Apart from South Africa  and Namibia, most African countries still have a very low pension funds penetration rate, but this is slowly changing as the continent’s young population enters the job market and start saving for the future.

According to Johannesburg-based RisCura, South Africa accounts for about $258 billion, or 75 percent, of the nearly $350 billion in capital held by African pension funds. But this is changing quickly has more government on  the continent introduce regulatory changes that are bringing more people under the social security system.

In a new RisCura report titled ‘Bright Africa 2015‘, Sub-Saharan countries are in the accumulation phase as their young population with an average age of about 20 years, compared to 40 years in developed countries.

“Most of the population in Africa is starting to enter the work force at this time. And we are expecting to see a lot more growth in this area,” Rory Ord, head of RisCura’s private equity advisory division, told HowWeMadeItInAfrica.

With regulatory changes, in countries like Kenya and Nigeria, to allow people in the informal sector to save in pension funds, more and more people are depositing in these social security accounts helping grow theses investment nest eggs.

“Probably the best example of this is in Nigeria, where regulatory change happened around 2006, and it has managed to accumulate around $30bn of assets since,” Ord said.

Fixed Income Vs Equities

The report also showed that while Southern Africa countries including South Africa, Botswana and Namibia that have the largest pension funds on the continent preferred equity investments, their counter parts in Eastern and Western Africa invested heavily in fixed income assets, mostly government bills and bonds.

This, Ord said, was an indicator of the difference in the level of maturity in funds in these regions and showed that countries in early stage of developing a pension system like Kenya, Nigeria and Tanzania were more risk averse than a country like South Africa.

“For example, whereas [pension funds] in South Africa have a very high focus on listed equity today, if you went back 15-20 years, you would actually find that South Africa at that stage focused very much on government bonds, and has evolved over time to bring more equity into the equation,” he said.

But even with increased investment in equities, Southern Africa countries were still averse to putting contributors fund in emerging private equity firms. Only a small portion of these funds are willing to invest in PE’s.