Institutional Investors, especially pension funds are facing major challenges going forward as many of them are facing significant shortfalls which means that the bulk of their future liabilities is yet underfunded.
A big cause of this is people are simply living longer and, in most circumstances, the projections of life expectancy used to calculate life expectancy were at best outdated.
Pensions reform is both the largest challenge and opportunity that Africa’s policy makers face right now for several reasons:
- Pension reforms gives governments the opportunity to reshape the whole economy from labour relations, levying and collecting taxes, raising investment capital, industrial policy, education reformation etc.
- This is where Africa’s demographics can really pay dividends because it has a very young economy and by creating conditions where contributions are increased then this will allow the nation to invest and build wealth over time.
- This gives them the opportunity to bring everyone into the formal economic system.
From the perspective of the institutional investors, they face three main challenges:
- Low awareness and low collection rates.
- Low internal operating standards
- Lack of expertise in global asset allocation especially in nations with high inflation.
In transforming the pensions and general social security systems in Africa, a lot of emphasis has been given to the form of pensions whether as a defined benefit or defined contribution and so on.
However, not enough attention was given to the desired outcomes, or they were not specific enough to drive performance across the board.
This is the reason we launched the ‘Centre for Excellence for African Institutional Investors’ to salvage and help nurse the sector back to life and profitability.