For the last three years, Takaud Savings and Pensions B.S.C. (c) has been championing the organization of an annual event for the pension industry across the Middle East and North Africa (MENA) region. This is the first ever pension conference for the region, and it has provided pension authorities, financial industry and those concerned with social protection a forum to share information and insights on pension issues and solutions. World and regional economic organisations such as the World Bank, OECD, Islamic Development Bank, and leaders of several government pension funds have spoken at this event, making it a highly recognized pension industry platform. The first MENA Pensions Conference highlighted the role of 2nd pillar pension (employersponsored), while the second one focused on the public-private partnership (P3) in pension. This year’s event will tackle one question that is key to reforming the pension sector in the coming few years: what does it take to build a Defined Contribution (DC) pension industry in the region?
Nearly most of the world’s regions have experienced reforms to reshape their pension systems and infrastructures over the last two to three decades. Some reforms have been about mild parametric modifications, while others were more drastic and fundamental. To what extent has Defined-Contribution (DC) pensions been a dominant factor in this journey and evolution of pension provisioning, and has it been successful in offsetting issues in PAYG systems? Is the move to DC pensions inevitable, and sooner rather than later? What are the differences between Contract-based DC, Trust-based DC and Collective DC? What are the lessons from around the world?
The pension situation has been hitting the headlines, and the number of defined benefit (DB) pension schemes running a deficit have been growing over recent years, all the while the pension deficits themselves continue to increase. The liabilities of most (DB) pension funds today are greater than their assets. Some government pension agencies in the region have, as a result, started to review existing pension laws with a view of scaling down promised benefits, while pension regulators in countries running private-sector occupational pension schemes are doing all they can in an attempt to minimise the pension deficits. In many cases, the gap may now be too large.
As business executives, finance and HR managers, labour and social protection representatives, economic commentators, and future pensioners, how should we read and understand pension fund deficits and actuarial valuations? Why is this a significant topic? How are these valuations done, and what key factors and assumptions affect them? How real are these actuarial deficits?
In a region where public pension systems still bear the whole responsibility for pension risk and provisioning, how can DC pension be packaged as a compelling value proposition? What is the business model? In a regulatory environment that increasingly bans cold-calling, how do we achieve a viable market uptake? Do clients in the region need or demand pension freedom and investment choice as in Western markets? Should the millions of expatriate workers in the region subscribe to these locally domiciled pension funds? How to ensure transparency and “value for money” in investment management fees? The session will also tackle the issue of literacy for retail investors and building pension communications.
Does DC pension require its own set of regulations to start, or the existing regulations around retail investments are enough? Is it better initiated by the public or private sector? How did the most successful countries with DC pensions elsewhere start it, and what’s the learning curve? Are our financial jurisdictions ready to embrace them? Which distribution models would be most efficient for a viable take-up? What should potential providers have to qualify for a license?
The fundamental question is: What does a fully fledged DC pension system in MENA mean to its investment and asset management industry? Will this incentivize its capital market and the development of infrastructure investment funds supporting local development? Under most DC plan arrangements, the participating employees self-direct investment of the funds credited to their individual accounts from a menu of investment options selected, or offered, by their employers. Employers as plan sponsors should work actively with the plan administrators to provide investment options and education to help employees attain their income replacement goals in retirement. What asset mix would be optimal for a DC plan, and what should guide the asset allocation? How should the selected funds be screened? What performance should DC pension savers expect? What literature, tools and services should be made available to plan participants?
What does DC pension look like in a digital future?
In an increasingly digitized financial sector, how would DC pension look like in a digital future? What eco-system and infrastructure we need in order to administer DC pensions for both retail and corporate schemes? What are the potential benefits risks and challenges robo-advice platforms present for increasing the accessibility and affordability of financial advice for retirement savings? How data, artificial intelligence and technologies such as Blockchain, Biometrics and Apps can be deployed. Will this drive the emergence of D2C (Robo-advisor) platforms in the region? How’s the regional Fintech accelerators are embracing this?