Key Takeaways of the Arab Pensions Conference 2021
The Arab Pensions Conference 2021 took place on 16-17 November, under the Patronage of His Excellency Lieutenant Dr Shaikh Mohammed bin Abdulla Al Khalifa, Chairman of the Supreme Council for Health, Chairman of Al-Hekma Retired. The Conference gathered more than 500 delegates from global pension funds, financial managers, actuaries, investment firms, wealth managers, and fintech businesses.
In a series of sessions, the Conference discussed critical matters relating to pension reforms in the MENA region and the importance of financial literacy in building a savings culture, especially with an increasingly ageing population. Individuals, including expatriate workers and informal workers across the Arab world, have been advised to save in private pension plana as much as possible utilizing fintech solutions.
The complete recordings of the Conference are available at: https://fintechrobos.com/ArabPensionsCon2021#Videos
We have summarized a few takeaways here below:
The first session stressed the importance of acknowledging changes in demographics in MENA region, and longevity risks that come with it, especially that such risk is both unmeasurable and unpredictable. Pension funds must therefore attach great importance to longevity risk, perhaps using a precise dynamic life table encompassing specific regional demographic analysis. Maintaining deep knowledge of the retiree population is essential to ensure that the liabilities' trajectory evolves accurately.
The second session tackled the need to build a new universal social protection tier across the region, particularly with the large population of informal workers. The panelists suggested a retail proposition due to the lack of pension products in the Arab world that grants informal workers access to a saving plan. It is ideal to have more reliable and specific retirement saving products provided by a pension provider who offers the same pension plan to multiple employers, including expatriate and informal workers. Another suggestion presented at the conference was using technology to make savings more automatic, such as integrating savings deduction into invoicing software or point-of-sale payment platforms.
The third session pointed out that the response of households and individuals to the pandemic depended so much on their financial literacy level. Many people did not have a written financial plan because they thought it was too complicated, nor were they prepared before the pandemic. The majority did not have emergency funds to cover three months of expenses; moreover, not everyone was equally prepared to work remotely. The session emphasized the need for, and importance of, financial literacy. For instance, there was a higher savings rate in countries where people knew about the global financial crisis.
Diversification of Assets
The Conference also discussed the need for geographical and regional diversification of invested assets to ensure higher returns for pension funds. Pensions funds must increase allocations to alternatives, have smart mangers that are aligned with their return goals, be nimble and ensure that they have the right portfolio for today's environment hedge against risks that might not have existed before; especially that inflation or consumer prices for October 2021 were 6.2% higher than what they were a year ago and the highest since 1990.
The MENA could adopt successful global DC pension reforms driven by substantial, transparent legislative or regulatory reforms, with technology as a critical enabler. One without the other will not be enough. This started the conference discussion on the role of Fintech in decentralizing the regional retirement sector by giving citizens personal control over their pension planning.
As Covid-19 has accelerated global digital solution adoption, a report by a Boston Consulting Group claims that 79% of Saudi vs 66% of Europeans are willing to share their financial data to trade for a better consumer experience, which is an indicator of the high adoption of digital solutions in the MENA. With that, Robo-advisory is believed to be the best provider for pension provision.
In the MENA, with the End of Service Benefit Promise granted to expatriate workers, actuaries look at it as a saving scheme that is like what is in Europe. It is essentially a saving pot that employers guarantee and pays out at the end of the service. Fintech could be utilized to achieve a multi-pillar pension regime in the region by shifting the end of the service promise into a pension scheme invested outside the employer's balance sheet. Policy makers could consider turning the end of service promise as a steppingstone towards achieving an effective and efficient private pension scheme or an employee pension scheme in the region.