East Africans are living 10 years more than they did in 1990, which is increasing the number of old people, raising dependency on the economically active population and worsening the pension crisis in the region.
This, economists and pension experts say, will put pressure on the region’s governments to provide more financial resources to support the elderly.
The latest data from the World Health Statistics 2014 report, published by the World Health Organisation, shows that a combination of improved health care, better incomes and access to sanitation, among other factors, has increased life expectancy in the past 20 years.
“But there is still a major rich-poor divide, people in high-income countries continue to have a much better chance of living longer than people in low-income countries,” said Margaret Chan, WHO director-general.
Rwandans now expect to live 17 more years than in 1990 — the highest increase in the region. Tanzanians expect to live 12 years more; Ugandans 11 years more; Burundians eight years more and Kenyans two years more.
Data from Alexander Forbes shows that the EAC partner states have among the lowest pension contribution rates in Africa, exposing them to a potential retirement crisis.
In the EAC, Tanzania has the highest average pension saving rate of 20 per cent; Uganda has 15 per cent, while workers in Kenya and Burundi save 10 per cent. Rwanda is the lowest at eight per cent.
The majority of those covered are under national social security schemes, whose contributions are low and therefore pay very little money to retirees. The schemes are also beset by corruption, and low returns on investment compared with privately run schemes.
Tanzania announced two weeks ago that it intends to table a motion in parliament for the formation of the Elders Pension Fund.
“But we can only set up this fund once we are sure that the coffers can cater for it,” Deputy Minister for Labour, Employment and Youth Development Makongoro Mahanga told parliament.
“Sustainability of the universal Elders Pension Fund is challenging; we have to be sure that government revenues will be stable enough to constantly cater for the benefits,” added Mr Mahanga.
Kenya has adopted a national cash transfer model, where an estimated 450,000 households are expected to receive cash support in the next financial year, up from 100,000 households in the current financial year, according to President Uhuru Kenyatta.
The government expects to spend $82.3 million to support the elderly and vulnerable children under the cash transfer model. The households use the cash support, averaging $30 per month, to cater for their basic needs, including healthcare.
Uganda has adopted a similar cash transfer scheme, known as the Social Assistance Grants for Empowerment, which provides about $9 per month to the elderly and other vulnerable groups such as child-headed families, single mothers and the disabled.
Rwanda also runs a similar programme, which received a boost in the form of a $70 million grant from the Word Bank in March, to upscale the Vision 2020 Umurenge programme, which now covers close to one million people.
“As EAC governments commit more resources to take care of the expanding ageing population, scaling up the cash commitment to a certain level of the gross domestic product would help in future planning, avoid overwhelming the economy and also attract donors because of the commitment from the government,” said Earnan Cleirigh, a development specialist with Irish Aid.
“Studies have shown that a social protection programme can be run using one per cent to 1.5 per cent of GDP,” he added.
Dependency on the working population, especially among people above the age of 60, is increasing, further burdening the earnings of the working population and reducing their capacity to save.
Pension experts say East Africa needs to fast-track pension reforms to reduce the growing burden of public pension on taxpayers, and increase coverage, especially among workers in the informal sector.
Kenya has rolled out a new pension law, which came into effect last month, making pension contributions mandatory.
Workers will be expected to save at least 12 per cent of their monthly pay, half of which will come from the employer. Kenya’s public service pension scheme is to be reformed to reduce the burden of funding it.
Under the new plan, civil servants will contribute two per cent of their salary to the retirement scheme in the first year, five per cent in the second and 7.5 per cent from the third year onwards.
The government plans to match each worker’s monthly contribution with the equivalent of 15 per cent of their salary. It will also take out and maintain a life insurance policy worth a minimum of five times each member’s annual pensionable contributions.
Uganda is preparing to pass a law that will allow private pension managers to enter the market. The law proposes that the Public Service Pension Scheme be fully funded to reduce the burden on taxpayers. Contributors will be allowed to transfer their accrued benefits from one scheme to another.
Rwanda is also expected to pass a law that will allow private players into the sector, which is currently managed by the Rwanda Social Security Board. The proposed law will govern the functioning and supervision of mandatory and voluntary pension schemes.
Tanzania too has been working to harmonise the operations of state-run pension schemes, and has been considering opening its market to private firms.
Uganda has the highest age dependency ratio in the region, according to the World Bank data. Age dependency ratio is the number of older dependants per 100 economically active people.
Uganda has an age dependency ratio of 104, Tanzania 92, Burundi 87, Rwanda 85 and Kenya 82.
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