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Retirement Schemes for Informal Sector

Affordable and Comprehensive Retirement Schemes for Informal Sector Players in East Africa

Retirement Schemes for Informal Sector

Affordable and Comprehensive Retirement Schemes for Informal Sector Players in East Africa

According to a report by the International Labor Organization (ILO), over 2 billion of the global employed population, 15 years and older, is in the informal sector. In Africa alone, over 85% of the employed population is informal.

Oftentimes, when people think about pensions, they think of it as a privilege only the formally employed have. In the past, this meant that a vast majority of the working population (the informal sector players), retired into poverty. The situation meant that younger family members had to commit to taking care of their older relatives which was more likely to increase the chances of extending the poverty cycle.

According to the East African Community, the Pension coverage rate was approximately 10% and majorly covered formal sector employees. The good news however is that in 2021, the community introduced more affordable and inclusive retirement schemes for informal sector players, who are the majority, in a bid to increase pension coverage.

In the race for this inclusive pension, move are Kenya, Uganda, and Rwanda. Other African countries making similar adjustments include South Africa, Nigeria, and Ghana.

Studies project that by 2060, Africa’s population will consist of over 300 million old people (60-70 years old). Without such affordable and inclusive approaches to retirement saving, the pressure on governments to provide social protection and welfare to this population will be insurmountable. The move ensures young people, regardless of whether they are formally or informally employed, have an opportunity to contribute to and safeguard their retirement future.

One of the key enablers of the financial inclusion and pension provision move in the informal sector is Financial Technology (Fintech). For example, Rwanda has capitalized on the high mobile penetration to create a harmonized approach to financial inclusion and the adoption of saving products.

“Pension systems should aim to provide adequate benefits as well as enhance coverage. They can also play a significant role in fulfilling the diverse financing needs of various sectors of an economy and thus contribute to the economic development of the EAC region,” says the East African policy.

In Summary

Retirement savings are generally low in East Africa, and the numbers are even lower for informal sector workers. Such statistics are worrisome considering these workers make up a majority of the workforce. The low pension saving numbers ultimately mean that many people retire into poverty. It also means that there is high pressure on the government to provide social security.

The move by the East African Community gives power back o the people. Informal sector players, regardless of how little they may be earning, can proactively safeguard their retirement future. This means more stability for the incoming elderly generation and less pressure on the government to protect them.

According to a report by the International Labor Organization (ILO), over 2 billion of the global employed population, 15 years and older, is in the informal sector. In Africa alone, over 85% of the employed population is informal.

Oftentimes, when people think about pensions, they think of it as a privilege only the formally employed have. In the past, this meant that a vast majority of the working population (the informal sector players), retired into poverty. The situation meant that younger family members had to commit to taking care of their older relatives which was more likely to increase the chances of extending the poverty cycle.

According to the East African Community, the Pension coverage rate was approximately 10% and majorly covered formal sector employees. The good news however is that in 2021, the community introduced more affordable and inclusive retirement schemes for informal sector players, who are the majority, in a bid to increase pension coverage.

In the race for this inclusive pension, move are Kenya, Uganda, and Rwanda. Other African countries making similar adjustments include South Africa, Nigeria, and Ghana.

Studies project that by 2060, Africa’s population will consist of over 300 million old people (60-70 years old). Without such affordable and inclusive approaches to retirement saving, the pressure on governments to provide social protection and welfare to this population will be insurmountable. The move ensures young people, regardless of whether they are formally or informally employed, have an opportunity to contribute to and safeguard their retirement future.

One of the key enablers of the financial inclusion and pension provision move in the informal sector is Financial Technology (Fintech). For example, Rwanda has capitalized on the high mobile penetration to create a harmonized approach to financial inclusion and the adoption of saving products.

“Pension systems should aim to provide adequate benefits as well as enhance coverage. They can also play a significant role in fulfilling the diverse financing needs of various sectors of an economy and thus contribute to the economic development of the EAC region,” says the East African policy.

In Summary

Retirement savings are generally low in East Africa, and the numbers are even lower for informal sector workers. Such statistics are worrisome considering these workers make up a majority of the workforce. The low pension saving numbers ultimately mean that many people retire into poverty. It also means that there is high pressure on the government to provide social security.

The move by the East African Community gives power back o the people. Informal sector players, regardless of how little they may be earning, can proactively safeguard their retirement future. This means more stability for the incoming elderly generation and less pressure on the government to protect them.

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