The Namibia Competition Commission (NaCC) has concluded the pension fund administrators’ market can be considered an oligopolistic market.
Oligopoly refers to a market structure in which a small number of firms have the large majority of the market share as opposed to a monopoly where one firm dominates the market.
NaCC spokesperson Dina //Gowases in a statement released on Monday said the commission initiated an investigation into pension fund administrators Alexander Forbes Financial Services Namibia, Metropolitan, Old Mutual and Retirement Fund Solution, jointly referred to as respondents.
The investigation was due to an allegation of uncompetitive practices in the pension fund service provider industry.
NaCC took its cue from an online publication on 19 October 2016, titled ‘Nature of Commercial Practices in the Namibian Pension Fund Administration Market’.
“The article contained allegations that various pension fund administrators are cross-selling administration services tied with consulting and actuarial services, and offered to umbrella pension funds as conditional selling. This means that for an administrator to carry out administration services on behalf of the umbrella pension fund, the umbrella pension fund must accept consulting and actuarial services as part of the package,” explained //Gowases.
The respondents offer administration services to umbrella pension funds in the pension fund industry.
The online publication stated the harmful practices of the sector noted the pension fund administrators are oligopolistic, based on imperfect competition and they are not regulated by Namfisa under the Pension Fund Act, which makes it difficult for the administrators to be controlled.
//Gowases: “Allegations were that pension fund administrators have market power over their established umbrella pension funds, and they are influential in the appointment of principal officers and board of trustees of umbrella pension funds”.
On the allegations posed against the respondents, she said the commission’s investigation found they have not contravened the relevant sections of the Competition Act.
“This is due to the finding that the administrators and associated pension funds operate with the same common purpose, as a single economic unit, being vertically integrated. As a result of this finding, the commission is of the view that the redress (if any) to alter these relationships will best be achieved through direct regulatory intervention by the industry regulator (Namfisa) if such authority is granted through legislation (such as the Financial Institutions and Markets Act),” explained the spokesperson.
Despite its findings, the commission emphasised it reserves its rights to investigate any other potential anti-competitive behaviour in the pension fund market or by similar parties in future.
Commenting on the domestic pension fund market structure, local economist Omu Kakujaha-Matundu explained an oligopolistic market means only one thing: collusion.
“Collude to charge more or less the same price, which is usually higher than what otherwise could be should it have been a competitive market,” the economist stated.
He added market participants also decide on market sharing, decide who will cater for which market segment and become in all essence a monopoly by charging higher prices.
In this case, he said it could be the pension deductions and benefits that could be to the detriment of clients or consumers.
The retired economist said the pension firms could also deliberately fail to innovate and come up with better products.
According to Namfisa’s 2022 recently released annual report, pension fund assets increased by 18% to N$213 billion in 2021, and current liabilities increased by 40.9% to N$3.4 billion as at 31 December 2021.
It further reported the industry reported an unclaimed benefits balance of N$176.4 million as at 31 December 2021, down from N$273.8 million reported as at 31 December 2020.
“This is an encouraging movement observed in the reporting period, which indicates that more members (or their dependants), whose pension fund membership ended without receiving their benefits, were traced and paid,” reads the report.
Looking at the market size, the report stated the number of local pension funds registered with Namfisa decreased by 35.2% as at 31 December 2021, bringing the total to 83.
At the end of the reporting period, the number of active foreign funds increased by one to 122.