1. Slide 1
PENSION PATTERNS & REFORM CHALLENGES IN SUB-SAHARAN AFRICA
Pensions Core Course
Mark Dorfman
The World Bank
April 2, 2013

2. Slide 2
April 2, 2013
Organization
1. Design summary
2. Challenges
3. Policy options
4. Design reform principles
5. A process for evaluation

3. Slide 3
April 2, 2013
…design matrix
Label &
Desc.
Mand.
Cont.
Schemes
for
Private
Sector
Occ.
Schemes
Public
Sector
Occupational
Pension Schemes
Non-
contrib-
utory
Pensions
Countries
0/3a/3b None Yes Prominent source
of old age income
protection (cov. +
benefit level)
Coverage
near
universal
South Africa, Botswana, Namibia, Lesotho, Namibia,
Swaziland
0/1/3a/3b - Yes, w/
modest
target RR
Yes Modest coverage
an benefits for
select workers
Strong
and near
universal
Seychelles, Mauritius, Cape Verde
3a/3b - CS +
limited occ
None Yes Limited and weakly
regulated
None Ethiopia (until 2011), Malawi (until 2011), and Liberia.
1/3a/3b -
Modest DB
scheme, + CS
scheme
Yes -
partially
funded
DB
Yes Yes but heter-
ogenious
prevalence.
None on a
national
basis.
Benin, Burkina Faso, Burundi, Cameroon, CAR, Chad, Congo
Republic, Cote d’Ivoire, DRC, Ethiopia (2012+), Equatorial Guinea,
Gabon, Ghana, Guinea, Guinea-Bissau, Madagascar, Mali,
Mauritania, Mozambique, Niger, Rwanda, San Tome & Principe,
Senegal, Sierra Leone, Sudan, Togo, Zambia, and Zimbabwe
2/3a/3b -
Provident
Funds,CS +
limited 3rd
Yes –
provident
funds
Yes Modest coverage
an benefits for
select workers
National
(Swaz.)
pilots
(Kenya)
Uganda, Swaziland, Kenya, The Gambia
2/3b 2nd
Pillars or
Hybrids
Yes –
mand. DC
schemes
Yes –
integ.
w/priv.
Yes but at varying
levels
No
national
schemes
Nigeria, Ghana (after 2010), Malawi (2011), and
Tanzania (under consideration)
I. Stylistic Design Typology

4. Slide 4
April 2, 2013
II. Challenges - Earnings-related schemes have largely failed
1.Small fraction of covered workers & elderly
2.Aging & civil servant scheme maturation =>
increasing fiscal pressure
3.Reserve management yielded poor returns &
incentives (augmented by administrative costs)
4.Question of whether existing designs need to be
reconsidered

5. Slide 5
April 2, 2013
1. Poor coverage
0
10
20
30
40
50
60
70
80
90
100
%ofcoveredpopulation
Share of population above legal retirement age in receipt of a pension (%)
Active contributors to a pension scheme in the working-age population (%)
Tiny % of workers covered in 50 years (median 5.1% of working age pop):
• Earnings-based design ill-suited to rural/informal populations
• High target replacement rates & cont. rates
 Sign. elderly coverage only in 8 countries w/non-contributory schemes.

6. Slide 6
April 2, 2013
…in large part because of low incomes
y = -1E-09x2 + 2E-05x + 0.0212
R² = 0.2625
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0 1000 2000 3000 4000 5000 6000 7000
CoverageofWorkingAgePopulation(%)
GDP per Capita (late 2000s, US$)
Cape Verde
Cameroon
Uganda
Guinea
SwazilandDRC
Mauritania
Nigeria
Ghana
Rep of Congo
Sudan
Burundi
Chad
Togo
Mozambique
Benin
Zambia
Source: World Bank database.
Note: Data points are from late 2000s.
Correlation between Working Age Coverage & Per Capita Income in Sub-
Saharan Africa

7. Slide 7
April 2, 2013
…with populations largely rural and informal
 Rural pop. prominent but declining.
 Earnings-related schemes left out rural and informal sector populations.

8. Slide 8
April 2, 2013
…and contribution rates relatively high for low income workers
A
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
SouthAfrica
Mauritania
Zimbabwe
Liberia
Rwanda
Congo,Dem.Rep.
Cameroon
CentralAfricanRepublic
Gabon
Coted'Ivoire
Chad
Mauritius
Mali
Kenya
SaoTomeandPrincipe
Swaziland
Zambia
Burundi
Benin
CapeVerde
Madagascar
Niger
BurkinaFaso
Eritrea
Togo
Congo,Rep.
Guinea
Senegal
Nigeria
SierraLeone
Uganda
Gambia,The
Ethiopia
Ghana
Tanzania
Seychelles
Sudan
EquatorialGuinea
ContributionRate(%ofCoveredWage)
Additional Contribution Rate for Non-Old Age Social Security Employer Old Age/Disability/Survivorship
Employee Old Age/Disability/Survivorship
Contribution Rates

9. Slide 9
April 2, 2013
2. Aging in national & civil servant scheme
maturation drive increases in fiscal pressure
• Fiscal costs of many formal sector schemes (esp. for civil servants)
consume increasing portions of government budgets.
• Contribution rates & benefit formulas not consistent with long-run balance
• Early stage in demographic transition, but covered workforce (esp. in civil
servant schemes) older and aging more rapidly.
Old-age dependency ratios

10. Slide 10
April 2, 2013
… and old-age dependency rates likely higher for covered populations
Senegal: Projected National and Civil Service Population Age Distributions
Senegal: Projected Dependency Ratios

11. Slide 11
April 2, 2013
…with target replacement rates too high to be sustained or
affordable
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Ghana
Togo
Zimbabwe
CentralAfricanRepublic
Cameroon
Liberia
Gabon
Mauritania
Congo,Rep.
Coted'Ivoire
Chad
SaoTomeandPrincipe
Ethiopia
Niger
Benin
BurkinaFaso
Burundi
CapeVerde
Congo,Dem.Rep.
Guinea
Madagascar
Rwanda
SierraLeone
Tanzania
Mali
EquatorialGuinea
SimulatedReplacementRate
Simulated Replacement Rates

12. Slide 12
April 2, 2013
…and unsustainable fiscal burdens over the medium-term
Tanzania: Pension Financing Gaps
Projected Cash-
Balance in the
Mandatory National
Social Security
Scheme in Niger
-0.35%
-0.30%
-0.25%
-0.20%
-0.15%
-0.10%
-0.05%
0.00%
Netpensionexpendituresas%ofGDP
Scenario 1 (pensions indexed to
inflation)
Scenario 2 (pensions are Not
Indexed )

13. Slide 13
April 2, 2013
…as well as growing costs of civil service schemes as covered
populations age
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
2006
2011
2016
2021
2026
2031
2036
2041
2046
2051
2056
2061
2066
2071
price indexation no indexation
The Gambia: Projected Expenditures for
the Public Service Pension Fund
Uganda: Public Service Pension Fund Projected Baseline
Pension Expenditure
Figure 26: Uganda: Public Service Pension Fund Projected Baseline Pension Expenditure
(% of GDP)
-1.2%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
Source: World Bank, Options for the Reform of the Public Service Pension Fund in
Uganda, December 2010.

14. Slide 14
April 2, 2013
…expenditures on national and civil service schemes are
modest though increasing
Pension Spending and Civil Service Pension Spending
(% of GDP – late 2000s)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Eritrea
Ethiopia
Cameroon
Congo,Dem.Rep.
Gambia,The
Uganda
SierraLeone
Mauritania
Burundi
BurkinaFaso
Coted'Ivoire
Niger
Rwanda
CentralAfricanRepublic
Togo
Tanzania
Nigeria
CapeVerde
Ghana
Namibia
Botswana
Kenya
Zambia
Benin
Mali
Senegal
Mozambique
Guinea-Bissau
SouthAfrica
Zimbabwe
Mauritius
Seychelles
Expenditureasa%ofGDP
Total Spending Civil Service Expenditures
Source: World Bank database.

15. Slide 15
April 2, 2013
3. Reserve management yielded poor returns & incentives
1.Reserve management has yielded returns < per capita
income or wage growth due to multiple factors incl.
limited investment options
2.Public pension funds often heavily impact price
determination in important market segments (treasury
bonds, real estate, listed equities) + impact fiscal
spending incentives
3.Should public pension funds actively invest in small and
often weak financial markets?

16. Slide 16
April 2, 2013
…and administrative costs further aggravating the fiscal threat
Administrative Expense Indicators
(US$ or % of Benefits/Expenditures)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
x x x x x x x
Botswana-
POPE
Namibia-
GIPF
Swaziland-
PSPF
South
Africa-
GEPF
Uganda-
NSSF
Tanzania-
PPF
Burkina
Faso-CNSS
Ghana-
SSNIT
Kenya-
NSSF
Tanzania-
GEPF
Sierra
Leone-
NASSIT
Rwanda-
RSSB
Kenya-
CSPS
Mauritius-
MNPS
percent
US$
Administrative Expense per Insurance Benefit- US$ - left axis
Administrative Expense as % of Benefits percent right axis
Administrative Expense as % of Revenues percent right axis
Source: Oleksiy Sluchynsky, Defining, Measuring and Benchmarking Administrative Expenditures of Public Pension Programs. Draft,
mimeo, 2012. Note: An “x” above the scheme indicates that the actual costs of operation are more than 5 times the predicted levels
based on the averages observed for 100 pension and social security programs throughout the world.

17. Slide 17
April 2, 2013
4. Question of whether existing designs need to be reconsidered
1.Do mandatory wage-based schemes make sense for
populations with much of the population without
predictable wage incomes?
2.How does contributing for old-age fit with other SP
priorities (eg. loss of income, health or other shocks)?
3.What are sensible principles for social assistance &
social insurance design appropriate to needs,
objectives & conditions in SSA?

18. Slide 18
April 2, 2013
III. Policy Options: Parametric Reforms
• Ret. age
• Accrual & contribution rate
• Commutation factor
• Wage base extension & valorization
16.9
19.4 19.5 20.0 20.0 20.2
22.0
15.0
10.3
13.1 13.9 14.2 14.9 15.3 15.5 15.5 15.6 15.7 15.8 16.1 16.2 16.6 16.7 16.7 17.2 17.2 17.9 18.1 18.8 18.9 16.4 12.2
14.0
0
10
20
30
40
50
60
70
80
90
Age
Life Expectancy at ret. age Retirement Age - Men
Source: World Bank Database & ILO.

19. Slide 19
April 2, 2013
III. Policy Options: Social Pensions
0.000***
0.050***
0.100***
0.150***
0.200***
0.250***
Ghana Malawi Nigeria Rwanda
Ind Overall
Ind Elderly
Ind Working Age
Ind Youth
0.000***
0.050***
0.100***
0.150***
0.200***
0.250***
Ghana Malawi Nigeria Rwanda
Households
Overall
Elderly Only
Households
Some Elderly
Poverty Prevalence
Source: Bank estimates, 2013.

20. Slide 20
April 2, 2013
III. Social Pensions: Old & New
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Botswana Swaziland Mauritius Namibia Seychelles Cape Verde South Africa Lesotho
Share 60+
Benefit % of GDP per capita
Total Cost (% of GDP) - (RIGHT AXIS)
8 countries with national schemes, 4 pilot programs.
7 universal, 3 pensions tested & 3 means-tested
Benefit levels between 10% and 35% of per capita GDP, (Botswana lower).
Annual costs for mature schemes 0.3% - 1.8% of GDP

21. Slide 21
April 2, 2013
… closing the elderly poverty gap is costly for many countries
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Cost(%ofGDP)
Women Men
Budget as a % of GDP to Eliminate Poverty Gap for the Elderly
Source: Kakwani and Subbarao, Aging and Poverty in Africa and the Role of Social Pensions. 2005.

22. Slide 22
April 2, 2013
IV. Design Reform Principles
 Target a modest replacement rate – cont. schemes (affordable &
sustainable contribution rate)
 Gradually effect parametric reforms w/transitions (take advantage
of immature schemes & young populations to minimize impact on
older cohorts)
 Contributor coverage expansion requires experimentation &
sequencing (health insurance expansion options, enhanced savings
instruments, matching contributions, default options, consumer
education)
 Harmonize & merge civil service & national schemes
(w/occupational top-up as necessary - 28 sep., 7 integ, 2 only cs
schemes)
 Funded schemes require sufficient enabling conditions.
 Strengthen occupational & individual scheme regulation &
supervision.

23. Slide 23
April 2, 2013
IV. Design Reform Principles (2)
Social pensions
 Link benefits & targeting to old-age income protection
 Link benefits to social assistance objectives &
instruments
 Weigh elderly assistance against other development
priorities
 Utilize unified infrastructure for safety nets -
identification, targeting, record-keeping, disbursement.

24. Slide 24
April 2, 2013
V. A Process to Consider Reform
• Project baselines of existing schemes & parametric
reforms with Actuarial Modeling (PROST)
• Evaluate full scope & sequencing of social protection
measures for coverage expansion (health insurance,
old-age, survivorship, CCTs)
• Map programs to satisfy institutional requirements &
enabling conditions