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.