Modernizing the traditional cash-based government pension payment system to a digital one can improve outcomes for pensioners, governments, and financial institutions. While sometimes convenient, cash operations require manual distribution procedures that incur high overhead costs and operations risks. In addition, due to difficulties in verifying payments, the manual process is highly susceptible to fraud and leakages. However, establishing a digital pension payment system for citizens might be difficult, especially in countries in Africa with limited financial infrastructure.
Traditional Cash-Based Pension Payment System
In Africa, pensions are usually paid monthly. Under the traditional cash-based pension payment system, pensioners are identified, and payment amounts are calculated. However, these are decentralized processes where a local officer updates its list of pensioners, adding eligible new pensioners, removing deceased pensioners, and revising pension amounts as required by new legislation. Regional officers create a monthly list of pension payments on paper and submit it to government agents for further validation. The government agent then releases the funds to regional accounts for distribution to pensioners.
Each pensioner obtains the pension in cash from their nearby office in their home district. They need to bring their national ID and pension book. The pensioner must also sign the pension list to confirm receipt.
Local officials do a death audit when pensioners do not show up to get their money. The decentralized monetary system is susceptible to abuse or fraud as independent checks are rare.
Digital Pension Payment System
A digital payment system for pension management requires each pensioner to enroll their basic information and biometric capture into a centralized system to create greater transparency in the system and allow pensioners to see the exact pension amounts they receive through account statements. In contrast to the traditional system, this provides flexibility in the times and locations of pension collection. Under the digital system, the payment process is centralized within the central office, which electronically credits individual pension accounts, making the process fast and error-free. In addition, the digital payment system for pension management establishes an automated and centralized internal control process, reducing manual intervention in the death audit system.
With the old paper-based pension system, pensioners had to go to an officer to be checked out before getting services. Since most pensioners live far away from towns, the process is difficult. Not only that, it’s hard to keep these records accurate and up to date, especially in African countries with many migrants who don’t have official documents to prove who they are. At the same time, the best way to improve services and eliminate corruption opportunities is to cut costs and keep good records. Biometric technology can solve these problems by making the process easier, cheaper, and more efficient.
How does Digitalization Benefit Pensioners in Africa?
With the traditional paper-based pension management system, pensioners had to go to an officer to be checked out before getting services. Since most pensioners live far away from towns, the process takes a lot of work. Not only that, but it’s hard to keep these records accurate and up to date, especially in African countries with many migrants who don’t have official documents to prove who they are. At the same time, the best way to improve services and eliminate corruption opportunities is to cut costs and keep good records. Digital pension management has solved these problems by making the process easier, cheaper, and better at keeping records.
The ease of pension management system has created a growing trend of deploying digital to distribute stipends or pensions to the elderly in more African countries in recent years. The digital pension management system makes the pension authority more responsible and efficient, which is why governments are now opting for a digital pension management system with multimodal biometrics to provide a more inclusive and accurate pension system throughout Africa and beyond.