You know it and I know it; the vast majority of Zambians do not have pensions, and even for those with the financial resource to join a scheme it is not on the top of their priority list. If you took a quick survey, most people would affirm that they know a retirement plan is important, the problem is they would not consider it to be urgent and thus have trouble overcoming negative perceptions on retirement.
As we shape our value proposition to prospective scheme members, we need to keep in mind the attitudes and ideas that stand in the way of more people making that decision to make use of a pension scheme. Societal attitudes are often shaped over years, and attitudes to pensions are no exception. Here are five common attitudes to pensions, and some tips on how to overcome them:
Ideological background
Zambia has emerged from a largely socialist background, with our own version called humanism as the national driving principle. While many things have been called socialism and humanism respectively over the years, a common principle is the central management of resources for the benefit of the whole community. This means the common understanding of financial security was a centralised system where the employer or the state would take care of a productive citizen through all stages of life, including retirement.
Enter the 1990s and privatisation, and a lot of people found personal financial management strange and scary territory. The word investor was equated to foreign direct investment, and few people knew how to take control of their financial future. Since then, a lot of citizens have found their feet financially, and are making their mark on the economy. But for a lot of people they still consider preparing for retirement as something that is out of their hands.
Effects of inflation on approach to long term investment
Another factor leading to a negative attitude, is the points in time when Zambia has experienced rapid inflation. In the late 1980s, there were times when prices almost doubled overnight. Which such a background, people knew that holding on to money would be counterproductive, let along saving it. Converting money to fixed assets was the primary way of preserving its value. Various pension schemes at the time did not account for inflation very well, leading to a plethora of near-destitute retirees. The “hangover” effect of that era is a scepticism towards savings and long term financial instruments. These fears have to be allayed if the modern Zambian is to take up pension schemes.
Short term needs versus long term
Another default way of thinking is that short term needs supersede and effort for long term financial security. There is a common feeling that short term wants and needs justify neglecting preparing for the future. What a lot of people forget is that one day retirement will be immanent and a matter of pressing short term needs as well. The difference is, there will be no adequate short term solution at that point.
Another default way of thinking is that short term needs supersede and effort for long term financial security. There is a common feeling that short term wants and needs justify neglecting preparing for the future. What a lot of people forget is that one day retirement will be immanent and a matter of pressing short term needs as well. The difference is, there will be no adequate short term solution at that point.
Preference for assets over pension protection
Home ownership is the middle class dream, to enter the upper echelons of the rent free life! For many people, the cost of rent is a big chunk out of their monthly income, and many people devote all their resources to ending this. While home ownership is important, it is not the whole financial security story. There will still be several bills such as land rates, utilities (electricity and water), maintenance and repairs. Meeting even these basic needs can be a challenge if one has no income at retirement. Let home ownership be part of the solution for future comfort, but not the whole story.
Traditional social security – village community set up
African traditional society was governed by an Ubuntu philosophy. No one existed for their own benefit, but they stood on the shoulders of predecessors and had a duty to pass on knowledge and resources to the next generation. There was also a duty of care to all other members of one’s community, including the elderly. Because of this background many people, especially in rural areas, feel that their family is their social safety net. This means that many in the farming community will only consider short term financial investments, meeting immediate needs which may not go beyond the next farming season.
While the culture of community care is commendable, it is also good to foster financial freedom. The one or two members of the community who manage to grow a business need not provide for the financial needs of the whole community, which may well bankrupt their business. Instead, the measurement of a community should be by the growing number of financially stable people. This in term will allow others to grow their businesses further which will strengthen the community.
To tackle these deeply rooted problems in overcoming negative perceptions on retirement, I would recommend three steps to be taken:
Address the danger of procrastination
Firstly, emphasise the importance of the mantra “little by little makes much.” Discourage the lottery mentality that creates the illusion of a short term investment with instant massive yields. Refer to real life stories, we all at heart like stories we can relate to, and not everyone can project using statistics. All this must culminate in a sense of urgency.
Address the concerns of inflationary losses
Further, this is probably the biggest unspoken concern. Speak about the inflationary trends and compare it to investment yields. Put a spotlight on the investment team, and let their track record of experience speak for itself.
Address the concerns over inconsistent income
This is a concern for the self-employed, proprietors of SME scale businesses and farmers. The question of fluctuating income and thus irregular contributions may cause worry, and provisions for such scheme members should be provided for them to confident take up pension products.
These three steps will help with overcoming negative perceptions on retirement and build the pensions industry.
