Compulsory preservation: Will history repeat itself?
The current uproar regarding the Namibia Financial Institutions Supervisory Authority’s (Namfisa) draft regulation on partial compulsory preservation of pension fund capital upon termination of pension fund membership before retirement age has aroused interest from young and old on an important pension fund matter.
When articles are written on pension fund topics, they have been largely ignored by especially the younger population. Like many Namibians from all walks of life, I too tuned in to listen to Namfisa’s CEO’s press conference on the subject matter. The overwhelming public outcry and public interest was primarily driven by a video message by Job Amupanda, which enjoyed social media attention. As I read the remarks and comments from the audience that trickled in during the live press conference, I could not help but feel a loss for words, and I was disturbed by many of the uncivil and angry comments.
I was reminded of the hugely unpopular utterances ascribed to a former apartheid era South African president, who insinuated that the average person of colour does not plan his life beyond a year. Sadly, the same person would have been responsible for preventing the same people from their right and fair access to education. Today, we all agree that “education is the greatest equaliser”. Founding president Sam Nujoma hardly ever excluded the “fight against ignorance” from his speeches. Yet another former president, Hifikepunye Pohamba, stated: “If you think education is expensive, try ignorance”.
The pension fund concept was hugely popular in years shortly after Namibia’s independence. There was a lack of trust in occupational pension fund schemes, and for good reasons. Pension fund membership, its contributions and benefits were still divided along racial lines. The blue-collar workers then had good reasons to be hostile and touchy towards their employers’ pension funds. They were - for example - subjected to vesting scales, where the employer contribution was paid to them upon termination based on their years of service. Blue-collar workers were also often made to belong to provident funds, compared to their white-collar counterparts who belonged to pension funds. The difference between a pension fund and a provident fund is that provident funds allow you to access all your funds in full upon retirement.
A pension fund, on the other hand, only allows you to access to one-third of your pension fund savings, with the two-thirds payable in annuities for the rest of your life.
For a quick history lesson on provident funds, these became popular because of the migrant labour system in South Africa. When South Africa introduced the popular Pension Funds Act (Act 24 of 1956), they realised that when migrant workers returned to their so-called homelands, some never returned to claim their pension fund pay-outs. As a result, huge amounts of unclaimed monies started to build up in the pension funds. They therefore created provident funds, where the total lump sum was paid to the labourers when they left service. The provident fund concept has remained with us until today and several employer pension funds have been set up as provident funds. However, with increased education, majority of persons retiring from provident funds today still choose to have two-thirds of their retirement capital paid to them over a lifetime instead of withdrawing the full capital.
Lack of trust
Some of the most astute and wealthy individuals know too well that the management of large sums of capital is best left to institutions like pension funds, which make use of professional investment companies to look after and grow the capital. South Africa is currently doing away with provident funds, as these are found to increase the reliance on the state by retired persons after squandering their retirement savings.
The calls made by mostly young people to withdraw their retirement savings because of the draft law by Namfisa is thus reminiscent of the pre- and post-apartheid era when lack of trust in the pension fund regime was the order of the day. Many public servants and employees of state-owned enterprises withdrew their pension fund savings in a panic at the dawn of Namibia’s independence. There was huge fear that the new Namibian government would nationalise or misappropriate their pension fund savings. I have witnessed first-hand how many former Rossing Uranium employees - who were retrenched since 1992 because of the fall in the uranium and other commodity prices - fell into abject poverty after squandering their pension savings. Rossing was known for providing very good pension benefits to its workforce and many with years of long service were surprised with the pay-out of millions of dollars upon retrenchment. With little or no financial acumen, these former employees watched helplessly as their savings disappeared in thin air due to frivolous spending. The same scenario played itself out elsewhere where mass retrenchments were experienced, most notably at another mining town Tsumeb, with TCL in those days.
Safety net
For a quick lesson on pension systems, the current government’s universal old age grant of N$ 1 350 provides a basic income upon retirement and serves as the first pillar of a social safety net. You don’t need to have been employed in your lifetime or have been a taxpayer to qualify for this grant. The second pillar would be a pension payable from the Social Security Commission. The Social Security Act provides for a compulsory national pension fund. However, this fund is not operational yet. If enacted, every employed person may be forced to contribute to such a fund.
The third pillar is the occupational pension fund schemes that are currently regulated by Namfisa. These funds have catapulted pillar three of our pension system. The fourth and last pillar would be individual retirement savings plans, called retirement annuity (RA) funds. Since the creation of RAs, contributions made to RAs cannot be withdrawn at all until at least age 55. The argument being (as also alluded to by the Namfisa CEO), that retirement fund savings are for that very purpose - to secure your livelihood during old age and to reduce dependence on the state.
The elephant in the room is financial literacy. The Namfisa CEO, in his press release and response to the many questions on the subject matter, inferred that the trustees of pension funds may have failed in their duties or put the responsibility to communicate to the members of pensions funds regarding the draft law squarely on the trustees. I beg to differ and suggest that there is more to what underlies the public outcry.
We are on record, and we have, as pension fund practitioners, gone to great lengths to sensitise those in our spheres of influence, like pension fund trustees and employers. We have written to the Speaker of Parliament and to various government ministers and even to Namfisa itself, requesting them to call for a public consultation and discussion on the Financial Institutions and Market Act when it was still a Bill in Parliament. Unfortunately, our cries have landed on deaf ears.
No reason for concern
The current upheaval could to a large extent have been avoided. What is needed is the urgent and resolute assurance to members of the public that Namibian occupational pension funds are well managed and that they have absolutely no reason to be concerned.
The suggested partial compulsory preservation is - in fact - in the best interest of the members of pension funds and is in the interest of the country from a savings and investment pool point of view. But only when members are adequately educated will they understand.
Currently, there are too many unrelated underlying socio-economic challenges that have instilled fear and anger in the Namibian pension fund member and population in general. Let us educate the pension fund member to plan long-term, and to provide for their dependents in the unfortunate event of them not reaching retirement age.
Marthinuz Ndumetana Fabianus is the managing director of RFS Fund Administrators, a leading pension fund administrator in Namibia. He is also a trustee of Benchmark Retirement Fund, one of the biggest umbrella funds in the country, founded by RFS.
When articles are written on pension fund topics, they have been largely ignored by especially the younger population. Like many Namibians from all walks of life, I too tuned in to listen to Namfisa’s CEO’s press conference on the subject matter. The overwhelming public outcry and public interest was primarily driven by a video message by Job Amupanda, which enjoyed social media attention. As I read the remarks and comments from the audience that trickled in during the live press conference, I could not help but feel a loss for words, and I was disturbed by many of the uncivil and angry comments.
I was reminded of the hugely unpopular utterances ascribed to a former apartheid era South African president, who insinuated that the average person of colour does not plan his life beyond a year. Sadly, the same person would have been responsible for preventing the same people from their right and fair access to education. Today, we all agree that “education is the greatest equaliser”. Founding president Sam Nujoma hardly ever excluded the “fight against ignorance” from his speeches. Yet another former president, Hifikepunye Pohamba, stated: “If you think education is expensive, try ignorance”.
The pension fund concept was hugely popular in years shortly after Namibia’s independence. There was a lack of trust in occupational pension fund schemes, and for good reasons. Pension fund membership, its contributions and benefits were still divided along racial lines. The blue-collar workers then had good reasons to be hostile and touchy towards their employers’ pension funds. They were - for example - subjected to vesting scales, where the employer contribution was paid to them upon termination based on their years of service. Blue-collar workers were also often made to belong to provident funds, compared to their white-collar counterparts who belonged to pension funds. The difference between a pension fund and a provident fund is that provident funds allow you to access all your funds in full upon retirement.
A pension fund, on the other hand, only allows you to access to one-third of your pension fund savings, with the two-thirds payable in annuities for the rest of your life.
For a quick history lesson on provident funds, these became popular because of the migrant labour system in South Africa. When South Africa introduced the popular Pension Funds Act (Act 24 of 1956), they realised that when migrant workers returned to their so-called homelands, some never returned to claim their pension fund pay-outs. As a result, huge amounts of unclaimed monies started to build up in the pension funds. They therefore created provident funds, where the total lump sum was paid to the labourers when they left service. The provident fund concept has remained with us until today and several employer pension funds have been set up as provident funds. However, with increased education, majority of persons retiring from provident funds today still choose to have two-thirds of their retirement capital paid to them over a lifetime instead of withdrawing the full capital.
Lack of trust
Some of the most astute and wealthy individuals know too well that the management of large sums of capital is best left to institutions like pension funds, which make use of professional investment companies to look after and grow the capital. South Africa is currently doing away with provident funds, as these are found to increase the reliance on the state by retired persons after squandering their retirement savings.
The calls made by mostly young people to withdraw their retirement savings because of the draft law by Namfisa is thus reminiscent of the pre- and post-apartheid era when lack of trust in the pension fund regime was the order of the day. Many public servants and employees of state-owned enterprises withdrew their pension fund savings in a panic at the dawn of Namibia’s independence. There was huge fear that the new Namibian government would nationalise or misappropriate their pension fund savings. I have witnessed first-hand how many former Rossing Uranium employees - who were retrenched since 1992 because of the fall in the uranium and other commodity prices - fell into abject poverty after squandering their pension savings. Rossing was known for providing very good pension benefits to its workforce and many with years of long service were surprised with the pay-out of millions of dollars upon retrenchment. With little or no financial acumen, these former employees watched helplessly as their savings disappeared in thin air due to frivolous spending. The same scenario played itself out elsewhere where mass retrenchments were experienced, most notably at another mining town Tsumeb, with TCL in those days.
Safety net
For a quick lesson on pension systems, the current government’s universal old age grant of N$ 1 350 provides a basic income upon retirement and serves as the first pillar of a social safety net. You don’t need to have been employed in your lifetime or have been a taxpayer to qualify for this grant. The second pillar would be a pension payable from the Social Security Commission. The Social Security Act provides for a compulsory national pension fund. However, this fund is not operational yet. If enacted, every employed person may be forced to contribute to such a fund.
The third pillar is the occupational pension fund schemes that are currently regulated by Namfisa. These funds have catapulted pillar three of our pension system. The fourth and last pillar would be individual retirement savings plans, called retirement annuity (RA) funds. Since the creation of RAs, contributions made to RAs cannot be withdrawn at all until at least age 55. The argument being (as also alluded to by the Namfisa CEO), that retirement fund savings are for that very purpose - to secure your livelihood during old age and to reduce dependence on the state.
The elephant in the room is financial literacy. The Namfisa CEO, in his press release and response to the many questions on the subject matter, inferred that the trustees of pension funds may have failed in their duties or put the responsibility to communicate to the members of pensions funds regarding the draft law squarely on the trustees. I beg to differ and suggest that there is more to what underlies the public outcry.
We are on record, and we have, as pension fund practitioners, gone to great lengths to sensitise those in our spheres of influence, like pension fund trustees and employers. We have written to the Speaker of Parliament and to various government ministers and even to Namfisa itself, requesting them to call for a public consultation and discussion on the Financial Institutions and Market Act when it was still a Bill in Parliament. Unfortunately, our cries have landed on deaf ears.
No reason for concern
The current upheaval could to a large extent have been avoided. What is needed is the urgent and resolute assurance to members of the public that Namibian occupational pension funds are well managed and that they have absolutely no reason to be concerned.
The suggested partial compulsory preservation is - in fact - in the best interest of the members of pension funds and is in the interest of the country from a savings and investment pool point of view. But only when members are adequately educated will they understand.
Currently, there are too many unrelated underlying socio-economic challenges that have instilled fear and anger in the Namibian pension fund member and population in general. Let us educate the pension fund member to plan long-term, and to provide for their dependents in the unfortunate event of them not reaching retirement age.
Marthinuz Ndumetana Fabianus is the managing director of RFS Fund Administrators, a leading pension fund administrator in Namibia. He is also a trustee of Benchmark Retirement Fund, one of the biggest umbrella funds in the country, founded by RFS.
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