inclusion, resilience, and dignity," writes Mthokozisi Ncube, CFP®, CHBP, Mthokozisi Ncube | SA’s retirement landscape and the informal worker gap, pension, retirement, south africa

South Africa boasts one of the largest and most sophisticated retirement industries in Africa, yet this system primarily serves formally employed workers in the public and private sectors. Occupational pension and provident funds, along with personal retirement annuities, cover many formal employees - but this event leaves a vast segment of the workforce with little to no coverage. Only about 36% of South Africans have any kind of retirement fund, meaning nearly two-thirds of the population are not saving for retirement at all or only doing so informal.

This gap corresponds to the millions employed in the informal sector or doing precarious work. These individuals would have no access to employer-sponsored plans and face daily financial pressures that make long-term saving difficult. As a result, South Africa’s elderly heavily rely on the government’s Old Age Grant; in fact, about 73% of people over 60 are beneficiaries of the state pension grant, without which they could not meet basic needs. This old age grant is means-tested, meaning some people with an income/assets beyond a certain amount would not qualify for the grant at all, but not necessarily having enough income to cover their expenses.

The informal economy - including self-employed traders, domestic workers, day laborers, subsistence farmers, and others - makes up a large share of the workforce. Estimates suggest roughly 30% or more of employed South Africans work outside the formal sector, representing several million people with irregular incomes and no structured retirement savings. These informal earners typically rely on short-term savings or community-based schemes (like stokvels) to cope with financial needs.

South Africans collectively save around R44 billion a year in more or less 820,000 stokvels (informal savings groups). Such group savings illustrate a culture of saving even among low-income communities, but they are usually geared toward immediate needs (groceries, emergencies, funerals) rather than long-term retirement security. They therefore not benefit from the specific and significant benefits of retirement funds such as tax deductibility of contributions. The challenge, and opportunity, is to bridge this gap by offering informal workers a way to save for the future.

What are Micro Pensions

Micro pensions are flexible, small-scale retirement savings plans designed specifically for low-income earners and informal sector workers. In essence, a micro pension scheme allows people outside formal employment to contribute tiny amounts regularly – even daily or weekly – into a retirement fund, building up savings over time. A concise definition from Nigeria’s recent program describes micro pensions as “an arrangement for the provision of pension to the self-employed and persons operating in the informal sector through the contributory pension system.”

In practice, this response means a vendor, domestic worker, or taxi driver could open a personal retirement savings account and deposit whatever they can afford – even a few rand at a time – using convenient channels like mobile money or retail stores. The contributions are invested just like formal pensions, growing over the long term until the person reaches retirement age, at which point they can draw an income.

Micro pensions matter because they directly tackle the exclusion of informal workers from old-age security systems. By tailoring products to the realities of informal work (irregular earnings, no employer payroll deduction, etc.), micro pension plans can extend coverage to millions who now face the prospect of poverty in old age. These plans emphasize ultra-flexibility (no fixed monthly contribution – save what and when you can), low fees (keeping costs small for tiny transactions), and accessibility (using mobile phones, e-wallets, and local agents to reach people where they are). Such features are crucial for inclusion.

Analysts estimate that across Africa, if even 10% of currently excluded workers each saved just $1 (±R18) per day, it would generate close to $500 billion in new long-term savings within a decade– capital that can fuel investments and growth, while protecting people in old age. Without micro pensions or a similar vehicle, a huge proportion of the labour force will continue to age without sufficient savings, placing strain on government budgets and family networks.

Lessons from African Micro Pension Initiatives (Nigeria, Kenya)

South Africa would not be alone in pursuing micro pensions – several African countries have begun to implement or pilot such schemes, offering valuable lessons. Nigeria and Kenya are two notable examples frequently cited:

Nigeria

In 2019, Nigeria launched a Micro Pension Plan under the auspices of its National Pension Commission (PenCom). The goal was ambitious – to bring tens of millions of informal workers into the contributory pension system. The program allows self-employed individuals and employees of very small firms to open Retirement Savings Accounts (RSAs) and contribute voluntarily. Contributions can be made at any interval (daily, weekly, monthly) and via mobile platforms, and notably, a portion (40%) of each contribution is available for withdrawal before retirement to cater for emergencies, while 60% is locked in for retirement.

Despite the strong design, uptake has been a challenge. The Nigerian government targeted enrolling 8 million informal contributors within five years, but after three years only about 77,000 people had signed up – less than 1% of the target. This outcome, as observers note, is not surprising given the economic realities: it is difficult to persuade informal workers to save for the future when many “could barely earn enough to survive today.” Even so, Nigeria’s experience offers lessons on the need for intensive awareness campaigns, incentives, and perhaps more immediate benefits to attract low-income participants. It also shows the importance of patience and persistent policy support – systems take time to build. By 2020, early signs were modestly encouraging but penetration remained under 1% of the eligible population. Continuous refinements are underway to improve accessibility and trust in the system.

Kenya

Kenya pioneered one of Africa’s first informal sector pension schemes with the Mbao Pension Plan (Mbao means “20” in Swahili, referring to a 20-shilling note). Launched in 2009 by the Kenyan pension regulator and informal sector associations, the Mbao plan allows informal workers to contribute as little as KES 20 per day (roughly $0.20/R3.63) via mobile money into a retirement savings account.

This ultra-low entry point was intended to “demystify” retirement savings by proving that even small daily amounts can add up – a member contributing KES 20 each weekday would save about KES 4,800 (≈R600) in a year. The scheme grew to around 70,000 members in its first few years and later crossed 100,000 members – a success in absolute terms, yet still a small fraction of Kenya’s vast informal workforce (estimated around 12 million).

The slow uptake was attributed to limited awareness, an opt-in voluntary design, and the pressing short-term needs of the target group. One challenge noted was that many participants treated the Mbao account as a general savings fund – since the rules allowed withdrawals after only three years, a number of members would withdraw their accumulated savings to meet immediate needs, thus depleting their retirement nest egg early. Despite these hurdles, Kenya’s Mbao plan demonstrated important innovations in delivery (leveraging mobile money and informal associations to reach people) and underscored the importance of balancing flexibility with preservation of assets for old age.

Beyond Nigeria and Kenya, other African countries are moving in this direction too. Rwanda, for instance, has integrated pension inclusion into its national strategy by combining digital technology with a national ID system. With over 75% of Rwandans subscribing to mobile phone services, and more adults using mobile money than bank accounts, the country has a strong platform for delivering micro-savings and pension products via phones. Ghana, Uganda, and Zambia have also explored pilots and policy frameworks for informal pensions, and pan-African efforts are underway to share best practices. The key takeaway from across the continent is that micro pensions are gaining recognition as a necessary tool to extend social protection.

A Micro Pension Scheme for South Africa - Is it the perfect time

South Africa is now at an opportune moment to implement micro pensions due to the confluence of supportive cross-sectoral legislation. Seemingly, the success or failure of the system will be defined by National Treasury finding the balance between providing appealing incentives and ensuring that the structure is geared towards positive outcomes.

Implementing the two-pot system escalated increased engagement between administrators and members. There was more interest amongst members in their retirement funds at a level not previously seen in South Africa. An introduction or piloting of a Micro Pension scheme would be in a more mature environment that has considered the strain of an administratively taxing exercise.

The retirement component of the two-pot system introduced by the National Treasury highlights a clear commitment to ensuring compulsory savings until retirement, thus providing a robust foundation for micro pensions. Furthermore, the Conduct of Financial Institutions (COFI) Bill represents advanced legislative frameworks to ensure effective regulation of micro pension service providers.

Contributions could be made through digital channels (mobile banking apps, USSD on feature phones, EFT) and physical channels (supermarket pay points, Post Office, spaza shops) to increase accessibility. Experience elsewhere shows that leveraging technology is crucial: special mobile applications have been used in other countries to successfully reach self-employed and informal workers.

South Africa’s high mobile penetration and burgeoning FinTech sector can be harnessed to create user-friendly contribution platforms. The Joint Standard 2 (JS2) legislation on cybersecurity further enhances protection for digital financial transactions, an essential feature given that micro pensions rely heavily on these digital platforms.

Critically, the FSCA is embarking on it 3 Year Financial Education Plan, over the long term this will ensure improved engagement and financial literacy of consumers of financial products and services. The various case studies of other countries reflect that member education is key to take up of a new contributory system.

Conclusion

South Africa boasts one of the largest and most sophisticated retirement industries in Africa, yet this system primarily serves formally employed workers in the public and private sectors. Occupational pension and provident funds, along with personal retirement annuities, cover many formal employees - but this event leaves a vast segment of the workforce with little to no coverage. Only about 36% of South Africans have any kind of retirement fund, meaning nearly two-thirds of the population are not saving for retirement at all or only doing so informal.

This gap corresponds to the millions employed in the informal sector or doing precarious work. These individuals would have no access to employer-sponsored plans and face daily financial pressures that make long-term saving difficult. As a result, South Africa’s elderly heavily rely on the government’s Old Age Grant; in fact, about 73% of people over 60 are beneficiaries of the state pension grant, without which they could not meet basic needs. This old age grant is means-tested, meaning some people with an income/assets beyond a certain amount would not qualify for the grant at all, but not necessarily having enough income to cover their expenses.

The informal economy - including self-employed traders, domestic workers, day laborers, subsistence farmers, and others - makes up a large share of the workforce. Estimates suggest roughly 30% or more of employed South Africans work outside the formal sector, representing several million people with irregular incomes and no structured retirement savings. These informal earners typically rely on short-term savings or community-based schemes (like stokvels) to cope with financial needs.

South Africans collectively save around R44 billion a year in more or less 820,000 stokvels (informal savings groups). Such group savings illustrate a culture of saving even among low-income communities, but they are usually geared toward immediate needs (groceries, emergencies, funerals) rather than long-term retirement security. They therefore not benefit from the specific and significant benefits of retirement funds such as tax deductibility of contributions. The challenge, and opportunity, is to bridge this gap by offering informal workers a way to save for the future.

What are Micro Pensions

Micro pensions are flexible, small-scale retirement savings plans designed specifically for low-income earners and informal sector workers. In essence, a micro pension scheme allows people outside formal employment to contribute tiny amounts regularly – even daily or weekly – into a retirement fund, building up savings over time. A concise definition from Nigeria’s recent program describes micro pensions as “an arrangement for the provision of pension to the self-employed and persons operating in the informal sector through the contributory pension system.” In practice, this response means a vendor, domestic worker, or taxi driver could open a personal retirement savings account and deposit whatever they can afford – even a few rand at a time – using convenient channels like mobile money or retail stores. The contributions are invested just like formal pensions, growing over the long term until the person reaches retirement age, at which point they can draw an income.

Micro pensions matter because they directly tackle the exclusion of informal workers from old-age security systems. By tailoring products to the realities of informal work (irregular earnings, no employer payroll deduction, etc.), micro pension plans can extend coverage to millions who now face the prospect of poverty in old age. These plans emphasize ultra-flexibility (no fixed monthly contribution – save what and when you can), low fees (keeping costs small for tiny transactions), and accessibility (using mobile phones, e-wallets, and local agents to reach people where they are). Such features are crucial for inclusion.

Analysts estimate that across Africa, if even 10% of currently excluded workers each saved just $1 (±R18) per day, it would generate close to $500 billion in new long-term savings within a decade– capital that can fuel investments and growth, while protecting people in old age. Without micro pensions or a similar vehicle, a huge proportion of the labour force will continue to age without sufficient savings, placing strain on government budgets and family networks.

Lessons from African Micro Pension Initiatives (Nigeria, Kenya)

South Africa would not be alone in pursuing micro pensions – several African countries have begun to implement or pilot such schemes, offering valuable lessons. Nigeria and Kenya are two notable examples frequently cited:

Nigeria: In 2019, Nigeria launched a Micro Pension Plan under the auspices of its National Pension Commission (PenCom). The goal was ambitious – to bring tens of millions of informal workers into the contributory pension system. The program allows self-employed individuals and employees of very small firms to open Retirement Savings Accounts (RSAs) and contribute voluntarily. Contributions can be made at any interval (daily, weekly, monthly) and via mobile platforms, and notably, a portion (40%) of each contribution is available for withdrawal before retirement to cater for emergencies, while 60% is locked in for retirement. Despite the strong design, uptake has been a challenge.

The Nigerian government targeted enrolling 8 million informal contributors within five years, but after three years only about 77,000 people had signed up – less than 1% of the target. This outcome, as observers note, is not surprising given the economic realities: it is difficult to persuade informal workers to save for the future when many “could barely earn enough to survive today.” Even so, Nigeria’s experience offers lessons on the need for intensive awareness campaigns, incentives, and perhaps more immediate benefits to attract low-income participants. It also shows the importance of patience and persistent policy support – systems take time to build. By 2020, early signs were modestly encouraging but penetration remained under 1% of the eligible population. Continuous refinements are underway to improve accessibility and trust in the system.

Kenya: Kenya pioneered one of Africa’s first informal sector pension schemes with the Mbao Pension Plan (Mbao means “20” in Swahili, referring to a 20-shilling note). Launched in 2009 by the Kenyan pension regulator and informal sector associations, the Mbao plan allows informal workers to contribute as little as KES 20 per day (roughly $0.20/R3.63) via mobile money into a retirement savings account. This ultra-low entry point was intended to “demystify” retirement savings by proving that even small daily amounts can add up – a member contributing KES 20 each weekday would save about KES 4,800 (≈R600) in a year. The scheme grew to around 70,000 members in its first few years and later crossed 100,000 members – a success in absolute terms, yet still a small fraction of Kenya’s vast informal workforce (estimated around 12 million).

The slow uptake was attributed to limited awareness, an opt-in voluntary design, and the pressing short-term needs of the target group. One challenge noted was that many participants treated the Mbao account as a general savings fund – since the rules allowed withdrawals after only three years, a number of members would withdraw their accumulated savings to meet immediate needs, thus depleting their retirement nest egg early. Despite these hurdles, Kenya’s Mbao plan demonstrated important innovations in delivery (leveraging mobile money and informal associations to reach people) and underscored the importance of balancing flexibility with preservation of assets for old age.

Beyond Nigeria and Kenya, other African countries are moving in this direction too. Rwanda, for instance, has integrated pension inclusion into its national strategy by combining digital technology with a national ID system. With over 75% of Rwandans subscribing to mobile phone services, and more adults using mobile money than bank accounts, the country has a strong platform for delivering micro-savings and pension products via phones. Ghana, Uganda, and Zambia have also explored pilots and policy frameworks for informal pensions, and pan-African efforts are underway to share best practices. The key takeaway from across the continent is that micro pensions are gaining recognition as a necessary tool to extend social protection.

A Micro Pension Scheme for South Africa – Is it the perfect time

South Africa is now at an opportune moment to implement micro pensions due to the confluence of supportive cross-sectoral legislation. Seemingly, the success or failure of the system will be defined by National Treasury finding the balance between providing appealing incentives and ensuring that the structure is geared towards positive outcomes. Implementing the two-pot system escalated increased engagement between administrators and members. There was more interest amongst members in their retirement funds at a level not previously seen in South Africa. An introduction or piloting of a Micro Pension scheme would be in a more mature environment that has considered the strain of an administratively taxing exercise.

The retirement component of the two-pot system introduced by the National Treasury highlights a clear commitment to ensuring compulsory savings until retirement, thus providing a robust foundation for micro pensions. Furthermore, the Conduct of Financial Institutions (COFI) Bill represents advanced legislative frameworks to ensure effective regulation of micro pension service providers.

Contributions could be made through digital channels (mobile banking apps, USSD on feature phones, EFT) and physical channels (supermarket pay points, Post Office, spaza shops) to increase accessibility. Experience elsewhere shows that leveraging technology is crucial: special mobile applications have been used in other countries to successfully reach self-employed and informal workers. South Africa’s high mobile penetration and burgeoning FinTech sector can be harnessed to create user-friendly contribution platforms. The Joint Standard 2 (JS2) legislation on cybersecurity further enhances protection for digital financial transactions, an essential feature given that micro pensions rely heavily on these digital platforms.

Critically, the FSCA is embarking on it 3 Year Financial Education Plan, over the long term this will ensure improved engagement and financial literacy of consumers of financial products and services. The various case studies of other countries reflect that member education is key to take up of a new contributory system.

Conclusion

South Africa’s pursuit of social and economic justice requires that we extend the benefits of retirement security to all workers, not just those in formal employment. Micro pensions offer a policy-driven, practical tool to achieve this – bridging the gap between the informal workforce and the retirement system. By learning from peers, tailoring solutions to local needs, and rallying public and private stakeholders, South Africa can implement a micro pension scheme that promotes inclusion, resilience, and dignity.

The task ahead is to transform the culture of saving and deliver on the promise of long-term financial well-being for millions who have been left out for too long. It is an ambitious undertaking, but the payoff – a future where older South Africans from every walk of life can live with security and pride – is well worth the effort. As the proverb goes, “the best time to plant a tree was 20 years ago; the second-best time is now.” Now is the time to plant the seeds of micro pensions, so that tomorrow’s retirees can reap the shade and fruit of financial security in their golden years.

South Africa’s pursuit of social and economic justice requires that we extend the benefits of retirement security to all workers, not just those in formal employment. Micro pensions offer a policy-driven, practical tool to achieve this – bridging the gap between the informal workforce and the retirement system. By learning from peers, tailoring solutions to local needs, and rallying public and private stakeholders, South Africa can implement a micro pension scheme that promotes inclusion, resilience, and dignity.

The task ahead is to transform the culture of saving and deliver on the promise of long-term financial well-being for millions who have been left out for too long. It is an ambitious undertaking, but the payoff - a future where older South Africans from every walk of life can live with security and pride - is well worth the effort. As the proverb goes, “the best time to plant a tree was 20 years ago; the second-best time is now.” Now is the time to plant the seeds of micro pensions, so that tomorrow’s retirees can reap the shade and fruit of financial security in their golden years.

*Mthokozisi Ncube, CFP®, CHBP