Pension funds and insurance companies can support capital market development by mobilising long-term domestic savings and providing stable sources of financing. However, their contribution remains limited across much of Africa because retirement savings and insurance coverage remain low. This largely reflects the structure of labour markets, low household incomes and weak participation in retirement and insurance schemes. Where institutional assets exist, they are often concentrated in government securities, reflecting regulatory constraints, limited investment opportunities and shallow capital markets. Measures to strengthen the role of pension funds and insurance companies, alongside efforts to foster an enabling environment for their development, can help unlock their full potential as providers of long-term capital.
Africa Capital Markets Report 2026
Abstract
Pension funds and insurance companies can support capital market development and strengthen financial resilience. By mobilising domestic savings and providing stable financing to local firms and governments, institutional investors help deepen and improve market liquidity, reduce reliance on volatile external funding, and make domestic economies less exposed to financial shocks.
The growth of pension and insurance sectors remains limited in many African countries. Evidence from Botswana, Morocco, Nigeria and South Africa highlights persistent challenges in channelling domestic savings into retirement and insurance products. Labour market structures characterised by high levels of informal employment, self-employment and relatively low earnings are important constraints on participation and contribution levels.
Pension coverage gaps persist among both self-employed and salaried employees. This is largely driven by the prevalence of voluntary, rather than mandatory pension arrangements, employer discretion in offering occupational schemes, and weak enforcement of mandatory requirements.
Ensuring that pre-retirement withdrawals remain limited and well-regulated remains essential if pension funds are to fulfil their role as providers of long-term capital. Reforms such as South Africa's Two-Pot system illustrate one approach to balancing the preservation of retirement savings with short-term liquidity needs.
Insurance markets exhibit low penetration and large protection gaps. Life coverage is concentrated among higher-income groups, while protection against natural catastrophes and other risks remains insufficient. Low trust, concerns about claims payments, limited understanding of insurance products, and distribution channels dominated by traditional models are key barriers to insurance uptake.
Pension funds tend to allocate a large share of their portfolios to government bonds. This largely reflects differences in regulatory constraints and in the depth of domestic capital markets, though there are significant differences in allocation patterns across countries. While a high allocation to government bonds can be consistent with early-stage market development, its persistence over time may increase exposure to concentration risks, limit the ability to achieve adequate returns, and constrain the development of deeper and more diversified domestic capital markets in the region.
An enabling environment is necessary for institutional investors to support capital market development and enhanced economic resilience. Macroeconomic stability, strong regulatory and legal frameworks, effective supervision, a sufficient supply of investable domestic assets, and a financially literate population are necessary elements for them to play this role.
This chapter analyses the role of pension funds and insurance companies, as institutional investors, in supporting capital market development and strengthening financial resilience across selected African countries. It examines their contribution to mobilising domestic savings and the structural and regulatory constraints limiting their development in Botswana, Morocco, Nigeria and South Africa.
Pension funds and insurance companies as institutional investors play an important role in the development of capital markets when supported by sound regulatory frameworks and well-functioning markets. By mobilising domestic savings and channelling them into long-term investments, they provide a stable source of financing for governments and firms. Because these institutions manage long-dated liabilities, such as pension obligations and life insurance payouts, they can adopt investment strategies with long-term horizons. This allows them to allocate capital to productive investments and innovative projects that typically require extended funding periods before generating returns. As a result, the growth of pension and insurance assets can serve as a powerful catalyst for capital market development.
By supporting the development of deeper and more liquid capital markets, pension funds and insurance companies strengthen the economy's ability to absorb and manage financial shocks while maintaining access to financing. Their long-term investment horizon contributes to the availability of stable financing across the economic cycle. In addition, under normal market conditions, long-term institutional investors often display countercyclical investment behaviour, purchasing assets when prices decline and selling them when prices rise (Fong, Sze and Ho, 2022[1]). This can enhance market liquidity and help moderate excessive volatility. However, this stabilising effect is not unconditional. During periods of severe market stress, these long-term investors may instead behave procyclically, reinforcing market movements as they respond to liquidity needs, regulatory requirements, or risk management constraints.
Moreover, in EMs, a substantial and steady allocation of institutional savings to domestic assets provides governments and firms with a stable source of local financing that is less exposed to sudden reversals in capital flows than foreign capital. This helps reduce external refinancing risks and supports the development of local currency financing, thereby lowering vulnerability to exchange-rate fluctuations and external financial shocks.
A further channel through which pension funds and insurance companies help absorb economic shocks is through risk pooling and loss absorption. Insurance companies in particular support households and firms in the aftermath of adverse events by providing financial compensation following disasters, accidents, or other shocks. By pooling risks across a large number of policyholders, insurers reduce the economic impact of idiosyncratic shocks and limit the need for public intervention, thereby enhancing the economy’s overall resilience (OECD, 2026[2]).
Taken together, these channels illustrate how pension funds and insurance companies can contribute to capital market development and strengthen economic resilience. However, their ability to fulfil these roles depends on the broader environment in which they operate. Macroeconomic stability, sound financial regulation, effective supervision, strong legal frameworks, and a sufficient supply of investable productive assets are important preconditions for their development and effective engagement in domestic capital markets (Amaglobeli et al., 2019[3]).
Recognising the importance of these enabling conditions, however, should not delay efforts to develop pension and insurance markets and deepen their role in domestic capital markets. On the contrary, such reforms should be viewed as an important component of building a strong and resilient economy, with their full benefits best realised when pursued alongside broader macroeconomic and institutional reforms.
The potential of African pension funds and insurance companies to support the development of domestic capital markets remains largely untapped (OECD, 2025[4]). Institutional savings are both limited in size and highly geographically concentrated: nearly 85% of pension assets and over 90% of insurance assets are held in just four of Africa’s 54 countries, with South Africa accounting for the largest share (AFC, 2025[5]). Moreover, where such assets exist, they are predominantly allocated to sovereign debt instruments, which constrains their role in financing the private sector and limits their broader contribution to capital market development and economic resilience.
Building on the findings of the OECD Africa Capital Markets Report 2025, this chapter takes a more in-depth look at the role of pension funds and insurance companies as institutional investors in four countries (i.e. Botswana, Morocco, Nigeria, and South Africa). These countries reflect different levels of market maturity, regulatory frameworks, and geographic regions. This allows for a comparative assessment of the opportunities and challenges associated with mobilising domestic institutional capital. Their experiences also illustrate a range of policy and regulatory approaches that may help strengthen the contribution of pension funds and insurance companies to capital market development and inform reforms elsewhere on the continent.
The scale of pension and insurance assets varies considerably across the four countries. The dominance of South Africa within Africa’s institutional investor landscape is evident in the size of its pension fund sector. In 2024, South African pension funds managed approximately USD 331 billion in assets, far exceeding the levels observed in the other countries covered in this analysis (Figure 6.1, Panel A). In 2025, Nigeria, the second-largest market by assets under management, accounted for only around 6% of South Africa’s 2024 pension assets, while Botswana and Morocco managed even smaller asset pools.
Note: Data for South Africa and Botswana refer to 2024.
Source: OECD Global Pension Statistics.
Differences in economic size explain part of this gap. Relative to GDP, South Africa’s pension fund assets amounted to 84% of GDP in 2024, well above the average of OECD countries of 52% (OECD, 2025[6]). Botswana also exhibits a comparatively developed pension sector, with assets equivalent to 58% of GDP. In contrast, in 2025, pension fund assets represented only 6% of GDP in Nigeria and 6% in Morocco (Figure 6.1,Panel B).
A similar pattern is observed in the insurance sector. In South Africa, insurance companies manage assets equivalent to around 85% of GDP, with life insurance accounting for most of this total. This contrasts sharply with the other countries in the sample, where insurance markets remain significantly less developed. Morocco, the second-largest market in relative terms, has insurance assets equivalent to only 16% of GDP, while levels in Nigeria and Botswana are substantially lower.
Note: Data for Botswana refers to 2024, data for Morocco refers to Jun 2025.
Source: South African Reserve Bank (2026[7]), Quarterly bulletin – March 2026; ACAPS (2025[8]), Situation du secteur des assurances et de la réassurance - 1er semestre 2025; NBFIRA (2025[9]), Annual report 2025; NAICOM (2026[10]), Bulletin of Insurance Market Performance – Fourth Quarter 2025; South Africa Reserve Bank (n.d.[11]), Historical Rates; Bank of Botswana (n.d.[12]), Exchange Rates; Central Bank of Nigeria (n.d.[13]), Exchange Rates; LSEG.
Understanding the differences observed across the four countries analysed, as well as the generally shallow development of pension funds and insurance companies across the continent highlighted in the 2025 report, requires a deeper examination of the structural constraints shaping these patterns.
6.4.1. Gaps in retirement savings and insurance provision
Among the structural constraints affecting the development of pension funds and insurance companies, limited retirement savings and insurance coverage represent a fundamental challenge, as they constrain the pool of assets available for long-term investment.
Retirement savings gaps
The accumulation of pension assets depends on the availability of asset-backed pension arrangements, whether individuals can participate in and contribute to them, earn investment returns on those contributions and the extent to which accumulated savings remain within the system over time. In many African countries, however, legal coverage remains limited. Affordability constraints and limited awareness of the available asset-backed arrangements further hinder participation in such arrangements. Even where individuals participate, non-compliance with contribution requirements and weaknesses in enforcement can constrain asset accumulation. Finally, early access to retirement savings can reduce the amount of assets preserved within the pension system.
Access to asset-backed pension arrangements
While access to these schemes is typically linked to formal wage employment and payroll-based contributions, informal employment – which includes own-account workers and self-employed individuals without social protection – accounts for approximately 85% of total employment in Africa, compared with 58% globally (Figure 6.3). The prevalence of informal work reflects the limited capacity of formal wage employment to absorb rapid labour force growth, making self-employment the primary entry point into the labour market for many workers (Kiaga and Leung, 2020[14]). As a result of this labour market structure, pension arrangements that accumulate investable assets are available only to a relatively small segment of the workforce.
Note: Data for Morocco refers to 2018.
Source: ILO (n.d.[15]), Informal employment rate, https://rshiny.ilo.org/dataexplorer68/?lang=en&segment=indicator&id=SDG_0831_SEX_ECO_RT_A&channel=ilostat;Lopez-Acevedo et al. (2023[16]), Informality and Inclusive Growth in the Middle East and North Africa, https://openknowledge.worldbank.org/server/api/core/bitstreams/8efcf7a6-3832-4e94-b826-cabc81be92d2/content.
Moreover, access to asset-backed pension arrangements remains limited even among formal-sector workers. In many African countries, voluntary occupational pension plans are the predominant form of pension arrangement (OECD, 2025[4]), meaning that employers are generally not required to offer access to retirement savings schemes. As a result, participation depends largely on employer initiative. This contributes to uneven coverage across the formal sector, with employees of larger firms more likely to have access to pension arrangements, while workers in smaller enterprises often remain excluded.
The four countries analysed reflect different strategies for expanding pension coverage through asset-backed arrangements, notably through voluntary personal pension schemes that are not tied to an employment relationship and mandatory occupational pension plans where employers are required to offer access to funded pension arrangements to their employees.
For example, Nigeria has adopted the broadest mandatory approach through the Contributory Pension Scheme (CPS), which covers public-sector employees and workers in private firms with at least three employees (ISSA, 2024[17]). However, given that a large share of the population remains outside the CPS, the Micro Pension Plan was introduced in 2019 as a voluntary pension scheme to address persistent coverage gaps among informal workers and employees in very small firms, extending access to retirement savings beyond the formal sector (PenCom[18]; WIEGO, 2025[19]). In 2025, this framework was restructured into the Personal Pension Plan (PenCom, 2025[20]), with the aim of further expanding participation in retirement savings.
In Morocco, pension coverage has been progressively expanded since 2017 to include self-employed workers and liberal professions under a mandatory old-age pension scheme. However, for low-income workers earning less than 1.5 times the minimum wage, participation remains voluntary. In addition, Morocco has voluntary complementary pension schemes for salaried workers. (ACAPS[21]).
By contrast, South Africa and Botswana rely primarily on voluntary occupational arrangements in the private sector, while public-sector employees are mandatorily covered by dedicated pension schemes. These are complemented by voluntary personal pension products available to individuals without employer-sponsored schemes (ISSA, 2022[22]; 2024[23]).
While these examples illustrate different approaches to broadening legal eligibility to asset-backed pension arrangements, expanding availability is only a first step towards a greater accumulation of pension assets. In practice, pension asset accumulation depends also on effective participation, compliance with mandatory contribution requirements, and adequate contribution levels.
Participation and contribution levels
One of the main barriers to joining pension schemes in the region is limited household income, particularly where participation and contributions are voluntary. In the African countries included in this analysis, median employee wages remain low, constraining both the ability to participate in retirement savings schemes and the capacity to make meaningful contributions over time. In 2024, median monthly wages were below USD 600 in 2021 purchasing power parity (PPP) terms in the countries analysed (2020 data for South Africa) (Figure 6.4). By comparison, the median monthly wage in the United States stood at USD 4 333 in 2021 PPP terms. Expressed in PPP terms, these figures reflect the amount of goods and services that wages can purchase domestically relative to the United States. Moreover, while median wages in the United States have increased significantly in recent years in 2021 PPP-adjusted terms, in the African countries median wages have remained almost the same or have even seen a decrease. These figures illustrate the limited capacity of households to build retirement savings.
Note: Data for Morocco is not available.
Beyond affordability constraints, limited awareness of available asset-backed pensions, which is often linked to broader gaps in financial education, can also influence individuals’ willingness and ability to participate in retirement plans. Nigeria’s Micro Pension Plan provides an illustrative example of difficulties to attract individuals to join personal voluntary plans. The Micro Pension Plan, which became operational in 2019, had the objective to extend pension benefits to the self-employed and workers not covered by the Contributory Pension Scheme. However, in 2024, only 152 749 workers representing 0.2% of the targeted population had joined the plan and only 16% of the individuals enrolled had any funds in the account, with the majority of them having very small amounts (WIEGO, 2025[19]).
This low level of enrolment, besides the financial barriers that many face, has been attributed to several other factors including a significant lack of awareness and a mistrust of government-led financial initiatives among informal workers (WIEGO, 2025[19]). Furthermore, the enrolment process is often perceived as complex and cumbersome, hampered by stringent identification requirements and a lack of accessible service agents. These difficulties are further exacerbated by macroeconomic instability, specifically high inflation and currency depreciation, leading many workers to doubt that their savings will retain enough purchasing power to provide a meaningful retirement income. Finally, the absence of government incentives, such as co-contributions, has made it even more difficult to attract and retain low-income contributors. The recent redesign of the scheme into the Personal Pension Plan reflects an effort to improve both accessibility and attractiveness. Among other provisions, the new framework allows locally based foreign-currency earners to contribute and withdraw in the same foreign currency in which they earn income, and extends participation to Nigerians living abroad, thereby broadening coverage (Independent, 2025[25]).
Compliance and enforcement
Retirement savings may also remain limited if employers fail to comply with regulatory requirements or if enforcement mechanisms are weak. In South Africa, the Financial Sector Conduct Authority (FSCA) actively monitors adherence to regulatory requirements and publishes lists of non-compliant employers as part of its efforts to strengthen enforcement. This responds to reported breaches of the Pension Funds Act (South African Government, 1956[26]), which requires employers to remit all pension contributions to the relevant pension fund in accordance with its rules. FSCA publications indicate that a number of employers fail to transfer contributions on time, including cases where contributions are deducted from employees’ salaries but not remitted, are only partially paid, or are delayed (FSCA, 2024[27]).
Although these cases are typically concentrated among smaller employers and may not represent a significant share of total pension fund assets, they can still have meaningful implications for the long-term accumulation of retirement savings. In particular, weak enforcement may allow such practices to persist or spread, potentially undermining trust in pension systems and discouraging participation in retirement savings arrangements over time.
The FSCA’s publication of non-compliant employers1 is explicitly designed to enhance transparency and act as a deterrent against such behaviour. In jurisdictions where similar transparency and reporting mechanisms are less developed, instances of non-compliance may be less visible, but are not necessarily less frequent and may in fact be more widespread.
Preservation of retirement savings
Beyond the level of contributions and participation, the ability of pension systems to generate a large pool of long-term institutional assets also depends on how long these savings remain within the system. It is not only the collection of contributions that matters, but also the preservation of these assets over time until retirement. This objective can be undermined when individuals are able to access their savings before reaching retirement age. In recent years, some African countries have experienced increased outflows from pension funds due to early withdrawals, while more flexible access conditions have been introduced in certain cases (OECD, 2024[28]).
Across the four countries analysed, approaches to early access to retirement savings vary significantly. At one end of the spectrum Morocco’s complementary pension system for private-sector employees does not allow early withdrawal before retirement, thereby ensuring full preservation of accumulated rights until retirement age (CIMR[29]). Historically, South Africa was at the other end of the spectrum. Occupational pension and provident funds allowed members to withdraw their accumulated savings in full upon resignation, dismissal, or job change, resulting in weak preservation of retirement assets and a reduction in long-term accumulation (Swiss Re, 2025[30]; OECD, 2020[31]). Evidence from the local industry indicates that preservation rates remained persistently low over time: only 11.5% of members who exited employment in 2012 chose to preserve their retirement savings, a share that declined further to 8.8% by 2019. Over the same period, the proportion of total assets preserved fell from 50.6% to 48.4% (Alexander Forbes, 2020[32]). These figures suggest that cash-out behaviour is most prevalent among individuals with lower accumulated balances. However, the data also show that around 38% of individuals who withdrew their benefits in 2019 had significant savings accumulated.
Access to retirement savings could lead to retirement income adequacy shortfalls. It could also lead to temporary losses in asset values, affect liquidity and create investment management problems for pension funds. However, it is important to recognise that sometimes early access may be a necessity. Therefore, access should be a measure of last resort and based on individual-specific exceptional circumstances (OECD, 2022[33]).
One way to improve preservation is to legislate and include in the regulatory framework the possibility of early access to retirement savings together with exceptional circumstances under which it would be allowed. This would help in avoiding legislative changes in the middle of a crisis that can have long-lasting negative impacts on retirement income adequacy (OECD, 2022[34]).
Another approach to improve the preservation of retirement savings while recognising that individuals may face short-term liquidity needs is to separate long-term retirement savings from funds intended to meet unexpected contingencies (OECD, 2022[34]). Reflecting this approach, South Africa introduced the Two-Pot retirement system in September 2024. The reform divides retirement contributions into two components: a “retirement pot,” which is fully preserved until retirement, and a “savings pot,” which allows partial pre-retirement access. Under the new framework, two-thirds of new contributions are allocated to the retirement pot and cannot be accessed before retirement, while one-third is directed to the savings pot, from which members may make limited unconditional withdrawals once per tax year. This design aims to reduce large-scale cash-outs at employment termination. Nigeria’s Personal Pension Plan applies a similar dual-structure design, whereby contributions are split into two components: a retirement portion, which is fully locked in until retirement, and a contingent portion that can be accessed before retirement (PenCom, 2025[35]). In addition to voluntary pension arrangements, the Contributory Pension Scheme (CPS) also allows contributors who remain unemployed for at least four months to withdraw up to 25% of their accumulated balance (PenCom, 2014[36]). In Botswana, when an individual changes jobs, resigns or is dismissed, early withdrawals of typically around 25% for voluntary exits and up to 33.3% in cases of retrenchment are permitted (Botswana Government, 2022[37]).
Insurance provision gaps
Limited resources allocated to insurance, particularly life insurance, constitute another constraint on the development of domestic institutional capital in Africa (OECD, 2025[4]). Insurance penetration remains low across much of the continent, limiting the capacity of insurers to accumulate large pools of long-term assets that can be invested in domestic capital markets. Among the countries analysed, only South Africa records an insurance penetration rate (i.e. total insurance premiums as a share of GDP) above the global average, at 11.9%, while Botswana, Morocco and Nigeria exhibit substantially lower levels (Figure 6.5).
South Africa’s high insurance penetration rate, among the highest globally, is largely driven by savings and investment-linked life insurance products. However, this level of market development coexists with significant structural weaknesses. Demand remains highly concentrated among higher-income households, while large segments of the population are either under-insured or entirely excluded from coverage. For low-income households, insurance provision is predominantly concentrated in funeral policies, which while providing important protection against immediate financial shocks, offer limited long-term financial protection or income replacement. As a result, this product bias limits the broader stabilising role of the insurance sector (Swiss Re, 2025[30]).
Note: Data for Botswana refers to 2023.
Source: SwissRe (2025[30]), South Africa outlook: opening pathways to greater resilience; NAICOM (2025[38]), Annual Statistical Market Report 2024; NBFIRA (2026[39]), Statistical bulletin 2025; ACAPS (2026[40]), Statsitiques trimestrielles du secteur des assurances; Allianz Reseach (2025[41]), Allianz Global Insurance Report 2025: rising demand for protection; Bank of Botswana (n.d.[12]), Exchange Rates, Central Bank of Nigeria (n.d.[13]), Exchange Rates, IMF.
In addition, despite the overall size of the market, the non-life insurance segment exhibits important gaps in risk coverage. Natural catastrophe losses in South Africa are now higher than in previous decades, and an estimated 82% protection gap remains for secondary perils such as droughts and hailstorms (Swiss Re, 2025[30]). The lower insurance penetration rates observed in Morocco, Botswana and Nigeria suggest that the protection gap is likely even larger in these countries, particularly when taking into account the higher frequency of natural catastrophe events and their significant economic costs. In Nigeria, for instance, annual losses associated with droughts alone are estimated to exceed USD 5 billion (UNDP, 2023[42]).
This underinsurance shifts disaster-related losses from insurers to households, businesses and the public sector. In the absence of adequate insurance coverage, affected parties must rely on savings, borrowing or public assistance to recover, which increases vulnerability to repeated shocks and constrains investment and economic growth.
Affordability and trust
Several of the factors limiting the growth of insurance markets mirror those affecting retirement savings. In particular, low and unstable household incomes, often linked to the high prevalence of self-employed and informal workers across the continent, constrain both the demand for and access to insurance products. Low-income levels mean that many households prioritise immediate consumption needs over insurance coverage, which may be perceived as a discretionary expenditure. At the same time, irregular earnings make it difficult to maintain the regular premium payments required by most insurance products.
Recent reforms in Nigeria seek to address some of these constraints. In particular, the Nigerian Insurance Industry Reform Act, introduced in 2025, expands the framework for compulsory insurance, which now covers 11 areas such as motor third-party liability, group life insurance and credit life (NIIRA, 2025[43]). By broadening the scope of compulsory insurance, these measures can expand the pool of insured risks and generate additional premium flows to the insurance sector.
Besides low and unstable incomes, a key constraint on insurance uptake in Africa is weak trust in insurance providers, often linked to concerns about claims payments. In Nigeria, survey evidence shows that lack of information and distrust in insurance institutions are major barriers to adoption, with 57% of respondents reporting distrust in insurers (EFInA, 2021[44]). Similarly, in South Africa, survey data indicates that around half of respondents express low trust in insurance companies, largely driven by concerns over claim rejections and perceived non-payment. This mistrust is reinforced by a broader misalignment in how insurance is understood by consumers, with some viewing insurance as an investment-like product that should yield a return, rather than a risk-pooling mechanism that only pays out under specific conditions (FSCA, 2023[45]). In Morocco, survey evidence indicates that 65% of respondents are dissatisfied with their insurance providers, while more than two-thirds have switched insurers at least once (ATLAS, 2025[46]), which may suggest relatively weak customer loyalty and significant room to strengthen trust in the insurance sector. In Botswana, empirical studies on life insurance uptake also identify lack of trust in insurance institutions as one of the factors constraining demand for insurance products (Malambo and Qutieshat, 2024[47]).
The 2025 Nigerian Insurance Industry Reform Act (NIIRA, 2025[43]) also introduces measures aimed at strengthening the financial resilience of insurers and enhancing policyholder protection. In particular, the reform substantially increases minimum capital requirements for insurance and reinsurance companies and introduces a risk-based capital framework, requiring insurers to maintain capital commensurate with the risks they assume. It also strengthens policyholder protection through stricter requirements for the timely settlement of claims and the establishment of a Policyholders Protection Fund to provide compensation to eligible policyholders in the event of insurer insolvency. Together, these measures could help strengthen insurers’ capacity to meet their obligations and address concerns around claims payments and insurer solvency, thereby supporting greater confidence in the insurance sector.
Beyond trust, other demand-side constraints like limited awareness and low levels of financial literacy, which are discussed further in Chapter 7, also contribute to low insurance uptake across these countries. These factors reduce understanding of the benefits and long-term value of insurance products, leading to weak engagement with providers and low perceived relevance of coverage.
Distribution channels
On the supply side, constrained distribution channels continue to limit access to insurance products across the continent (Cenfri, 2022[48]) including in the countries covered in this analysis (ACAPS, 2023[49]; UNDP, 2023[42]; Malambo and Qutieshat, 2024[47]). These constraints are particularly pronounced in rural areas, where physical branch networks are often limited and alternative digital channels, such as mobile and online platforms, remain insufficiently developed to ensure broad market reach.
There is, however, a gradual shift away from traditional distribution channels towards more digitally driven models. In Nigeria, for example, regulators have sought to address these constraints by promoting alternative insurance distribution channels, including bancassurance, mobile insurance, microfinance partnerships and digital platforms. A key initiative in this regard is BimaLab, launched in 2022 as an insurance technology accelerator programme through a partnership between the National Insurance Commission and Financial Sector Deepening Africa. The programme aims to strengthen innovation in the insurance sector by supporting technology-driven solutions that enhance outreach to underserved and vulnerable populations. Since its inception, BimaLab has supported the development of a range of insurance technology solutions, including online product comparison platforms, digital claims management systems, and new distribution models designed to improve efficiency and market reach (BimaLab[50]).
Other initiatives across the continent, particularly the expansion of mobile-based distribution channels, have supported the growth of microinsurance, which provides low-cost and simplified insurance products to low-income households, informal workers, and smallholder farmers. However, the uptake of microinsurance remains constrained by the same demand-side factors mentioned above, including limited awareness, low financial literacy, and weak trust in insurance providers. As a result, while microinsurance is increasingly recognised as an important instrument for financial inclusion, its further expansion depends not only on improved digital infrastructure but also on greater consumer awareness and confidence in the sector (IRES, 2024[51]).
6.4.2. Predominance of government bonds in domestic investment portfolios
The contribution of pension funds and insurance companies to capital market development depends not only on their ability to mobilise long-term domestic savings, but also on how these savings are allocated. Their role in supporting economic growth ultimately depends on the extent to which institutional capital is channelled towards domestic investments while ensuring adequate risk-adjusted returns for beneficiaries and the ability to meet their obligations to policyholders.
These two objectives, however, are not always aligned. Regulators often face a trade-off between promoting portfolio diversification to improve long-term investment performance and encouraging pension funds and insurance companies to allocate capital domestically to support the development of local capital markets. This trade-off is particularly relevant in the African context, where institutional investors often operate in markets characterised by shallow financial systems and by limited investment opportunities.
This is reflected in current asset allocation patterns across African countries. Pension funds across the continent allocated, on average, 44.4% of their portfolios to bills and bonds at the end of 2023, with most of this exposure concentrated in domestic government bonds (OECD, 2025[4]). While comparable data for insurance companies are less readily available, their asset allocation patterns are likely to follow similar trends, given that they operate under a broadly comparable investment environment and regulatory frameworks.
However, asset allocation patterns vary significantly across African countries. The availability of productive investable domestic assets and regulatory limits on foreign investment and on certain asset classes are particularly important in explaining these cross-country differences. These two factors are closely linked, as the range of investable assets available domestically often shapes both the design and the effectiveness of investment regulations. Persistently high yields across many African economies, which reflect broader political and economic challenges and can reduce incentives for institutional investors to diversify into other asset classes (OECD, 2025[4]), can also explain these differences. In some other cases equities, rather than fixed-income instruments, constitute the main asset class in which pension funds invest (e.g. Botswana, Mauritius).
In countries where financial markets are still at an early stage of development, pension funds and insurance companies may lack the expertise, investment infrastructure or market opportunities needed to invest across a broader range of domestic or international assets. Under these circumstances, temporary quantitative investment limits may be justified as part of a broader strategy to foster capital market development (OECD, 2022[52]). For example, requiring institutional investors to hold domestic government securities can support the development of a sovereign yield curve, which provides the benchmark needed to price corporate debt and other financial instruments, contributing to building the foundations necessary for broader capital market development (see chapter 4).
However, such quantitative investment limits should be viewed as transitional rather than permanent. As financial markets deepen, institutional investors develop greater investment capacity and the supply of investable assets expands, quantitative restrictions should be gradually relaxed. Over time, this enables pension funds and insurance companies to diversify their portfolios more effectively and improve long-term risk-adjusted returns for beneficiaries and policyholders, while allocating capital to a broader range of domestic instruments, including corporate bonds, equities and alternative investments (OECD, 2022[52]). This can help foster a virtuous cycle in which deeper capital markets and a growing institutional investor base reinforce each other and evolve in tandem.
The regulatory approaches adopted across African economies vary considerably, shaped by differences in market maturity and policy objectives. Nigeria and Morocco maintain relatively restrictive quantitative limits on foreign investment (Figure 6.6). In Nigeria, pension funds are generally prohibited from investing abroad, while insurance companies may invest indirectly in foreign assets only if they continue to hold domestic assets at least equivalent to their insurance liabilities. Morocco also limits foreign investment, allowing only a small share of portfolios to be allocated abroad. By contrast, South Africa and Botswana adopt more flexible frameworks, allowing pension funds to invest a larger share of their assets in foreign markets, although limits still apply.
Source: OECD 2026 Annual survey of investment regulation of pension providers, local regulations.
Countries also differ in the extent to which pension funds and insurance companies can allocate assets across domestic asset classes. In Nigeria, for example, equity investments for pension funds are capped at relatively low levels (between 5% and 30%, depending on the fund type), while in Botswana pension funds’ allocations to listed equities can reach up to 70%, with an additional 20% permitted in unlisted equities (OECD, 2026[53]).
These regulatory differences are reflected in portfolio allocations. Nigeria and Morocco, which maintain tighter constraints on foreign investment and, in the case of Nigeria, more restrictive limits on riskier domestic assets, exhibit the highest allocations to bills and bonds (Figure 6.7).
In Nigeria, bonds and bills account for approximately 70% of pension fund assets, the vast majority of which are invested in domestic government securities (PenCom, 2024[54]), while in Morocco the corresponding figure is 46%. By contrast, South Africa and Botswana, where investors have greater flexibility to diversify across both domestic and foreign assets, allocate less than 20% of portfolios to bills and bonds. In Botswana, however, limited domestic investment opportunities contribute to a significant share of assets being allocated abroad, reducing the direct contribution of pension assets to local capital market development. By contrast, South Africa benefits from deeper and more liquid capital markets, which provide a broader range of investment opportunities. As a result, while more than 70% of pension fund assets are invested domestically, portfolios are diversified across asset classes, including equities and alternative investments such as private equity and infrastructure, thereby providing stronger support to domestic capital market development.
Note: In Panel A, the “other” category includes loans, land and buildings, unallocated insurance contracts, hedge funds, private equity funds, structured products, other mutual funds that are not invested in equities, bills and bonds or cash and deposits, and other investments. In Panel A data for Botswana and South Africa refer to 2024. In Panel B, data for South Africa refer to 2024 and data for Botswana and Nigeria refer to 2022. The share of assets invested abroad in Nigeria reflects the presence of legacy defined-benefit schemes with foreign asset holdings, for which the limits shown in Figure 6.6 do not apply. For Botswana, the foreign investment limit was 70% in 2022 and was subsequently reduced to 50%, explaining why the reported foreign investment allocation exceeds the limits shown in Figure 6.6.
Source: OECD (2025[6]), Pension Markets in Focus 2025, https://www.oecd.org/en/publications/pension-markets-in-focus-2025_b095d0a0-en.html; South African Reserve Bank (2026[7]), Quarterly bulletin – March 2026, https://www.resbank.co.za/en/home/publications/publication-detail-pages/quarterly-bulletins/quarterly-bulletin-publications/2026/march.
The prolonged use of investment limits to channel retirement savings into sovereign bond markets can, however, have important negative consequences. In particular, as seen in a number of countries across the continent, such constraints may expose institutional portfolios to lower long-term returns as well as increased sovereign credit and concentration risks. The longer these measures remain in place without a clear transition path towards broader capital market development, the greater the risk that they shift from being a temporary development tool to a structural limitation on portfolio performance and the deepening of domestic financial markets.
The analysis in this chapter highlights a range of constraints limiting the development of pension and insurance sectors across the countries considered, from low participation and contribution levels to limited insurance coverage, early withdrawals, gaps in compliance, and constraints on portfolio diversification. Addressing these challenges is important first and foremost to enable pension funds and insurance companies to fulfil their primary functions: supporting adequate income in retirement and providing financial protection against insured risks. At the same time, as these institutions grow and accumulate larger pools of long-term savings, they can play an increasingly important role in the development of domestic capital markets by providing a stable source of long-term investment.
For pension systems, addressing low levels of participation starts with broadening access to asset-backed pension arrangements beyond formal wage employment. Given the high prevalence of self-employment and informality in many African economies, pension systems that remain predominantly linked to formal employment will leave a substantial share of the workforce without access to retirement savings arrangements. Countries could therefore progressively extend access to pension systems to self-employed and informal workers. Expanding access, however, does not necessarily translate directly into participation. Where feasible, implementing mandatory pension arrangements can be an effective mechanism for increasing participation. Countries with higher participation are those with mandatory pension arrangements. Where mandatory participation is not considered appropriate, automatic enrolment can help achieve high participation among workers who already have access to asset-backed pension arrangements. These measures would benefit from being complemented by policies that support adequate and sustained contributions. Flexible contribution schedules can facilitate participation among workers with irregular incomes, while matching contributions or appropriately targeted incentives can encourage workers to build retirement savings over time.
Increasing participation alone will not generate sufficient pools of long-term savings if contributions are not effectively collected or accumulated savings are withdrawn prematurely. This can reduce retirement income adequacy, while also limiting the ability of pension funds to contribute to capital market development. In countries with mandatory pension systems, authorities could consider strengthening supervisory and enforcement capacity, improve transparency around employer non-compliance and ensuring that required contributions are paid in full and on time. Pension frameworks should also promote the long-term preservation of retirement savings by limiting early withdrawals. Where appropriate, dedicated emergency savings arrangements could provide limited access to funds for unforeseen needs without undermining the accumulation of long-term pension assets. Where such arrangements are introduced, they should be financed through additional savings rather than by diverting existing retirement contributions, with conditions for access clearly established in legislation and regulation.
Strengthening trust and confidence in financial institutions is also important for increasing participation in both pension and insurance markets. As highlighted in the chapter, concerns about governance, fees, and claims payments can discourage households from committing resources to long-term financial products. Regulators could therefore consider continuing strengthening governance, transparency and consumer protection in line with the OECD Core Principles of Private Pension Regulation (2016[55]) and the IOPS Principles of Private Pension Supervision (2026[56]). This includes improving disclosure of fees, risks and product features, ensuring fair treatment of customers, strengthening claims-handling and complaint-resolution mechanisms, and reinforcing supervisory oversight.
In insurance markets, these measures could be accompanied by efforts to broaden access to life and non-life insurance, particularly in rural and underserved areas. Digital distribution channels, mobile insurance, bancassurance and other innovative delivery models can help reduce barriers to access. Where appropriate, policymakers could also consider introducing or expanding mandatory insurance requirements for specific risks, provided that such requirements are supported by effective implementation and enforcement.
Alongside measures to broaden participation and increase the pool of institutional savings, reforms could help create the conditions for these resources to be invested in more diversified portfolios contributing to higher retirement income. Investment regulations should strike an appropriate balance between prudential safeguards and diversification. Where existing investment limits contribute to excessive concentrations in government securities, policymakers could consider providing greater flexibility to invest in a broader range of productive assets. Such reforms are likely to be more effective when tailored to country-specific circumstances and introduced at a pace that reflects the maturity of the domestic financial system and be aligned with the depth of domestic capital markets, institutional capacity and the strength of risk-management frameworks. As these conditions improve, regulatory frameworks could progressively move towards prudent-person principles, supported by effective risk-based supervision and robust risk-management practices among pension funds and insurance companies.
Greater regulatory flexibility will nevertheless have a limited effect on portfolio diversification if suitable domestic investment opportunities remain scarce. Measures to strengthen the institutional investor base could therefore be accompanied by efforts to increase the supply of investable private-sector assets. Deepening corporate bond and equity markets and supporting the development of infrastructure and private capital markets can broaden the range of instruments available to institutional investors.
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← 1. The FSCA’s ability to take direct enforcement action against non-compliant employers is limited, as participating employers are not regulated entities under the Pension Funds Act or the Financial Sector Regulation Act. However, publication is not the only mechanism for addressing non-compliance. The FSCA also engages with the National Prosecuting Authority and the Directorate for Priority Crime Investigation to support enforcement in serious cases.