Why pension, insurance ain’t popular


This week, the Reserve Bank of Malawi (RBM) and other stakeholders are busy hosting what has been branded the Pension and Insurance Awareness Week to popularise the two products and stimulate their uptake.

RBM Governor Dalitso Kabambe said ahead of the week under the theme Pension and Insurance for All that it was a concern that individuals and households do not prioritise pension and insurance in their planning.

It is indeed a matter of concern that only about 304 000 people out of a population of 17 million have pensions. It is even more worrisome that insurance penetration is estimated at a meagre 1.4 percent.

Pension is basically a retirement savings plan where one saves part of their income today to use on a rainy day, especially when one is in the “sun set” years of life.

Insurance, on the other hand, is all about protecting people and businesses’ assets as well as covering one’s life to ensure beneficiaries are not left in the cold.

From the loose definitions, there is a thin line between pension and insurance. Perhaps the difference is simply the terminology but, at the end of the day, they both seek to guarantee peace of mind.

Before we cry the loudest, perhaps it is important to look at the underlying contributing factors to the prevailing situation. Why is it that Malawians would invest millions in putting up a mansion, but cannot spare a fraction of their earnings to insure the lifetime investment against fire, natural disasters and even theft?

Why is it that it is mostly people working in the formal sector who are on pension? How many people would buy a pension product while doing business?

In the case of short-term insurance, it is mostly motor vehicle insurance which is the most subscribed product. Why? It is because under the Road Traffic Act of 1997, no vehicle is allowed to ply the country’s roads without an insurance cover.

For their part, insurance companies and professionals have tried every trick in the book to develop products in the hope of stimulating uptake by the public. However, the going has not been easy.

When I raised similar questions the other day on why insurance growth was stunting, one insurance professional told me that “insurance follows the fortune of the economy and our economy hasn’t been performing in the last decade…”

What this means is that much as people can be innovative, much as RBM can host awareness weeks, if the economy is rough, few people will buy insurance products. The tough situation is evidenced by a high default rate on payments for premiums by both individuals and corporates. In the case of pensions, many companies are in arrears in terms of remitting contributions to pension fund managers.

In South Africa, the insurance penetration rate stands at 16.9 percent of the population whereas in Namibia it is at 6.7 percent and in the United Kingdom 10.5 percent.

The new Pensions Act came into effect on July 1 2011 and made pensions mandatory for those in the formal sector. How many people are in formal employment?

How far has the new Pensions Act contributed to growth? There are myths and fears that need to be clarified.

For instance, some who have retired have wondered why retirees are given 40 percent as a lump sum on retirement and the remaining 60 percent is “held” by the fund managers for monthly disbursements. They have queried why not make it a 60:40 arrangement.

Yet others have also claimed that in-house pension funds seem to give better yields than formal pension funds.

People should be made to know that pension contributions are in preparation for a better tomorrow. They are a preparation for a sustained better life after retirement.

Pensions and insurance should indeed be for all. But how? There is need to demystify the products, but again it is critical to improve economic management so that people have disposable incomes to make more savings through pension and adapt to buying insurance products.

Happy Pensions and Insurance Awareness Week. n


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