Micro Pensions An Oppertunity for MFIs

WorldGranny

Pension & Development Network

Global Microcredit Summit 2011 in Valladolid

Microfinance and the Elderly

Caroline van Dullemen

Worldwide

1950

>60+ yrs = 205 mil

2000 x3

>60+ yrs = 606 mil

2050 x3

>60+ yrs = 2 billion

Population ages – demography changes

Paradox of development

People live longer, but the costs of living also increase: both for societies & individuals

-Decline of economic growth

-Increase of old-age related costs

-Increasing budget strain for emerging economies

-Increasing burden for those living longer

- Women/mothers! are affected more than men

-Poor & informal sector workers uncovered

-Developments proceed rapidly!

Micropensions: opportunity for microfinance sector Demographic change global ageing

Socio-economic change breakdown of family support structures

Pension system

Reality in developing countries:

• In 86 low/middle income countries 1st pillar social pensions

• 2nd pillar available civil servants, military & middle class (provident funds)

• Exclusion of many informal sector workers in emerging markets

1st Pillar

• Social pensions (government)

2nd Pillar

• Occupational private pensions

3rd Pillar

• Personal private pensions

Micropensions: opportunity for microfinance sector

Effects micro pension

• Security against old-age poverty, especially women/mothers

• Improve living standards in retirement incl family

• Shift of resources from survival towards investment;

• Through old-age income, older people play supportive role in family structure;

• costs depend on scale/design/context

Challenges micro pension scheme

Contractual savings

Longevity risk-sharing

• Collection contributions in safe & efficient way

• Secure responsible and productive investment of contributions

• Paying benefits timely and correctly

• Building trust, improve pension awareness and maintain effective communication

• Ensuring effective and reliable governance

• Asset management

• Making optimal use of existing structures and combine local and international expertise

Contractual savings

Longevity risk-sharing

Pension model

Cultural aspects

Target group

Government

Macro-economic &

financial environment

Institutional aspects

Administration

Asset management

Risks

…

Product development Micro pension provision stakeholders

How is the product

developed?

Product development Micro pension provision

Variables in micro pensions

-eligibility age

-length of payment period

-minimum investment period

-minimum pension amount

-maximum amount of premium a client can afford

- operated through partner – agent model

Product development Micro pension provision

Possible models of micro pension provisions • Defined benefit (DB)- benefit is guaranteed, inflation poses biggest threat,

higher risk investments, risk is carried by MFI

• Defined contribution (DC) -benefit depends on investment returns (reliable & profitable), risk with participant

• Hybrid solutions – DB up to a basic level, DC on top of that basic level – Collective DC; participants share risks and returns collectively

• Payout - Options of either lump sum or buying annuity

Opportunity for microfinance sector Micro pension provision

Potential for MFIs

- Long term commitment of client

- Attract savings & mobilize deposits

- Provide high quality product

- Solid base for scaling up (insurance)

- Realize market segment

Opportunity for microfinance sector Micro pension provision

Potential for investors

- Long term commitment to MFI

- Growing demand & need

- Establish developing market segment

- Low cost (mobile banking)

- Compulsory option

- Product easily expandable

WorldGranny Pension & Development Network

Unions

Universities

Advisory organisations

Government

NGOs

Banks

Supervisor

Asset managers

Pension management

org.

Insurance companies

Aims •Building bridges between financial experts in the Netherlands and the microfinance sector in emerging markets; •Exchanging knowledge and experience.

The Pension & Development Network

The Pension & Development Network

Role of the P&D Network: social consultancy

- Development procedure of 3 phases:

1. Market research/feasibility

2. Product Development

3. Implementation & execution

Timeline of 1 – 2 years

- Provide consultancy and Tech Ass / training

Running & future projects of the P&D Network

Mongolia

Guatemala, Honduras & Nicaragua

Georgia

Philippines

Kenya India

Laos & Vietnam

Sri Lanka

Tajikistan

Lessons learned

Contractual savings

Longevity risk-sharing

•Ageing population demands pension provisions; •Future pension coverage will need to cover informal sector; •Most emerging economies lack private pension scheme; •Insurance sector is scaling up & attracting investments;

•Strong need for reliable savings product amongst middle class, lower class and the poor; •Understanding of changing traditional family support system; •Global ageing not yet on agenda governments;

•Micro pensions are not a quick win •Trust is the most important issue

Thank you!

Contact

Cvdullemen@worldgranny.nl

www.pensiondevelopment.org

Twitter: @Pension4All