Micro PensionsAn Oppertunity for MFIs WorldGranny Pension & Development Network Global Microcredit Summit 2011 in Valladolid Microfinance and the Elderly Caroline van Dullemen
Population ages – demography changes Worldwide 1950 >60+ yrs = 205 mil 2000 x3 >60+ yrs = 606 mil 2050 x3 >60+ yrs = 2 billion
Paradox of development People live longer, but the costs of living also increase: both for societies & individuals-Decline of economic growth-Increase of old-age related costs-Increasing budget strain for emerging economies-Increasing burden for those living longer- Women/mothers! are affected more than men-Poor & informal sector workers uncovered-Developments proceed rapidly!
Micropensions: opportunity for microfinance sectorDemographic change global ageingSocio-economic change breakdown of family support structuresPension system 1st Pillar 2nd Pillar 3rd Pillar • Social • Occupational • Personal pensions private private (government) pensions pensionsReality in developing countries:• In 86 low/middle income countries 1st pillar social pensions• 2nd pillar available civil servants, military & middle class (provident funds)• Exclusion of many informal sector workers in emerging markets
Micropensions: opportunity for microfinance sectorEffects micro pension• Security against old-age poverty, especially women/mothers• Improve living standards in retirement incl family• Shift of resources from survival towards investment;• Through old-age income, older people play supportive role in family structure;• costs depend on scale/design/context
Challenges micro pension scheme• Collection contributions in safe & efficient way• Secure responsible and productive investment of contributions• Paying benefits timely and correctly• Building trust, improve pension awareness and Longevity Contractual maintain effective communication savings risk-sharing• Ensuring effective and reliable governance• Asset management• Making optimal use of existing structures and combine local and international expertise
Product development Micro pension provision stakeholders InstitutionalHow is the product Macro- economic & aspects Administration financialdeveloped? environment Asset Government management Contractual Longevity savings risk-sharing Target group Risks Cultural aspects Pension … model
Product development Micro pension provisionVariables in micro pensions -eligibility age -length of payment period -minimum investment period -minimum pension amount -maximum amount of premium a client can afford- operated through partner – agent model
Product development Micro pension provisionPossible models of micro pension provisions• Defined benefit (DB)- benefit is guaranteed, inflation poses biggest threat, higher risk investments, risk is carried by MFI• Defined contribution (DC) -benefit depends on investment returns (reliable & profitable), risk with participant• Hybrid solutions – DB up to a basic level, DC on top of that basic level – Collective DC; participants share risks and returns collectively• Payout - Options of either lump sum or buying annuity
Opportunity for microfinance sector Micro pension provisionPotential for MFIs- Long term commitment of client- Attract savings & mobilize deposits- Provide high quality product- Solid base for scaling up (insurance)- Realize market segment
Opportunity for microfinance sector Micro pension provisionPotential for investors- Long term commitment to MFI- Growing demand & need- Establish developing market segment- Low cost (mobile banking)- Compulsory option- Product easily expandable
The Pension & Development Network Pension Insurance Banks management companies org. Asset managers Supervisor WorldGranny Pension & Development Network Government Unions Advisory NGOs Universities organisations Aims •Building bridges between financial experts in the Netherlands and the microfinance sector in emerging markets; •Exchanging knowledge and experience.
The Pension & Development NetworkRole of the P&D Network: social consultancy- Development procedure of 3 phases: 1. Market research/feasibility 2. Product Development 3. Implementation & execution Timeline of 1 – 2 years- Provide consultancy and Tech Ass / training
Running & future projects of the P&D Network Tajikistan Georgia MongoliaGuatemala, PhilippinesHonduras & Nicaragua Kenya Laos & India Sri Vietnam Lanka
Lessons learned•Ageing population demands pension provisions;•Future pension coverage will need to cover informal sector;•Most emerging economies lack private pension scheme;•Insurance sector is scaling up & attracting investments;•Strong need for reliable savings product amongst middle class, Contractual Longevity savings risk-sharinglower class and the poor;•Understanding of changing traditional family support system;•Global ageing not yet on agenda governments;•Micro pensions are not a quick win•Trust is the most important issue