“Towards A Futureproof Regional Pension System”

Preamble

In their fifth decade now, pension systems of the MENA countries are still exclusively reliant on government funded pay-as-you-go Defined Benefit schemes. These programs tend to be quite generous, but are facing increasingly huge funding deficits, making their long-term viability a mounting concern.

Beyond this, many companies in the region provide employee savings schemes, however these are not formally regulated and do not tend to be professionally managed. Expat workers are paid the mandatory End-of-Service benefits. Nonetheless, such schemes are inadequate as a pension arrangement, and represent unfunded liabilities on the balance sheets of employers. Dubai’s DIFC is the only jurisdiction that has lately introduced a mandatory workplace saving scheme.

Voluntary pension savings is possible but is not formally regulated or incentivised. The range of tailored products available for such savings is minimal and awareness of the importance of long-term savings is limited, albeit gradually growing.

From a global perspective, the pension industry wants more people to have better access to quality pensions products. They also want to increase the supply of institutional assets that can support long-term savings.

By 2050, the global population segment aged 65 and older will have doubled from 10% to 20%. Nearly 1.3 billion (80%) of these elderly people will live in low-income countries. Yet, two thirds of this population are today outside the coverage of formal retirement systems.

Pension systems contribute to providing income in old age, disability and premature death of family wage-earners. In addition, pension systems contribute to promote long-term savings, which in turn boosts economic growth and financial systems.

The Arab Pensions Conference 2020 poses the following questions (Agenda):

Day 1

Opening Remarks

10:45 Bahrain Time

Ebrahim K Ebrahim,

Chairman, the Arab Pensions Conference

First Session

11:00-12:15 Bahrain Time

Can Public Defined Benefit Pension Systems be Saved through Parametric Reforms? 

What do the actuaries say…

The outbreak of Covid-19 has dealt a crippling blow to the global economy. In many countries, savers have decreased or stopped retirement contributions due to the pandemic. The issues governments are facing today are growing faster than many countries anticipated. Using the asset-to-payout ratio, some funds have assets equal to just a few years’ worth of benefits.

As the retirement funding challenge exacerbates, can public pay-as-you-go pension funds be rescued and made sustainable? How much can parametric reforms (increasing contributions and lowering benefits) and so-called behaviourial conditioning - delaying retirement, designing extra benefits for those extending their working life, and decreasing benefits for early retirees - save in the funding crisis of these funds? 

Second Session

15:00-16:15 Bahrain Time

Can and should governments in the region finance the current deficits in pension funds?

What do the economists think…

Will the world be ever able to bridge the funding gap in pension systems? Can and should governments in the region finance the current actuarial deficits? The world’s six largest pension systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to reach a $224 trillion gap by 2050. And by adding China and India, the combined funding gap for the eight countries reaches $400 trillion by 2050, a sum five times the size of the current global economy.

In the GCC, the aggregate funding gap in public pension systems has exceeded 25% of the region’s total GDP. In light of current fiscal pressures due to the new normal of low oil prices, and after governments have generously spent on financial packages to mitigate the negative effects of COVID-19 on local populations and business, can governments actually, and should they, refinance these funds?

Day 2

First Session

10:30-11:45 Bahrain Time

In the face of quantitative easing and increased liabilities,

 How Should Pension Funds Allocate their Assets?

What are the CIOs’ answers…

The world has seen more than10 years of quantitative easing that was supposed to be a central bank’s temporary fix. Bonds, that once provided pension funds a convenient income stream for their retirees, have now become a return-free risk. In the last four years, many government bonds started to look more like return-free risk, than risk-free return, carrying negative yields.

In the face of long-term depressed interest rates and increasing liabilities, where can pension funds look for growth? How much infrastructure and other alternatives should they take? In doing that, to what extent they are expected to adopt modern investment principles such as LT Investment, fiduciary capitalism and Social Inclusion?

Second Session

12:00-13:15 Bahrain Time

Considering Funding Challenges and Changing Labour Market,

What Does it Take to Re-model Regional Pension Systems to Multi-Pillar Structure?

What are the Financial Industry’s views…

Are current pension systems fit for purpose? What does the future retirement look like, and what could be the dynamics? How should the pension industry prepare employees from today? Around the world, labour markets have witnessed fundamental changes, even before COVID-19. The gig economy and economic migration are two examples? Is re-modelling regional pension systems to the global Multi-Pillar structure the solution to a futureproof system? Who should lead on innovation? What is the impact of these changes on financial markets?

Monday, April 26, 2021
12:00 pm-1:30 pm GMT (8:00 am-9:30 pm EDT)

Welcome and Introduction
Keiko Miwa — Regional Director, Human Development MENA, The World Bank

Opening Remarks
Ferid Belhaj — Vice President, Middle East and North Africa, The World Bank

Video Clip

Panel Discussion
Moderator: Michal Rutkowski — Global Director, Social Protection and Jobs, The World Bank

Speakers:
Ferid Belhaj, MENA Regional Vice President, World Bank
H.E. Ms. Mouna Osman Aden, Minister of Social Affairs, Djibouti
H.E. Ms. Nivine El-Qabbage, Minister of Social Solidarity, Egypt
H.E. Ayman Riad Al-Mufleh, Minister of Social Development, Jordan
H.E. Mr. Mohamed Trabelsi, Minister of Social Affairs, Tunisia
H.E. Dr. Khaled Mahdi, General Secretariat of the Supreme Council for Planning and Development Ministry of Finance, Economic Affairs, and Investment, Kuwait

Closing Remarks
Ferid Belhaj — Vice President, Middle East and North Africa, The World Bank

Conclusion
Keiko Miwa — Regional Director, Human Development MENA, The World Bank

 Session 1, Day 1

What’s the socio-economic imperative for household savings? What’s its economic power?

What’s household savings, and how is it explained by economists? How important is it to households, and to the economy? What are the right ratios of savings? What are the determinants and motivations of savings?  What are the levels of savings balances in the MENA, and are they growing year after year? Is the savings ratio in the region healthy, or we’re living a savings crisis, and spending like there’s no tomorrow! Is the savings ratio measured, and how’s that done? Is there a relationship between national savings rate and national social security? 

 Session 2, Day 1

To turn MENA into savings economies:  what culture and which products do we need to build?

Much of the structure of GCC economies should already be motivating personal savings, yet it’s not resulting in an adequate rate of savings today! Why is that? Could some reforms stimulate additional saving by increasing the reward? Could the introduction of longer-term assets make it possible to obtain fixed long-term real returns? How can financial education and behavioral finance help the socially conditioned behavior of savings?

On the other hand, what are the products the regional financial industry offering to encourage and nurture household savings? And how are we building a savings and investing culture, and overall financial literacy in the region.

 Session 3, Day 1

Why so much interest in financial literacy lately? What difference will it make? Fireside Chat

What’s Financial Literacy and why has its concept been growing significantly in last 5 years? How’s financial literacy been built in the US based on the GFLEC’s experience? How can we advance the agenda of financial literacy around the world? Is an institutional framework a must to start this? How’s financial literacy today reflected in policies and actions? How does financial literacy specifically impact savings and investing behaviors of households? And does it contribute to the effective delivery of consumer financial products and services ?

 Session 1, Day 2

Where can households save? What’s the ideal vehicle? Incumbents vs. Challengers

What’s the landscape of long-term savings vehicles today? How do households currently choose and differentiate between stocks, bank deposits (with attractive raffles), retail bonds, REITs, life policies, mutual funds, ETFs and money market? What are the characteristics of the ideal vehicles for household savings? And how should those vehicles perform in terms of growth, safety and adequacy to the household life journey? 

 On the other hand, what’s driving the structure and launch of today’s crowded banking, insurance and investment products? Are institutions trying to find customers to their products, or working diligently to address their clients’ real needs? Where should financial firms focus their efforts to succeed in addressing household savings needs? 

Under the disguise of closing the advice gap and democratising investing, a number of big asset managers have launched their wealth management platforms, directly competing with advisors. How will this move disrupt the ‘rules of the game’ in the product distribution league?

 Session 2, Day 2

Will Fintech change the way people save? Will people make the shift to Fintech?

A wave of Fintech apps is starting to change people’s attitude towards managing their money. Clients are appreciating being able to keep tabs on their money in real time. They can set savings goals, check how they are spending, allocate money to different accounts and monitor their savings.

The landscape will further diversify as new propositions become increasingly popular with customers demanding digital-first and needs-based solutions. Digital challengers have been steadily taking current account customers away from incumbent banks for a few years. The new savings propositions include: Automation, Goals & Pots, Marketplaces and Robo Advisors.

These digital savings tools seem to offer a fresh approach to saving: helping people reach their goals in a more enjoyable and sustainable way. The big question is:  how do these digital propositions generally compare to the incumbent big institutions in terms of safety and sustainability? And how long will it take MENA clients to make a paradigm shift towards these digital challengers?

Day 1

Mar 29  |  10:00 - 11:20 am (GMT+3)

Session 1 - The Role of Financial Literacy in Households’ Financial Decisions

• The psychology behind our best and worst financial decisions
• Housing as wealth and its impact on consumption, savings, and welfare
• Financial struggle and household mental health
• How does that affect household savings rates?

Mar 29  |  11:30 - 12:30 pm (GMT+3)

Session 2 - Have Monetary Easing and Lower Interest Rates Hurt Savers?

Who benefits more from quantitative easing: savers or borrowers, the poor or the wealthy?

• Does it create income and wealth inequality?
• How are low interest rates affecting savers?
• How should savers change their investment style during quantitative easing?

Mar 29  |  12:40 - 2:00 pm (GMT+3)

Session 3 - The Role of Governments in Protecting Workers from Income Shocks

Fatality, unemployment, and unprecedented economic disruptions can have a considerable long-term effect on household financial wellbeing. What socio-economic policies need to be in place to ease idiosyncratic shocks? How could governments help households recover and be protected against future economic shocks? How can governments accomplish a national social protection system that is shock responsive?

Mar 29  |  2:10 - 3:40 pm (GMT+3)

Session 4 - Digitizing Finance and Financial inclusion

Fintech tools around the world are offering a fresh approach to managing one’s money: helping people to make digital payments, monitor and analyse their spending patterns, or even build savings plans.

What progress are these making in achieving financial inclusion? How are they helping individuals have access to affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way?

Day 2

Mar 30  |  10:00 - 11:20 am (GMT+3)

Session 5 - Towards Building a Regional Household Savings Index

What’s the personal savings rate in MENA and how should it trend in the long-term? How much does the average citizen have in savings? Which countries have the highest and lowest savings rates in the region? How do we go about building a regional household savings Index? How should we harness savings policies to serve the growth of national economy?

Mar 30  |  11:30 - 12:30 pm (GMT+3)

Session 6 - How to Build a Successful Investment Portfolio

This is an opportunity to look under the bonnet at the critical elements for successful long-term investing. Panelists will take you through the key principles of portfolio construction and management, including asset allocation, portfolio risk levels and governance, and how combining with factors you can control, such as reducing all-in management costs, builds a more robust long-term financial plan.

Mar 30  |  12:40 - 2:00 pm (GMT+3)

Session 7 - Wealth transfer: Multi-generational Wealth Planning

The “Great Wealth Transfer” is well and truly upon us, and the variety of issues surrounding everything from succession planning to generational friction on how to invest for future growth, or wealth preservation has been thrust into the mainstream.

Wealthy families in the region are dealing with many of the same issues as their counterparts in other parts of the world, in transferring wealth from one generation to the next and ensuring the needs are met across multiple stakeholders with different motivations. As such, it’s top of mind to many, and they are looking for solutions and advice.

* Timing is subject to change

Tuesday 15 February 2022  |  11:00am (GMT+3)

• Covid-19 and Ageing: Pensions at a Critical Juncture  

• Chapter 1 – Recent Pension Reforms

• Chapter 3 – Design of Pension Systems

• Chapter 6 – Demographic and Economic Context

• Chapter 8 – Finances of Retirement-Income Systems

• Chapter 9 – Retirement Savings and Public Pension Reserve Funds