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Social security

African pension patterns

by Hans Dembowski

In brief

Rural South African grandmother.

Rural South African grandmother.

According to a recent World-Bank publication, nine sub-Saharan countries have introduced pension schemes that are not based on individual contributions, and four countries are currently running pilot programmes. Mark Dorfman, who wrote the study, states that these schemes can be important instruments for reducing poverty because they close coverage gaps and improve welfare outcomes.

This is especially relevant as African economies are marked by agriculture and informal employment. In these sectors, it is next to impossible to introduce pension systems that are based on compulsory contributions (which in the US are called payroll taxes). However, contributory pension schemes are how rich nations organise old-age protection. In the lack of such options, even modest pension payments for all elderly persons above a certain age make sense.

Nonetheless, Dorfman only cautiously endorses non-contributory pensions. He warns that national budgets are limited and governments must consider other population groups that suffer poverty, especially children. He wants reforms to be designed in a way that non-contributory schemes neither reduce incentives for private savings nor the scope for eventually introducing contributory schemes. At the same time, he makes it very clear that current pension systems in sub-Saharan countries tend to be inadequate because they leave far too many people entirely unprotected. Moreover, many people who are covered suffer poverty nonetheless. 

Dorfman points out that, unlike in Europe or North America, poor elderly people in Africa do not normally live on their own. Accordingly, many would benefit from other kinds of government support to poor households. What Dorfman does not consider, however, is what impact it might have to channel support to poor households through their oldest members. Such an assessment would be interesting given that extended families tend to share resources in developing countries (also note interview with Markus Loewe). (dem) 

 

Link:
World Bank: Pension patterns in sub-Saharan Africa.
http://documents.worldbank.org/curated/en/2015/07/24786040/pension-patterns-sub-saharan-africa

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