases in the costs of social security institutions,administering social security, they have been labeled as insufficient. Indeed, without adequate
information politicians, economists, administrators and journalists have been unable to justify the fact that in various countries the sums dedicated to social security increased from 10 percent of the national gross product to 25 percent or even 30 percent, as is the case in industrialized countries like France, Sweden, Denmark, Belgium, Norway and Germany. 

In the world of today the importance must not be underestimated of this general feeling which has come to be called “public opinion” and which perhaps for the first time in history, showed its irresistible force in the French Revolution. One of Lous XVI’s ministers, Jacques Necker, undertook to identify public opinion and said that it strengthened or weakened all human institutions. In effect, according to the theories of the German philosopher Christian Garve, it may be said public opinion is a type of generalized consensus, the product of the majority of individuals opinion concerning a specific phenomenon or  event, and it is therefore said to be equivalent to the “national will.” Public opinion is a product or result of interaction and  communication. It is a manifestation that may sometimes be tacit, of the concepts or opinions of a certain group. Based on the precept that, in view of the importance of public opinion, it is fundamental to take into account that the institutions administering social security have to direct their information efforts towards a triple objective: those who are entitled to  benefits from pension funds or who use social security, the media, and politicians, administrators and the public in general.