This archive report was first published on 26 August 2019.
As people age, economic volatility increases, making it essential to manage income and expenditure risks in old age. This is particularly crucial when one retires.
However, formal pension programmes such as the National Social Security Fund (NSSF) and cash transfers have been limited in their coverage, with few incentives for employees to participate.
Administrative and governance difficulties have also plagued these programmes, and in many cases, they have not been financially sustainable.
Despite these challenges, some important reforms have been carried out to address these issues, including the recent amendments on the NSSF Act and the adoption of the risk-based supervision by the Retirement Benefits Authority.
These reforms aim to strengthen the governance framework and ensure universal coverage.
According to the NSSF Act No. 45 of 2013, several changes were introduced to provide basic social security for members and dependents, introduce universal coverage to working populations, and improve the adequacy of benefits.
One of the key proposed changes was the increment of contribution rates from the current ceiling of contributions to a rate of 12 per cent (six per cent employer and six per cent employee).
A recent survey revealed that the average Income Replacement Rates (IRR) of pension schemes are at 25 per cent, compared to the global target rate of 70 per cent.
To achieve a sustainable IRR, organisations need to re-examine the adequacy and sustainability of the current benefits structure, align investment strategies, and develop a communication plan to advise their employees on the importance of increased savings.
