Extending Pension Coverage to the Informal Sector in Africa

The coverage of pension systems in the Africa region is limited to the small segment of the population in the formal sector. Coverage is thin partly because traditional contributory pension schemes are not responding to the needs of the informal sector. As a result, a large share of the region’s adult population has no access to contributory pension schemes during their working lives. This means they will not be eligible for a pension. It also means the elderly coverage gap will persist in most countries. Expanding coverage to a larger group of workers is especially important because the elderly is now often cared for by their children. As the children move to cities, their ties to the elderly and home villages weaken. As a result, the elderly may be left behind with fewer resources.

An increasing number of governments in the region are examining initiatives to extend pension coverage to informal sector workers. This paper argues that informality represents distinctive issues in the provision of retirement income that cannot be addressed merely by extending conventional pension systems to these workers. Different solutions are needed to tackle the unique characteristics of this group, some members of which may have the potential to save, but not sufficiently to participate in traditional contributory pension systems. That the scheme does not rely on a formal employer-employee relationship is an important characteristic and contrasts with formal sector pension plans based on formal employment contracts pension scheme for the informal sector. This paper aims to provide recommendations on the main principles of a pension scheme for the informal sector.


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