Understanding the state of public pension systems in East Africa

By Christian Gaya Business Times: Friday January 11-17 2013

The state and development of public pension systems in Tanzania reflects the situation in African and in particular in East African countries generally. Public pension systems in the region are generally characterized by the economic features which comprising limited productivity and persistently high inflation rates, high and increasing informal sector employment, skewed income distributions; demographic characteristics, with reference to uneven population densities, low life expectancies, high birth rates, differing patterns of retirement; and issues of governance, relating to emerging democracies and weak subsystems for public administration.

In short, there is a lack of medium- and long-term planning and goal-setting within the existing public pension funds in the region: the different country systems are essentially diverse, with many of the systems still in an underdeveloped state, while the social security arrangements within a country are characterized by fragmentation and the lack of a clear vision. It is therefore apparent that there is a great need for pension social protection in Africa, but due to factors such as HIV/AIDS, limited and declining formal sector employment and high rates of inflation, this need is not sufficiently met.

The low productivity means that public pension fund is difficult to finance and weak and undeveloped systems of governance pose enormous challenges to efficient administration. It is therefore apparent that there is an inability, both at national and regional levels, to provide adequate public social protection. High levels of unemployment and underemployment, as well as the inadequacy of current labour and social protection standards hamper the delivery of social protection in the region.

Coverage of targeted populations tends to be narrow, leaving the most vulnerable across the region, in particular those in rural areas, without any form of social protection. For example, in Tanzania the existing social insurance schemes are said to cover only 5.4 per cent of the labour forces of 16 million people while in Kenya the same existing social insurance schemes cover only 15 percent of the total labour force. In many of the other East African countries the picture is not much different. Evidence from African countries show that alleviation of basic old age poverty is best addressed through universal or targeted poverty alleviation programs for the elderly.

These would ordinarily be “zero-pillar’’ pensions provided by the central Government which is the most effective way to capture the vulnerable groups and is projected to have significant poverty reducing impact in family set-ups. Also, the benefits paid by many existing schemes in this region of East Africa are said to be too inadequate to meet basic daily needs for their esteemed customers.

In the case of non-contributory schemes such as for elderly people in Kenya, a heavy reliance on general tax revenues strains government financing and keeping benefits at low level while the remaining state members are contemplating on the establishment of the same due the increasing social pressures. Both in-country as regards different schemes within a particular country and cross-country between comparable schemes in different countries of social security is generally weakly developed and in parts of the continent, for example in this East Africa, both coordination and portability is at the present time almost totally absent though is now being strategized.

In deed, administrative inertia and institutional inefficiency in the area of public pension protection delivery are major obstacles. Social protection in East Africa is characterized by the fact that most public pension schemes in the region focus on those people who are salaried workers or those who are employed in the formal sector. This type of cover is often further limited in that only certain categories of the formally employed, in particular civil servants, benefit from public pension schemes set up to deal with particular contingencies.

The implication of all of this is that large parts of the Wananchi in fact in most cases the majority of the population, enjoy no public pension security coverage from the perspective of the formal system. Finally, mention should be made of the growing private and occupational-based social security environment. However, this simultaneously emphasizes the need to develop a proper facilitative framework and an appropriate regulatory regime for this part of the environment. Similarly, informal systems of social security have grown in the region over the years, partly as a result of the inability of the formal system of public pension security to reach out effectively to large parts of the population.