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Opinion: State of the employers’ pension funds

2021-07-16  Staff Reporter

Opinion: State of the employers’ pension funds
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Namibia offers a 3-tier pension system.

The first tier is an old age social pension, named the Basic Social Grant (BSG), which is paid by the Namibian government to all residents over 60 years of age on a monthly and unconditional basis. The old age social pension is currently paid by the Ministry of Gender Equality and Child Welfare. Also responsible for social welfare is the Social Security Commission (SSC), which is the custodian of the Social Security Act, which provides for various funds. These include the Maternity benefit and Sick Leave and Death Benefit Fund (MSD), the National Pension Fund, the Development Fund and the National Medical Aid Fund. At the moment, only the MSD and the Development Fund are active and provide benefits. The National Pension Fund and National Medical Funds have not been implemented by the SSC as yet. The National Pension Fund, when implemented, is meant to provide for compulsory retirement savings.

The second tier is the employer-sponsored (also referred to as occupational) pension funds offered by the various employers across sectors (i.e. government, public enterprises, non-governmental and private sector employers). Currently, employers offer pension fund schemes for the benefit of their employees without being compelled to do so by law. The membership of occupational pension fund schemes is usually a condition of employment, and thus compulsory for new employees taking up employment with an employer with an existing pension fund scheme. Occupational pension schemes are regulated by NAMFISA in terms of the Pension Funds Act (PF Act 24 of 1956).   

The third tier comprises individual retirement savings schemes, mainly offered by insurance companies and popularly referred to as retirement annuity funds. Retirement annuity funds can be taken up by anyone willing and able to afford making savings on a voluntary contractual basis, and serve to complement and supplement occupational pension fund savings and the government’s old age pension grant. Retirement Annuity Funds are also regulated by NAMFISA in terms of the Pension Funds Act.  

This article mainly serves to appraise the state of employers’ pension funds and the retirement annuity schemes, particularly in light of the ravaging effect of the Covid-19 pandemic. 

Occupational pension fund schemes in Namibia are by far the most popular form of retirement provision, are socio-economically impactful, and are well-established amongst most employers. When Namibia gained her independence from South Africa in March 1990, just about all the employer groups that had pension fund schemes in place for their employees decided to liquidate the funds, and allowed members to commute their savings in cash or transferred it to individual retirement annuity policies with insurance companies. However, the new Namibian government decided to adopt the South African- crafted pension fund law (Pension Funds Act 24 of 1956). Most employers were encouraged by this development, and decided to continue with the pension fund schemes for their employees under a new Namibian name. Employees who did not take their money from the previous pension fund schemes were allowed to continue with their savings under the new fund, whilst those who transferred their savings to retirement annuity policies or commuted it for cash had to start saving from scratch. The dominant providers of services to pension fund schemes at the time were insurance companies. Statistics regarding the number of employer-sponsored pension funds shortly after Namibia’s independence are unfortunately hard to come by, if not non-existent. 

Over the years since Namibia’s independence, the occupational pension fund arrangement gained momentum, and has become both a moral as well as competitive imperative for employers. Today, based on most recent and better available NAMFISA statistics, there were 132 active employer pension fund schemes registered with NAMFISA as at March 2020.  

Of the 132, about 13 funds are commercial funds (i.e umbrella pension funds and retirement annuity funds) that host many unrelated employer groups. These umbrella pension funds host hundreds of employer groups. Employer pension fund arrangements for a single employer (i.e fund exclusive to the employees of one or specific employer group) make up the remaining number of 132. The pension fund for government employees, popularly known as the GIPF, as well as pension funds of other large but also medium-sized employer groups make up the remaining list of the 132, excluding the umbrella funds. Members of active occupational pension funds and retirement annuity funds are close to 300 000, whilst assets exceed N$ 170 billion.    

Clearly, the socio-economic impact of employer- sponsored pension funds is undoubted, given that retirement savings’ assets exceed Namibia’s GDP of around N$ 160 billion. A sizeable amount of pension fund assets has been used since Namibia’s independence to invest in Namibian businesses across sectors such as financial services (like banks and insurance companies), manufacturing, infrastructure development, housing developments, health establishments, etc. Pension fund assets have also been used to assist with fiscal policy by assisting government to meet their borrowing needs through investments in issued bonds and treasury instruments. 

Despite the severe impact of the Covid-19 pandemic on the country’s economy and also on the rest of the world’s economy, pension fund assets have surprisingly held up, and actually continue to grow. Pension fund assets continue to serve as the main, if not only, source of retirement security for the majority of our economically active persons going into retirement. Most people who unfortunately lost gainful employment through retrenchment as a result of the impact of the pandemic on their employers would be destitute if not for the employer-sponsored pension fund savings that the former employees would have called on to keep them afloat. 

Of course, managing pension funds during current pandemic times had to be adapted so as not to be left behind. The current reality dictates that most pension fund members have to access services remotely through virtual means. The entire business of managing pension funds, from the contact between employers and service providers, meetings of boards of trustees as the custodians of pension fund assets and the exchange of relevant fund documents, etc, is now predominantly done electronically. It is no doubt that some of the new forced learnings and new ways of doing business will become the new norm, and have clearly marked the beginning of the 4th industrial revolution.        

The employer-sponsored pension fund arrangement has proven itself, having filled a vacuum in the absence of any legal compulsion to contractually save towards the retirement wellbeing of the Namibian employee. 

The Namibian employee and organised labour organisations will not easily forgive or look kindly upon any employer who feels no moral compulsion to provide for the retirement wellbeing of employees and for other insurable life events, like death or physical incapacity. Employer pension funds have become de facto social contracts, and anyone not giving them the space they deserve will have to negotiate with the Namibian employee. 

 

*Marthinuz Fabianus is the MD of Retirement Fund Solutions (RFS), and has over 27 years’ pension fund experience. The contribution is in his private capacity.

 


2021-07-16  Staff Reporter

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