By Khalifa Hemed
Published June 5, 2020
A global survey on pension systems around the world has ranked Kenya at position 55 out of 70 countries.
The ranking is contained in the first edition of the Allianz Global Pension Report 2020 by Allianz SE, a Munich (Germany)-based insurance and asset-management company that operates around the world.
While unveiling the report, the company notes that though the number of people in retirement age is set to increase markedly and put social security system under severe stress over the next decades, only a handful number of countries have already made their pension system demography-proof.
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Though no African country ranks among the top-10 as, Allianz says pension systems in most of these countries are still in the build-up phase, the best performing African countries–South Africa, Kenya, Morocco and Nigeria–take positions 41, 55, 60 and 64, in that order.
In most other countries, the report that ranks pension schemes using a tool called Allianz Pension Indicator (API) says, pension systems will struggle, beset with high public deficits and an uneven balance between sustainability and adequacy.
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The API, that considers 30 parameters rated on a scale of 1 to 7, with 1 being the best grade, conducts the analysis of pension schemes along three pillars: 1). demography, 2). sustainability and, 3). adequacy. By adding up all weighted subtotals, the API assigns each of the analyzed country a grade between 1 and 7, thus providing a comprehensive view of the respective pension system.
Though Kenya, that has one of the best starting conditions of all analysed countries due to its relatively younger population, ranking 4th in this sub-index, Kenya’s population in retirement age is set to increase from 1.3 million in 2020 to 6.2 million in 2050. To guarantee the long term sustainability of the pension system, Allianz says, the aging of the population should be taken into account by increasing the retirement age in line with future gains in life expectancy and by introducing a demographic factor in the pension benefit formula.
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Saying limited access to financial services hampers the build-up of sufficient private old-age savings to cushion the lacks of the public pension pillar, the report recommends pension reforms and efforts to improve the access to financial services for a broader share of the population.
“Demographics and pensions have been eclipsed by other policies in recent years, first and foremost climate change and today the fight against Covid-19”, says Ludovic Subran chief economist of Allianz. “But you ignore demographics at your peril, demographic change will soon be back with a vengeance. Defusing the looming pension crisis and preserving genera-tional justness and equality arekey for building inclusive and resilient societies.”
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While Sustainability measures how a pension system reacts to demographic change, adequacy examines whether the scheme provides an adequate standard of living in old age. The countries leading the adequacy ranking have either still rather generous state pensions or strong capital-funded second and third pillars.
The Allianz Global Pension Report 2020 says capital-funded retirement solutions are under increasing pressure in the persisting low interest rate environment and that COVID-19 pandemic is exacerbating this trend by further pushing down yields.
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“The low yield environment has forced both pension funds and life insurers to explore alternative asset classes,” says Cameron Jovanovic, head of global retirement proposition at Allianz SE. “This push into alternatives enables benefit providers to capture the illiquidity premium that matches well with their portfolio duration. Another strategy is to offload risk rather than chasing returns as longevity swaps, pension risk transfers and creative reinsurance set-ups become means of optimizing the exposure taken on by pension funds and insurers.”
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