Retirement funds worried about FIM Bill

Retirement Fund Solutions believes that the Financial Institutions and Markets Bill would have severe consequences for employers, workers and pension funds.

12 October 2018 | Economics

“For the employer, there will be no incentive to offer a pension fund under the FIM Bill anymore and there is no legal compulsion to do so” - RFS

NDAMA NAKASHOLE

Retirement Fund Solutions (RFS) has expressed concern over the Financial Institutions and Markets (FIM) bill which will soon be tabled in parliament, labelling it an “onslaught on the pensions industry”.

RFS believes that the bill and related developments will have a serious negative impact on everyone who has been saving up for retirement in a pension fund.

RFS board chairman Tilman Friedrich told Market Watch yesterday that the bill is a complex one and its complexity means it will be very expensive to manage.

According to him, the bill, which will regulate insurance companies, medical aid funds, pension funds and other non-banking financial sectors, will require resources to be complied with and since it is costly, all parts involved will spend more money to meet the requirements.

As a result, people who save up for their future in pension funds will have to carry the cost of that.

“There is a whole lot of things around that bill that will require costs,” he said.

During the launch of its annual report on 30 August 2018, Namfisa CEO Kenneth Matomola mentioned the FIM Bill as one of the regulator’s highlight bills that will be promulgated and implemented in the current financial year.

Cause of demise

In a letter to finance minister Calle Schlettwein dated 3 October 2018, Friedrich pointed out some of the key developments which he said are likely to cause the demise of the industry.

According to him, the FIM Act has numerous severe consequences for employers and employees.

Aspects of the bill that will be negative for the industry include Namfisa levies, the Income Tax Act provisions concerning pension funds as well as VAT on asset management services to pension funds.

The establishment of GIPF under a separate law, GIPF using its market dominance and taxpayer guarantees to compete with the private sector on a low-cost ticket under the guise of Kuleni, as well as the establishment of an umbrella fund for SOE pension funds are also some key issues that RFS gave a red flag in the letter to Schlettwein.

According to Friedrich those issues, plus others, have a negative effect on a significant part of the working population in Namibia - people saving for their retirement in pension funds.

Grievances

In its latest newsletter, RFS said that Namibia will be moving into a new era with the advent of the FIM Bill.

It says employers will also be required to support Namfisa in its prudential and market conduct supervisory endeavours.

“The employer will be prohibited from using the pension fund in support of its business objectives to attract and retain staff while the employer, including its directors and officers in their personal capacity, will be facing serious risks.

“For the employer, there will be no incentive to offer a pension fund under the FIM Bill anymore and there is no legal compulsion to do so,” says RFS

For the employee, RFS says the key advantage of a pension fund, namely the strong protection previously offered by Section 37 of the Pension Funds Act, has for all intents and purposes been removed from the FIM Bill.

“For employees earning below the minimum income tax threshold, the income tax regime offers no contribution incentive. For those earning above this threshold, the income tax regime will in many cases actually offer a disincentive,” it further claims.

As far as the tax exempt status of pension funds is concerned, the benefit is not all that meaningful when one looks at the income pension funds typically generate, RFS says.

“The individual investor would pay interest withholding tax on local interest income of a mere 10% and may be exposed to interest withholding tax on interested earned from foreign investments. This basically leaves some rental income of fairly little impact that pension funds typically generate and that is tax free when earned by a pension fund while the individual investor would have to pay tax at marginal rates on any rental income.”

Namfisa’s stance

Erna Motinga, Namfisa’s deputy CEO, last week said the FIM bill had been sent to the attorney-general for certification for submission to the National Assembly.

When she gave an industry overview at the African Insurance Organisation’s Reinsurance Forum held in Windhoek last week, Motinga said the bill would encourage localisation of core functions away from remotely controlled asset managers.

The envisaged regulatory regime introduces flexibility and responsiveness to market developments and also allows for the issuance of subordinate legislation by the minster responsible for finance or the regulatory authority, she said.

Motinga said the bill would give Namfisa an enhanced enforcement power, such as directing the removal of unfit key persons and issuance of administrative penalties.

Transparency and accountability to stakeholders as well as a redress mechanism for consumers of financial services through the financial adjudicator office are some of the issues that the bill is expected to introduce, she said.

Market Watch could not immediately get comment from Namfisa by the time of going to print.

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