This document discusses social pensions in sub-Saharan Africa. It notes the high levels of poverty, limited fiscal space, high informality, and low pension coverage in the region. While contributory pension schemes cover few, social pensions could help address coverage gaps. Experiences with universal, means-tested, and pilot social pension programs in countries are reviewed. Challenges in designing social pension programs around parameters like benefit levels, eligibility ages, targeting vs universality, and costs are also discussed. The conclusion emphasizes that social pensions alone cannot fight poverty and greater efforts are needed to increase coverage through sustainable contributory pension systems and an integrated social protection framework.

1. REFLEXIONS ON
SOCIAL PENSIONS IN
SUB-SAHARAN AFRICA
Phillippe Leite & Melis Guven
Morning Symposium on
"Social Assistance vs. Social Pensions”
April 3rd 2013

2. PART 1: SUB-SAHARAN
AFRICA CONTEXT

3. • High levels of poverty across all population groups
• Limited fiscal space
• High levels of informality and Low levels of formal contributory
pension systems
• Recent demographic changes: declining fertility rates and increasing
longevity
• Increase old age dependency rates and young population
• A share of elderly population have no regular income, and no access
to health care
• Women, who is likely to be out of formal labor market, tends to live
longer and look after young family members are specially
vulnerable.
• Despite mild economic growth, elderly still are subjected to poverty,
and deprived of basic services (mainly health care)

4. PART 2: WHY SOCIAL
PENSIONS ?

5. Challengeswith Contributory Schemes
• Low Coverage: Contributory pension schemes in Sub-Saharan Africa
cover very few people due to the large informal sector in most of
livelihood activities and employment; no significant coverage
increase in past decades.
• Limited Impact on Poverty Reduction: Contributory pension
schemes do not have impacts on poverty reduction since
beneficiaries are not poor
• Formal sector in SSA is too small and pension schemes largely benefit civil
servants.
• Fiscal Challenge: Most countries are seeing a deterioration on the
financial situation of contributory pension schemes (low contribution
rates and generous benefits); spending increasing but for a small
segment of the population
• Inefficencies in Administration: High administrative costs further
increasing the fiscal cost
• Demographic Aging : Most countries are still young but
demographic aging will take place rapidily

6. New SocialPolicy Agenda: socialpensions to address the
coveragegap
• Other policies are being considered and piloted to
alleviate poverty, particularly cash transfers.
• Increased scope and discussion for Social
Pensions (non-contributory pension) programs.
• Social Pensions as the way of addressing the coverage
gap in the context of the persistently low coverage of
contributory pension schemes.
• but limited research nor conceptualization of the problem
and no systemic presentation of issues related to Social
Pensions

7. PART 3: SUB-SAHARAN
AFRICA EXPERIENCE

8. • Universal
• Botswana, Mauritius, Namibia, Seychelles, Uganda, Zambia pilot
program and Kenya pilot program
• Pensions tested
• Lesotho, Swaziland and Nigeria - Ekiti State
• Means-tested
• South Africa, Cape Verde, and Kenya pilot.
• Benefit levels vary between 4% and 35% of per capita
GDP

9. • Annual costs range from 0.3% of GDP in Botswana where the
benefit level is the lowest to 1.8% of GDP in Lesotho where the
benefit is the highest.
• Universal x Targeted: Social pension programs in Zambia is deemed
largely insufficient in reaching the elderly without other subsistence
income who remain largely uncovered by safety nets. Even universal
programs have exclusion errors.
• Stand alone or part of a broad cash transfer: Social pensions were
introduced in some countries (Swaziland for example) to lighten the
burden on the elderly caring for orphans. They have provided some
support to orphans who live with an elderly person. However, as 55
percent of poor children in Zambia do not live with an elderly person,
25 percent of orphans are not poor, and 85 percent of extremely poor
children are not orphans.
• Old-age benefits may not be the most efficient programs for protecting
vulnerable children such as orphans.

10. Elderly people: 65 years-old and more
Half of median
# % #pension FGT(0) FGT(1)
Ghana 2005 1,039,355 4.68 27,787 15.5% 5.1%
Malawi 2010 523,355 3.71 10,303 12.3% 2.6%
Mali 2009 469,541 3.69 7,859 9.5% 1.9%
Mauritius 2006 87,851 7.17 16,188 3.3% 0.8%
Mozambique
2008 637,455 2.96 29,862 15.3% 5.5%
Nigeria 2010 7,545,263 4.65 84,006 10.9% 3.2%
Zambia 2010 315,640 2.42 19.8% 6.3%

11. Elderly people: 65 years-old and more
Cost: closing the elderly poverty gap
Annual
Cost
($PPP
millions)
#
AVG daily
transfer
($PPP)
GDP
($PPP
millions)
% of
GDP
Ghana 2005 2,790 1,039,355 7.4 34,858 8.0%
Malawi 2010 247 523,355 1.3 11,082 2.2%
Mali 2009 1,400 469,541 8.2 14,593 9.6%
Mauritius 2006 58 87,851 1.8 15,921 0.4%
Mozambique
2008 333 637,455 1.4 18,397 1.8%
Nigeria 2010 4,550 7,545,263 1.7 318,278 1.4%
Zambia 2010 208 315,640 1.8 17,173 1.2%
Country Program
Benefit level
(LCU)
Benefit level
(US$ eq. a
day)
% of GDP
Botswana (UMIC) Old Age pensions (U) P 220 1.79 0.33%
Kenya* (LIC) Older persons (M) S 1,500 0.81 0.02%
Lesotho (LMIC)
Old Age pensions (U de
facto)
M 300 1.95 1.77%
Mauritius (UMIC)
Non-contr. retirement
pensions (U)
Rs. 2,945 6.14 1.70%
Swaziland (LMIC) Old Age Grant (U) E 200 1.43 0.60%
Cape Verde*
(LMIC)
Old Age Pensions (M) E 4,500 2.28 0.40%
Namibia* (UMIC) Old Age Pensions (U) N$ 450 3.00 1.36%
South Africa*
(UMIC)
Grant for Older (M) R 1,100 7.40 1.14%

12. Enlargescope: SP&L systemsAdministrative
Infrastructure and
Institutional
Arrangements
Fiscal and
Macro-
economic
Stability
Governance and
Accountability
Legal and
Regulatory
Supervision
Social
Pensions
or old age
assistance
 Unique
identification
 Means-testing
infrastructure (as
needed)
 Application and
eligibility
certification
processes
 Record-keeping
and data
management
 Disbursement
mechanisms
 Fiscal
capacity
to
support
benefit
commitm
ent the
face of
aging.
 Rules, roles and
controls
supporting elderly
assistance.
 Transparent
disclosure of
benefit formula
and means
testing.
 Mechanisms for
redress of
complaints
Legal
foundation
supporting
rules, roles
and controls.
 External
audit and
evaluation
 Periodic
independen
t
assessmen
t
 Monitoring
and
evaluation
processes
60%
77%
29%
40%
23%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
All20 13 LICs 7MICs
Donor influenced Government managed
But donnor influence
affects capacity of a
country to efficiently
implement a program

13. FYI
• Chilean experience to increase protection of elderly population
• For individuals with no savings capacity:
• Stronger social safety net
• Special measures for targeted groups (e.g. women)
• For individuals with limited savings capacity
• Improve incentives to save
• Provide complementary benefits
• For individuals with savings capacity, not currently covered:
• Mandate participation
• Increase compliance

14. • Challenge
• expand coverage of policies for elderly population given that:
• Individuals with no or limited savings capacity.
• Firms with low productivity
• but
• Without affecting behavior
• Generating equity
• Being financial sustainable and effective

15. FOR REFERENCES: OTHER
CHALLENGES -PARAMETERS
DESIGN OF SOCIAL
PENSIONS

16. • Parameters
• Benefit level
• Fixed but small, fixed at the minimum wage level, variable but
adding up to the poverty line?
• Age
• Arbitrariness, determined by individual capacity to work, function of
health / longevity
• Difference between life expectancy and age chosen matters for the
fiscal constraints
• Targeted or Universal
• Universal cost more but it is more attractive; political support; strong
fiscal constraints implies conditionalities;
• Financial support can comes from taxes but efficient taxation on those
who do not need or means test are procedures that are “similar”
• But even in Universal programs errors of exclusion exist and can be
large (significant)

17. • Income effects: Minimum pensions are expected to have disincentive
effects on individual decisions
• Retirement Decision: avoided if age is not too low
• Prodigality Effect: individuals who would save for retirement can
be temped to avoid savings
• Longevity: increase in dependency ratios as a result of increased
longevity and declining fertility increases minimum cost. At the
same time minimum pensions would, by themselves, induce an
increase in longevity since they would provide the elderly with
better food and health care.
• Spillover effect: drop in labor supply of prime-age individuals,
increase in health of children...

18. • There is a “wisdom” that universal is administratively simple, but
universal have exclusion errors and people simple forget that
administration of a larger caseload of beneficiaries requires more
investments (e.g. in many countries IDs as age-prof documents are
inexistent among the elderly population.
• Cost of such a programs far from negligible but it is reasonable.
• The affordability of minimum pension schemes depends on the
benefit size, poverty and age threshold chosen
• Benefits should not be absolute but linked to national income
growth.

19. CONCLUSION

20. • Poverty in old age is still prevalent.
• Social pensions would be an effective tool to fight poverty
but not alone
• It is important to study and understand the causes of the low coverage
of contributory pensions and its reasons
• It is important to define new tailored strategies (SP&L system) to
increase coverage
• In other words, we must have the SP&L system vision so that improvements
in mandatory and voluntary contributory schemes are required to significantly
expand coverage beyond a tiny fraction of workers currently covered after
almost half a century in operation.

21. • Bring the SP&L system vision to the debate
• Example (1): Due to fiscal space
• Targeting social pensions should often be the preferred solution
• If targeting is used, why a separate program rather than
integration into a general social assistance program
• Example (2): Matching defined contribution (MDC)
• MDC take a long time to mature and have any impact on old age
poverty
• MDC policy and social pensions can be linked and harmonized to
achieve clear objectives over time.
• Social pension dependence will be greater for older workers and
gradually be replaced by dependence of younger workers on
MDCs.