Social security in Tanzania: pension system adequacy and its fiscal implication

This study analyses the pension system in Tanzania using 2010-2015 duration data of schemes for members and pensioners to assess whether the mortality structure of members and pensioners can enable the attaining of benefits’ adequacy viably and sustainably. The study invokes the life cycle hypothesis, which predicts a negative correlation between aggregate savings and age. The empirics include assessing pension system adequacy using replacement rate, catchment rate, coverage rate and demographic rate; establishing the survival rate of members and pensioners; and estimating the pension debt, reserve ratio and Pay-As-You-Go rate. The results are: Life expectancy (at 60) of pensioners is estimated to be 17.7 years; thus, schemes have long term liability of up to 52.7 years. Also, life expectancy of members is estimated to be 75.3 years, which negates claims that members’ life expectancy is less than 55 years. Computed replacement rate is 29 percent, far below the international minimum standard of 40 percent; Advancing huge lump-sums tends to reduce monthly pension, similarly, lack of indexation diminishes adequacy of benefits; Computed projections up to 2045 depict large increases in implicit pension debt due to high replacement rates, which threaten sustainability; and actual contribution rate is 15 percent, lower than the statutory rate of 20 percent of salary; which could lead to depletion of assets by 2022 if no action is taken. The conclusion is that the system is currently solvent, but needs be strengthened to make it more viable and sustainable by implementing the suggested policy measures.