Waiting for National Pension Fund
The Namibian pension fund
industry is involved in a process of restructuring according to Mr Marc Nel and
Ms Hester du Toit, both directors of Alexander Forbes in Windhoek. The industry
is only waiting for a decision on whether there will be any exemptions to
membership of the National Pension Fund to see where its future lies, said
Nel.He explained that the process of restructuring can be traced back to the mid
80s when the industry moved away from a domination by big insurance companies.
He said that before that time the big insurance companies handled
administration, consulting, actuarial, investment and insurance concerns related
to pension funds resulting in a predominance of insured pension funds in the
market.According to Nel this was when companies like Alexander Forbes made their
presence felt on the Namibian scene, taking over functions such as pension fund
administration, consulting and actuarial work and performing similar functions
for medical aid schemes.He said that in the beginning of the 90s a second major
change hit the industry with the general shift from defined benefit schemes to
defined contribution schemes. According to Nel the fundamental difference
between the two is that with the defined benefit schemes, a prescribed formula
was used to determine what members qualified for based on the number of years
they have worked. With the defined contribution models, benefits are determined
by contributions made towards the fund by employees and their employers. Fund
value then becomes market related. He added that this method also places more
responsibility on the board of trustees of any fund that uses the defined
contribution method.The current restructuring is due to the imminent
introduction of the National Pension Fund (NPF) by the Social Security
Commission. Nel affirmed the industry?s support for the fund, noting that
currently only some 25% of Namibia?s potential labour force enjoy pension fund
benefits.However the proposed NPF has not been welcomed with open arms by the
industry. Nel said that in the draft for the NPF, prepared with the assistance
of the International Labour Organisation (ILO), it was intended to be a defined
benefit scheme. He noted that the local industry has been moving away from
defined benefit schemes because it had been proven actuarially that defined
contribution was a better option.The second problem with the proposed NPF, noted
by Nel, was that the actuary from the ILO had not taken into account the effects
of HIV/Aids on the Namibian market, nor the necessity for pre-funding for
members over the age of 45 years.He said that the industry and the Government
Institution Pension Fund (GIPF), the only privatised government pension fund in
the world, are waiting a decision on the exemption from the NPF of people who
are already members of other pension funds. These proposed exemptions would only
occur if the alternative pension fund offers higher contributions and better
benefits than the NPF.He is of the opinion that there is space in the market for
such an arrangement as the NPF may not be able to provide middle class level
pension benefits due to its requirement of having to cater for all Namibians.He
said that pension fund assets in Namibia amount to about N$15 to N$16 billion.
One effect of fewer pension funds would be a reduction of cash flow due to fewer
players in the market. Another concern is how the money would be administered.
Nel pointed out that pension funds in Namibia are governed by both the income
tax act and the pension funds act and therefore must be audited every year. The
question is whether the Social Security Commission would also fall under the
same restrictions and requirements as it is governed by a different act
altogether.