HakiPensheni

Pension funds: Need to switch from educational binge to focused realism

By Nimi Mweta

14th August 2011

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Local pension experts are beginning to see the need to shift from the parastatal outlook of the ‘lack of financial and pension literacy’ in the tendency to withdraw accumulated or saved funds when one ceases to hold a job.
The trend is towards greater realism as to the causes of the situation, especially how pension plans increasingly to compete with other outlets needing funds, like building houses for rental.

Often however, members withdraw funds simply to be able to stand on their feet again after a job 'evaporates,' chiefly on account of trying to live within the same environment, especially in relation to rental obligations or family.

There is however need for further exploration of potential usefulness of financial and pension literary where it can help lead to a change in behaviour, that is, where members remove funds for certain other purposes without being in dire need to do so.

And even in the latter context, counsellors in the pension field believe that with a little effort many off the job individuals could have re-adapted rather painlessly without having to withdraw funds. “It is really a matter of how people are prepared psychologically,” intimates Christian Gaya, a pension rights activist.

His research is focusing on how to build an educational strategy enabling some key target groups to appreciate the usefulness of participating in pension schemes, and retaining their cash there even in rather thin situations.

He believes education conducted by the main public pension funds would help to improve what is now a low pension membership and savings for retirement where by denying oneself access to those funds. That could help push up membership enrolment and retention rates up to actual retirement.

Yet however there is need to sharpen the focus all the way, namely from the position that perceived low literacy or exposure to serious discussion with an involved or authoritative person, or in peer groups concerning financial and pension matters, is not directly a cause of low retention of funds.

Since it is possible to establish that there is low literacy, it is rather easy to take up the theme that were this lacunae to be corrected, the low savings or poor membership and low retention levels could be corrected.

It is a bit of a rosy dream but it is unlikely to bear fruit in that manner, but only when one has done the necessary sifting of the material – that is, individuals and their situations – and find the group that is more likely to be receptive to financial and pension education as behaviour rectifying awareness.

That is partly what is tantalizing about an education focus in relation to pension planning and financial literacy as a whole, that it can't be hinged on expecting that once a budding professional who is already unto his first job after college, will seek to take up pension planning after two or three modules of exposure. There is preliminary work of displacing other avenues of preparing for old age which are often more attractive, of which small business is the most notable.

Some executives in pension funds lament the wider ignorance of financial planning and awareness of old age perils, or routine risks of informal sector activity, etc. However given the low level of pension savings yield in terms of actually ensuring a relaxed lifestyle or minimal assurance without other resources, education may have to actually focus on pension plan as a necessary auxiliary to one's other adaptation efforts to end of job situations.

That opens up an educational strategy challenge on the part of pension funds as well, since its most self- indulgent or marketing blitz sort of outlook usually focuses on fronting its product and specialized products for that matter, as the answer to one's old age or post-retirement needs.

Yet, what analysts would call the 'sub-optimal minimum wage,' where the salary that forms the framework of payments generally isn't sufficient for living, pension benefits tend to be equally constrained as well. They are not tailored to suit reliance on those benefits, but presume that pension is only auxiliary to self reliance.

So the major problem is in designing a workable strategy to bring into the fold potential pension plan participants who may have their focus only on petty trade or formal sector marginal presence like the 'frames' mushrooming in Dar es Salaam, changing the face of streets in residential areas, from the main roads to tarmac streets inwards.

Trying as best as one could in seeking to 'address the knowledge gap’ in relation to financial and pension planning is that it has to be established that it is a significant influencing factor to pension planning behavior.

The problem is that when exploring causes and consequences of a low rate of savings (behavior) and trying to link it directly with lack of knowledge in that area could prove to be ineffective in the market.

There has to be plenty of preliminary work, for instance who really feels the pain about low membership rates - whether it really is the pensioners themselves who would be regretting not to have taken up a plan, or it is pension funds worried about their margins when the withdrawal is too noticeable. Again it may be worth examining if this pinches more one major fund or smaller ones, depending on how thin or thick is their membership basis.

Again pension funds have investment platforms which in large measure have tended to outgrow the savings base as the proper source of funds for investments, partly due to the fact that their payment of benefits is often marginal in character. So, withdrawal of membership is one thing to current pensioners, and another to future pensioners and for that matter to pension funds.

Without addressing the problem of optimality or sufficiency for minimal assurance of living, both for the minimum wage and the pensions that retired people get, touting education could easily become a case of crocodile tears, that the number of workers available for exploitation is increasingly insufficient.

SOURCE: GUARDIAN ON SUNDAY