The latest actuarial report on the Government’s Institutions Pension Fund (GIPF) indicates benefits paid by the fund currently exceed contributions collected.
For this reason, GIPF’s board of trustees have put in place specific strategies to ensure the sustainability of the largest pension fund in the country.
One of the recommendations is that GIPF, with assets under management above N$130 billion, should monitor the employer contribution reserve to assess its sustainability for financing the pension subsidy to meet the required contribution rates.
The state of affairs at GIPF came to the fore during the launch of its Actuarial Report on Friday.
The actuarial report, conducted every three years, showed that as of 31 March 2021, GIPF’s total liabilities for 109 568 members stood at N$64 billion, compared to N$61.6 billion recorded on 31 March 2018.
At Friday’s launch, GIPF CEO and Principle Officer David Nuyoma explained that an actuarial report, which is conducted every three years, is “like a litmus test for the Fund”, referring to the well-known chemistry test to determine either acidity or alkalinity.
This latest actuarial report, conducted by independent firm Humanity Employee Benefits (HEB), indicated an actuarial surplus of N$16.5 billion as well as liabilities and reserves of just over N$118 billion.
The report showed the actuarial value of GIPF’s assets stood at over N$135 billion.
According to HEB: “The valuation results show a funding level of 113.89% as at the valuation date, and we can consequently certify that the Fund is currently financially in a sound condition”.
HEB also recommended that GIPF maintains its reserves at the current level as a proportion of liabilities “as was held at the previous valuation date”.
Chairperson of the GIPF Board of Trustees Nillian Mulemi on Friday noted the trustees recognise the public has an interest in the GIPF because of the size of its assets and the diversity of members.
Mulemi explained an actuarial valuation is an independent appraisal of a pension fund’s assets versus its liabilities, using investment, economic and demographic assumptions for the model to determine the funded status of a pension plan.
“One of the main users of actuarial sciences is pension funds, particularly those that offer defined-benefit pension plans like the GIPF. A defined-pension benefit plan is an employer-sponsored retirement plan, where employee benefits are computed, using a formula that considers several factors, such as the length of employment and salary history,” Mulemi explained.
She added the actuarial report provides GIPF with the tools to manage the pension fund by setting an appropriate organisational strategy as well as an investment strategy.
By their very nature, pension Funds face a variety of liability risks, including interest rates, general price and wage inflation as well as longevity.
The GIPF uses an asset liability modelling investment strategy to mitigate investment liability.
Asset/liability modelling is a specific approach to examining pension risks and allows the sponsor to set informed policies for funding, benefit design and asset allocation.
Meanwhile, Mulemi reported that GIPF met its target funding level of between 105% and 115% as stipulated in the funding policy.
This means the fund’s assets were sufficient to cover the core liabilities, including the contingent reserves.
Because of this state of affairs, GIPF was able to fully pay retirement benefits, death benefits, disability benefits, exit benefits (resignation, retrenchment, etc.) and any other benefits prescribed by the rules of the fund.
Said Mulemi: “However, I wish to caution that while the level of the surplus was sufficient for the fund to meet its liability, the trustees have recognised that the fund is showing signs of maturity and thus requires active monitoring to ensure that robust investment strategies are implemented to satisfy the growing liability”.
Speaking to New Era on the sidelines of the actuarial report launch, GIPF’s chairperson of its Audit and Risk Committee Fanuel Kisting, explained that the last report was conducted during the advent of Covid-19 that wreaked havoc on pension funds around the world.
However, he confirmed that GIPF’s reserves are adequate to cover any future shocks and said he is confident the fund is and will be in a position to be able to cater to its total obligations.