Q1. Who is the guarantor?
In using the term "guarantee’’, we must be careful that we do not mislead people. When concerned with financial products, there is very little that can be fully guaranteed (take the global financial crisis for example).
An important factor is of course government regulations and regulations in general. This is both the case with the pension sector and microfinance sector. In some countries a partner-agent model is used, whereby the partner is the NGO or MFI conducting client relations, including financial literacy and product information. The agent is the asset manager, often from a (state) bank or insurance company.
The Pension & Development Network is working only with researched and trusted 3rd party sources that comply with audits, internal and external supervisory boards and government controls. For example, in India the funds are collected and stored with Life Insurance Cooperation India. These funds are then re-insured so that they are secure and protected from external influences.
Q2. We shouldn't assume that micropension’s savings are a better way of saving than putting money under the matress. That depends on regulation (will the provider go bust?) and questions such as whether benefits are indexed.
Despite the lack of hard empirical evidence and studies of the long term effects of micropensions, money stored ‘under the mattress’ is incredibly vulnerable to natural disasters, inflation, theft, loss and decay. It is therefore more than possible that people’s money, which was stored in a safe place, becomes practically worthless due to inflation (which of course, would be a disaster)
Although there is no 100% guarantee that providers will not go bankrupt, numerous steps can be taken to minimize and control the risks. For example, all the organizations and fund managers that we work with are thoroughly researched and checked. Our projects apply with the most stringent controls and perform independent and external audits to ensure that client’s money is being used stored and invested in a correct way. Professional fund managers ensure that the management and investment of funds are in accordance with laws and are done with the best interest of client’s at heart. By making sound investments, in commodities hedged against inflation, savings can be somewhat protected from the effects of inflation. By storing money with a financial institution, the possible dangers to client’s savings from theft, natural disasters, loss and decay are eradicated.
Throughout the West there has also risen awareness that access to basic finance and financial tools is critical for development. The term “financial inclusion” has also gained importance since the early 2000s, and is a result of research into financial exclusion and its direct correlation to poverty. Public policies are now shifting towards a focus on the availability of banking services to the entire without discrimination, and the Pension & Development Network would like to play an important role in this.
Furthermore, the feedback from clients strongly suggests that simply by having access to a secure method of storing and saving money, clients feel more relaxed when it comes to financial matters. This is of course, why we strongly advocate using trusted financial institutions to store money, rather than the riskier option of ‘putting money under a mattress’.
Q3. (In micropensions) Can contributors withdraw their accumulated sum before old age?
Micropensions are based on insights gained from behavioral economics and are tailored to the customers need. Whilst in an ideal we would like customers to save in the micropension scheme for as long as possible, we also recognize that this is not always possible. We recognize that the clients and potential clients for micropensions live in environments where sometimes the unexpected needs of the present force people into using savings for the future.
We therefore aim to be as flexible as possible in our product design. The age at which customers can withdraw from their micropension varies and is pre-agreed upon. There is however, flexibility within this for customers to choose a time limit that suits their needs and so it does not necessarily mean that customers have to wait until they are in their sixties to withdraw from the micropension scheme. We are of the view that if we only convince people to save a relatively small amount over a short period of time, it will ultimately be of benefit to them in the future. The need for savings in the developing world is real, and the Pension & Development Network strives to help people save; whether it be for a month, a year, a decade or more.
Q4. Is there any kind of protection for these consumers in terms of insolvency of the micropension providers? What would happen with these people in case of insolvency? Is it any formal foreseen measures from the government to protect them?
Regulations of pensions are generally in the hands of the central banks and specialized state agents. IOPS is the International Organisation of Pension Supervisors and within this international framework national regulations are improved. This varies from country to country where micropensions are and will be supervised. These regulations can also be part of the microfinance regulatory system. AS mentioned above, in some countries the partner-agent model is also used.