The Covid-19 pandemic continues
to ravage countries across
the world. The pandemic is
challenging social security systems, as
healthcare, unemployment insurance and
pensions, among others, are put under dire
pressure.
Now more than ever before, there
is the stark realisation that effective
social protection systems are crucial to
safeguarding the poor and vulnerable
when crisis such as this occur. Yet, the
bare reality is that in many countries (ours
included), such systems are either nonexistent
or have limited resources and
coverage.
Thankfully, institutions such as the
World Bank Group recognise this and
have pledged to offer their assistance in
either building or upgrading schemes in
countries that will need the most help
with respect to economic recovery. This
will include efforts in strengthening social
safety nets to help prevent vulnerable
groups from falling (deeper) into poverty.
However, even wealthy nations that are
believed to have strong social protection
systems are faced with their own
PENSION CRISIS
Covid-19 And The
Unfolding Pension Crisis
challenges. In Europe for instance, pension
fund managers are working closely with
the European Union (EU) and national
regulators to ensure that pension funds
can overcome the long-term financial
ramifications likely to be caused by the
Covid-19 pandemic.
Many EU countries mainly rely on Pay As
You Go (PAYG) social security pensions.
Low economic growth and contraction
of the economy will have a significant
impact especially if - as expected - there
are massive job losses as a result of the
pandemic.
For a while now, the EU policy to have
adequate and sustainable pensions in the
future has been based on compensating
and complementing lower social security
pensions with funded workplace pensions
or personal pensions.
The pandemic has exposed the fragility
of pension systems in the United States.
Sudden job losses on massive scale not
witnessed since the Great Depression,
limited commercial activity and the recent
stock market collapse have only served
to compound the solvency crisis of many
pension systems. It is estimated that the
Now more than ever before, there is the
stark realisation that effective social protection
systems are crucial to safeguarding the
poor and vulnerable when crisis such as this
occur. Yet, the bare reality is that in many
countries, such systems are either non-existent
or have limited resources and coverage.
By Walter Nyabundi
value of public pension portfolios has
reduced by over 20% since the start of
the pandemic. States across the nation
owed $1.2 trillion in pension debt before
the Covid-19 economic crash. This could
increase to between $1.5 trillion and $2
trillion.
In Asia, Malaysia unveiled a package
of tax cuts, loan facilities and grants to
offset effects of the Covid-19 outbreak
on its economy while cutting mandatory
retirement contributions till the end of
2020 to boost consumption, while in
India the government of Prime Minister
Narendra Modi has been categorical that
it is not contemplating a reduction of
pensions.
Closer home, in Morocco the most
vulnerable parts of the population have
been affected by the economic crisis
occasioned by Covid-19 in most part due
to the country’s massive informal sector
- which employs most Moroccans - and
a severely underdeveloped private sector.
It is estimated that only one third of the
workforce in the country is covered by a
pension plan and there is no social care
system for the vulnerable members of
Moroccan society.
South Africa on the other hand,
introduced an unemployment income
grant and increased the amount of
existing social grants to protect vulnerable
citizens against the effects of Covid-19.
However, the issue of unclaimed pensions
remains contentious. It is believed that
there are R42 billion in unclaimed
pension benefits owed to more than four
million South Africans, a country where
close to 50% of pensioners live in poverty.
If one were to add funds not subject to
regulation and supervision in terms of the
country’s Pension Funds Act, the amount
of unclaimed benefits could be closer to
R51 billion.
The advance of the Covid-19 pandemic
in Kenya, albeit slowed down by means
of social distancing measures, curfew,
containment and lockdown is now
manifest in almost half the country.
While the first few cases were imported
and started in Nairobi, there are now cases
in 19 other counties. This has resulted in
increased efforts both by the National
and County Governments to prevent the
spread of the virus to avoid a public health
disaster.
In addition to the direct consequences of
the disease on the health and well-being
of individuals, there are also indirect
consequences as a result of physical
distancing and confinement measures
that are already having negative socioeconomic
impacts on the population and
particularly on vulnerable groups.
To put this into context, a recent survey
by Infotrak Research & Consulting
revealed that Covid-19 concerns 63% of
Kenyans both as a personal health and
personal finance issue. Notably, 28% view
the pandemic as a personal finance issue
while only 8% worry about Covid-19
as just a personal health issue. Indeed,
with businesses closed down or having
significantly scaled down their operations
and workers sent home or having to
endure painful pay cuts, many Kenyans are
struggling to make ends meet.
With respect to the pensions sector, it
is estimated that returns on pensioners’
investments in the last few months have
dropped and Kenyan retirees have so far
lost over Ksh 35 billion to falling stock
prices and soaring inflation as a result of
the pandemic. This is sobering considering
that only 15% of the country’s workforce
is formally employed. Pension managers
in Kenya project depressed growth of
retirees’ funds due to the Covid-19
pandemic that has negatively impacted
the financial markets.
About 17.5% of retirees’ money was
invested in quoted securities at the Nairobi
Securities Exchange as at December 2019
which amounted to $2.1 billion, up from
$1.8 billion in 2018. The Retirement
Benefits Authority (RBA) posits that the
growth in the retirement benefits sector is
It's vital that precautions are taken to minimise
risk of infection to older people when
processing or collecting pensions. Service
points where older people process or collect
pensions pose a significant risk of exposure
to Covid-19 as these locations may be crowded
and visited by many different people, a
number of whom might be infected.
projected to drop in the first half of 2020
given the effects of Covid-19.
The current situation continues to
highlight the need for efficient social
benefit schemes and enhanced social
protection measures in Kenya.
To the credit of President Uhuru Kenyatta
and his Government, certain measures
have been outlined over the last few
months in an attempt to cushion Kenyans
from the expected economic impacts of
Covid-19. They include: 100% tax relief
for persons earning gross monthly income
of up to KSh 24,000; reduction of income
tax rate (Pay-As-You-Earn) from 30%
to 25%; appropriation of an additional
Sh10 billion to the elderly, orphans
and other vulnerable members of the
society through cash-transfers; and the
temporary suspension of the listing with
credit reference bureaus (CRBs) of any
person whose loan account fall overdue or
is in arrears.
While disposable incomes are under
severe pressure as a result of Covid-19,
it is hoped that in the short term these
measures will help Kenyans manage
their expenses and keep saving for their
retirement.
In the long term, strengthening Kenya’s
social protection infrastructure and
ensuring stable employment opportunities
for all so that they are able to make regular
pension remittances will be important.
Kenya’s transition from a largely informal
economy to a formal one is now an
imperative.
Some other measures that the Government
should consider are: enhancing income
security through cash transfers by using
existing programmes (or new ones) such
as the National Social Security Fund
(NSSF) and the Older Persons Cash
Transfer (OPCT); protecting workers in
the informal economy by implementing
innovative policies designed to bring
them into the mainstream through a
combination of non-contributory and
contributory schemes as their transition
to the formal economy is actualised;
ensuring the protection of incomes and
jobs by using unemployment protection
schemes and other mechanisms to
support employers in retaining workers
and providing income support to
unemployed workers.
Finally, I would be remiss if I did not
mention something about the physical
well-being of pensioners - a vast majority
of whom are elderly - and how best to
protect them in the wake of this pandemic.
It is vital that precautions are taken to
minimise the risk of infection to older
people when processing or collecting
pensions. Service points where older
people process or collect pensions pose a
significant risk of exposure to Covid-19
as these locations may be crowded and
visited by many different people, a number
of whom might be infected.
To that end, the general hygiene
practices and social distancing measures
recommended by the Government must
be implemented even more meticulously
at these service points. In the long
run, online processing of pensions and
payments through mobile money transfer
services like MPESA will become
ineluctable. Stay safe
Walter Nyabundi is the Manager for
Loyalty Research & Special Projects
at Infotrak Research & Consulting
Limited. You can commune with him
via email at: Walter.Nyabundi@
infotrakresearch.com.
20
MAL36/20 ISSUE