Dying before your pension is born

All else being equal, the average salaried worker from West Africa will not obtain pension benefits before passing away. Statistically, most salaried workers in the region will not live long enough to tap into their old age government retirement benefits. Why is this?

Life expectancy in the region is low, and considering that the average retirement age is about 60 years in most countries globally, salaried workers in West Africa face the daunting challenge of surviving against all odds to benefit from their retirement benefits.

The reality is quite different in the more developing countries where life expectancy is relatively high. In these countries, the average salaried employee can hope to live for around 20 years after retiring. This period represents 20 years where they can expect to receive their “dividends” after contributing to the government pension fund system, sometimes for decades.

Let’s look further into this.

Part 1: Life expectancy

A few weeks ago, I was reading a random news article about some happenings in Ghana. The data in the report compelled me to confirm the life expectancy in the country. The number was 63.78 years or, more practically, 64 years. It wasn’t much, I thought. Living for only 64 years in this epoch is quite limiting and should not be viewed as reasonable. The first question that came to mind was: if the life expectancy is 64 years in Ghana and the full retirement age is 60 years on average, does this imply the average Ghanaian should be expecting to collect pension benefits for only four years after retirement? Outrageous, I thought.

I became curious to determine how Ghana compares to some of its peer countries in the region. For this article, I limited the assessment to seven other countries within the region. These are Nigeria, Côte d’Ivoire, Togo, Burkina Faso, Benin, Liberia, and Senegal. We will label these countries the Economic Community of West African States (ECOWAS) cluster.

As shown in Figure 1, Nigeria has the lowest life expectancy among the eight countries. The average life expectancy for the average Nigerian is 54 years. It means that all else being equal, a Nigerian born today can expect to live only until the year 2075. Considering that Nigeria’s population is over 200 million, the number is striking in so many ways. But let us remain focused on the purpose of this paper.

SOURCE: The World Bank data

Senegal has the highest life expectancy among countries in the region. The average Senegalese can expect to live for 68 years, 13 more years more than the average Nigerian. As a result, the life expectancy gap in the ECOWAS group is high, at 14 years. The median age in the region is 61 years, and only Nigeria and Cote d’Ivoire have a lower life expectancy than the group’s average. Interestingly, Cote d’Ivoire is the leading economy in the West African Economic and Monetary Union (WAEMU) zone, and Nigeria is the largest economy in Africa. For this group, economic strength is not a strong indication of the long and healthy living of the population.

I then compared life expectancy in the ECOWAS cluster to a sample of countries within the Organization for Economic Co-operation and Development (OECD). Without any specific underlying reason, I picked Turkey, Japan, United States, France, Germany, South Korea, United Kingdom, and Belgium.

Among the OECD group, Turkey has the lowest life expectancy at 77 years. Japan has the highest life expectancy in the group, with the average Japanese living for approximately 84 years. Compared to the ECOWAS group, however, the life expectancy gap in the OECD group is only seven years. Remember, The ECOWAS cluster’s gap is 14 years.

There is another interesting observation. Like the ECOWAS group, two countries have a lower life expectancy than the median age of 81 years — namely Turkey and the United States. One is the largest economy globally, and the other is a regional economic and diplomatic powerhouse.

SOURCE: The World Bank data

Nevertheless, there is not much similarity in life expectancy between the two groups. For example, the gap between the lowest and highest life expectancy in both groups is significant. On the lowest end, a Turkish can expect to live 13 years more than a Nigerian, while a Japanese can expect to live 24 years more than a Senegalese. Overall, we could observe that a citizen from the OECD cluster can expect to live 20 more years than a citizen from the ECOWAS cluster. These additional years represent many advantages for the OECD countries. These include potentially increased productivity, further innovation, and improved social welfare.

In Figure 3, we observe the progression of life expectancy within the OECD and ECOWAS groups. It is an interesting chart. By 1960 already, the average life expectancy in the OECD cluster was 65 years old. Fifty-eight years later, in 2018, life expectancy in the ECOWAS group has still not reached 65 years. Nevertheless, the growth rate in life expectancy is much higher in the sub-region. It is catching up fast with the wealthier countries of the OECD. It has been able to reduce the median life expectancy gap from 27 years to 20 years. Nonetheless, this achievement took 58 years, and it is expected — the countries within the ECOWAS are coming from a low base in this comparison. Moreover, one would imagine that the narrowing gap may also be because advancement in the health science field has plateaued in the OECD group.

SOURCE: The World Bank data

When we group the two clusters, it is interesting that none of the ECOWAS countries has achieved the median life expectancy, which is 71 year. The life expectancy in Senegal, the ECOWAS country closest to the group median, is 68 years. Also, the disparity in the lowest and highest life expectancy between the two groups is evident. An average Turkish lives 23 more years than the average Nigerian, while the average Japanese lives 17 years more than the average Senegalese.

SOURCE: The World Bank data

Part 2: Life expectancy and retirement benefits

Low life expectancy has immeasurable consequences on the economic development and social stability of a country. We will herein take a closer at the relationship between life expectancy and government pension benefits.

Life expectancy has a significant impact on the welfare of salaried employees once they retire. Within the ECOWAS cluster that we analyzed in Part I, the average salaried employee is expected to live and benefit from government pension payments for only about 1.25 years before passing away. Considering that many salaries employees log over two decades of service before retiring, this disparity is unsettling.

It should be noted, however, that there are outliers within the group. In some countries, life expectancy is even lower than the standard retirement age. A case in point is Nigeria, where statistically, the typical salaried employee is expected to pass away six years before being eligible to start collecting government pension benefits. It means that most Nigerian wage earners will not get the opportunity to benefit from pension benefits to which they have contributed before passing away. It is a similar situation in Cote d’Ivoire, where the life expectancy is lower than the retirement age.

On the other hand, at eight years, Senegal has the highest positive gap of the ECOWAS cluster. It indicates that the typical Senegalese retiree can expect to collect pension benefits for about eight years before passing away. It still is not much, but it represents the best within the group — Liberia and Ghana trail Senegal, with salaried employees expected to receive post-retirement benefits for four years.

SOURCE: The World Bank data

The life expectancy-pension benefit interval ratio is much more encouraging in the OECD group, where salaried employees can expect to earn pension benefits for an average of 15 years after they retire. In the group, the United States has the lowest gap at 12 years. It is the result of a few factors. First, at 79 years, the United States has the lowest life expectancy in the group. Furthermore, people legally retire at an advanced age in the U.S. compared to most countries in the OECD group, stretching the number of years they wait before benefiting from their pension fund. In France and South Korea, people receive their pension benefits, on average, for 21 years after they retire. It is almost thrice the years for Senegal, which has the highest positive gap in the ECOWAS countries.

SOURCE: The World Bank data

The debate behind the life expectancy of people in a country and their retirement age may lack much substance. After all, we have always known the life expectancy in a country and the retirement age of its people. The data is available. Nonetheless, this particular framework of the topic warrants further discussion. The fact that the interval is so small between the life expectancy and the retirement age in most African countries is problematic for many reasons.

In the ever-competitive global landscape of the 21st century, what chance does a country stand if its citizens do not live long enough to innovate, create, and add value in everything else they do? The answer is not much. For example, notwithstanding the talent of a young medical researcher from Nigeria, everything else being equal, she is less likely to make breakthrough discoveries compared to a South Korean colleague who is expected to live 29 years longer. The South Korean colleague has almost three more decades of exploring and collaborating with other researchers to make breakthrough discoveries and impact communities in South Korea and beyond.

Furthermore, this topic sheds light on the weak healthcare system in most African countries. Although the healthcare system has improved overall on the continent, it is perhaps time that African leaders view health care as an indispensable factor in economic development and not its byproduct. The reality is that a focus on economic growth may not necessarily translate into increased social welfare. In many African countries today, we can observe the construction of ports, roads, skyscrapers, and industries, yet the health care system remains outdated. It is not sustainable. A robust healthcare system is the result of a series of planned policies and follow-up actions.

Finally, we should question the pension system in some African countries. It appears many hard-working employees are contributing to a system that may never benefit them. It could be viewed as an institutionalized Ponzi scheme. Fortunately, African leaders and technocrats can take clues from many countries that have overhauled their pension systems to ensure the elderly in their countries live a dignified life after having contributed individually to the betterment of their countries.

I write about anything that moves this world forward…ahead is better.

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