INFRASTRUCTURE AND DELIVERY SYSTEMS

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Savings Contributions & ServicesEnrolment

Pension provision & services for pensioners

Retirement

Individual’s LifecyleWhat does it mean for Pensions?

Enrolment

• Proper Identification of Individuals

• Electronic enrolment processes

Contribution Collection

• Electronic payment processes

• Ensure all contributions are accounted for

Balance and Services

• Establish channels to provide access to services, benefit calculations and balances to individuals

Provisioning for Pensions

• Provide a simple process for individuals to initiate and conclude pension withdrawal processes

• Maximize individual's benefits by ensuring single benefit is payed out to individuals

What are the main components of the pension system?

People should be able to verifyup-to-date balances (including Accrued interests) on a simple service (Unitization)

Funds need to flow efficiently and costeffectively to the fund manager,smallest amount of time to get

invested in an automated process

Information is fed from different sources (paper, electronic) and they need to be reliable

Process should not be complexBuild trust in the Pension Scheme

Long Term Investment Horizon

Enrollment Contributions

WithdrawalsBalances

Operational Challenges

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Pension Administration

5

EmployerCollecting Entity

(Bank/Social Security/Tax Authority)

Central Recordkeeping

Collecting/ Clearance Bank

Pension Fund

$

$

Asset Management

$

Individuals

Are mandatory contributions enough?Contribution density in Mexico

How many have “constantly” (over 60%)

been contributing since 2009?Only 6.4 millon

workers keep contributing

regularly

Out of 14.5 millon workers that were

contributing in 2009W

ork

ers

Bi-monthly mandatory contribution period

Kenya’s experience

• The MBAO Pension Scheme was created in 2007 with the support of the regulator

• By 2016, the total number of accounts in the MBAO Pension Scheme has reached over 76,000 members.

• Individuals can contribute from 0.20 USD, and can withdraw after 3 years

• Improvements to the scheme in pension administration, outreach and product design would help the schemereach it’s potential of 12+ million

• Economies of scale continues to be the primary challenge

Informal Sector Workers

Marketer

Mobile MBAO Secretariat

Custodian

Contributions Telco’s Administrator Fund Manager

Co-Op

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Uganda’s experience

Informal Sector Workers

Marketer

MobileVoluntary Pension Scheme

Custodian

ContributionsTelco’s

AdministratorFund

Manager

Bank of Uganda

• In 2016, only around 10% of Ugandans had any old age social security or retirement benefitarrangements.

• In 2016, MAZIMA and KACITA were licenced as the first schemes to focus on informal sector workers

• In 2017, MAZIMA retirement mobilized about 1000 Ugandans with savings of about UGX 600 million1.

• Similar challenges are found in MAZIMA to those found in the MBAO Pension Scheme.

• In 2017, NSSF introduced their own voluntary contribution incentivizing ex-formal workers to continueto contribute to the Provident Fund (latest information suggest they have reached a few thousand)

Mexico’s experience: Using Alternative channels to facilitate voluntary savings

• From 2014 and 2018, over 14,000 new touch points (convenience stores) have been introduced

• In 2017, the "AFORE Móvil“ APP was launched as an innovative mechanism to bring the pension system closer tomillions of Mexicans

• This digital tool allows citizens to initiate or increase long-term savings through their cell phone, and use credit cards

Formal and Informal Sector Workers

Banks, convenience stores, drug stores and mobile money transfers

Mobile APPs:Regulatory Authority APP &PFA´s APPs

Channels

Savings Routing through Central

Switch

Pension Funds Administrators:Nowadays in Mexico there are 11 PFA

Fund Managers

6,863.47 7,243.02

8,861.36 9,103.85 9,978.91

10,801.27 258.30 326.83

405.90 511.33

600.95

664.21

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

11,000.00

12,000.00

2012 2013 2014 2015 2016 2017

$ U

SD M

illio

ns

Evolution of resources deposited in the Mexican PFAs(Units in Million of USD Dollars)

Legal contributions (RCV IMSS & ISSSTE) Voluntary Savings

Source: CONSAR, 2018; Units in dollars considering the fix spot rate published by Banxico

• In 2017, 3.9 millions individual accounts had received at least one voluntary savings contribution since1997 (less than 8% of all individuals)

• On average, those accounts hold $170.30 USD dollars of voluntary savings

Mexico’s experience

BDNSAR

Private Sector (1997)

Government Agencies

Employers

DB

Public Sector (2007)

Social SecurityAgencies

PFA Switching

Collection of Contributions

11 PFAs

Mexico’s Switch

Using Beharioural EconomicsBehavioural barriers to make deposits

• Setting up simple voluntary savings channels is the first step, we need to look at how to make people use new channels and change behavior towards savings

http://www.ideas42.org/blog/pathway-better-retirement-mexico/

• The conclusions of the study pointed to new behavioral implementation policy currently being evaluated through RCT pilots underway include

– New balance statement

– SMS reminder messages to make voluntary savings contributions

– Using Afore’s sales force to promote voluntary savings

– Punch Cards

• How to Help the Poor to Save a Bit: Evidence from a Field Experiment in Kenya

Using Beharioural EconomicsHow to Help the Poor to Save a Bit: Evidence from a Field Experiment in Kenya

MNOs’ Role

• As mobile phones proliferate, mobile money has given MNOs an opportunity to diversify.

• MNOs offer a high number of access points, both for urban and rural areas.

• Through the access points individuals can perform cash-in and cash-out operations.

• Some MNOS have launched mobile banking products, which allow individuals to send or receive money,purchase products online, make transactions in supermarkets, pay bills and purchase airtime.

• Some of the services that are available thorugh mobile money are:➢ Recharge mobile telephone account’s credit➢ Transfer money to other users (local remittances)➢ International remittances to and from countries in the region

• Given the widespread growth of mobile network service, mobile phone could be considered as a method foran individual to make contributions to a pension plan.

• Product design must pay special focus on flexibility and consumer centricity• Products should cater to individual’s needs as much as possible, to the different stages of their lives, and address

the incentives that could call them to action• It is important to personalize financial products to respond to the characteristics of the individual’ financial cycles

and daily habits, that including: cashflows, preferred channels, etc.

Savings Contributions& ServicesEnrollment

Pension provision & services for pensioners

Retirement

Product design (flexibility and costumer centricity)

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• Operational and IT

• Validate against National ID (IPRS, NIRA)

• Single Database with all transactions

• On-line Services (account statements, mobile withdrawal, etc.)

• Customer Service

• Automated and systemic resource reconciliation

• Operationalize a Flexible Product Design

• Pension Sub-account structure (Short & Long Term Savings)

• Communication Infrastructure (SMS reminders, transactional and contribution confirmations, etc.)

• Transparency in yields and costs (Unitization, or yield and fees daily reconciliation)

• Infrastructure with high level of transactions in mind (compared to traditional pensions administration)

• Outreach

• Use existing networks that people trust

• Provide constant financial literacy capacity and support

Factors to Increase Chances of Success of Informal Sector Workers Schemes

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short-term savings

long-term savings

additional benefits

sub-accounts

Member’s Account incentives

Conclusions

Informal Sector Pension Schemes require specific infrastructure

The Infrastructure may be available within the same Pension Fund Governance, but not alwaysworks efficiently

The outreach programs need to be focalized and should leverage outreach organizations(associations)

The operational infrastructure needs to be efficient and low cost

Pension fund investments needs to have long term and short / middle term focus

Regulation should be a flexible and strengthened to harness micro savings and old age savingsschemes

Products and services may be bundled in order to increase interest and appetite of informalsector workers providing specific products to the different cohorts

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