Businesses and workers face potential financial pressure over proposed compulsory contributions under a planned national pension fund amid ongoing consultations over final rates.
Employers are warning that compulsory contributions could squeeze already struggling small businesses while reducing take-home pay for low-income employees.
Small and medium enterprise founder Danny Meyer says although the objective of creating a universal pension system is commendable, the proposed funding model could place an unsustainable burden on both employers and employees.
“The launch of a national pension fund is laudable, and so is its aim to provide long-term financial security and support economic stability.
However, the devil is in the details with regards to funding,” he says.
Meyer says Namibia’s informal sector and micro, small and medium enterprises (MSMEs), which the government has repeatedly described as major creators of jobs and wealth, are already under severe financial pressure.
“Such enterprises can barely cope with the cost of doing business in a challenging environment,” he says.
Meyer says businesses already face numerous statutory obligations, including local authority trading licences, fitness certificates, Social Security Commission (SSC) contributions and Business and Intellectual Property Authority (Bipa) fees.
Adding another compulsory pension contribution, he warns, could discourage businesses from hiring new workers.
Employees, particularly those entering the labour market for the first time, could also feel the impact.
“For employees in the informal and MSME sector, it is generally their first income-paying job. Salaries are also generally on the lower side,” Meyer says.
“There will be widespread unhappiness if they are expected to forego another portion of their pay in addition to their SSC monthly contribution.”
CONTRIBUTION RATES
SSC chief executive Ben Nangombe, however, says concerns about the proposed contribution rate need to be considered in the context of how pension contributions already vary across the economy.
Nangombe says a contribution figure of 15.91% comes from an actuarial valuation and represents the general average premium (GAP), calculated as the contribution rate needed to balance the fund’s income and expenditure over a 100-year projection period.
The commission says this figure is not a final contribution rate.
“No final decision has been made yet on how the contribution will be shared between employers and employees,” Nangombe says.
The final split will be determined through planned tripartite discussions involving the government, employers and labourers, he says.
The actuarial valuation models several possible arrangements, Nangombe says.
A 50/50 employer-employee split results in an overall contribution rate of 15.91%, while a 67/33 split produces a rate of 15.79%, and a 75/25 split a 15.73% contribution rate.
“These figures illustrate the range under consideration rather than a final decision,” Nangombe says.
This clarification comes amid concerns that employers could be expected to contribute 7.95% of workers’ earnings, almost five times the current 1.8% contribution towards social security.
The Namibia Employers’ Federation (NEF) has warned that higher compulsory payroll costs could affect hiring, particularly among SMEs and labour-intensive businesses.
“Employers make recruitment decisions based on the total cost of employing someone.
A substantial additional compulsory payroll cost could affect decisions to recruit, expand workforces or create permanent positions,” NEF president Elias Shikongo says.
He says employers support adequate retirement protection, but argues that the contribution rate should only be determined after consultation and economic and actuarial assessments.
“Employers support the principle of adequate retirement protection, but a figure such as 15.9% should not become an assumed outcome before meaningful tripartite consultation,” he says.
He says questions about the fund’s design, financing, governance and administration also remain unresolved, including how employers already providing pension benefits would be treated.
LOW-INCOME WORKERS
Nangombe says the actuarial valuation took into account workers across different income levels and includes an earnings floor intended to protect lower-income employees.
Under the proposed design, no employee contribution would be payable on the first N$300 of monthly earnings.
However, earnings below this floor would still count when calculating a worker’s pension credits.
Nangombe says the N$300 floor would be adjusted annually according to increases in the average earnings of national pension fund members.
For example, if an employee contribution rate of 6% were applied to a worker earning N$1 500 a month, the contribution would be calculated on N$1 200 after deducting the N$300 floor.
The worker would therefore contribute N$72, equivalent to 4.8% of total earnings.
The SSC estimates that about 6.7% of formal-sector members would pay no employee contribution under the N$300 lower limit.
Nangombe says this is intended to prevent the lowest earners from facing the full contribution rate on their entire salaries.
Public Service Union of Namibia secretary general Ndjizuvee Haakuria says the contribution should be affordable but says workers also need adequate retirement protection.
“As far as I know, the percentage we are referring to was calculated to ensure it is at least the minimum every employee can afford,” he says.
Haakuria says employers would also contribute towards the fund, allowing workers to build retirement benefits during their working years.
“The most important thing is to ensure that when you retire, irrespective of where you were working, you have a pension so that you can maintain the same standard and quality of life that you had before,” he says.
Haakuria believes a worker contribution of around 7% would be manageable.
PRIVATE PENSION CONCERNS
The treatment of workers who already belong to private pension funds has become another major point of contention.
Simonis Storm has warned that forcing workers who already have adequate pension arrangements into a national pension fund could undermine Namibia’s existing retirement savings industry.
The stockbroking and investment firm says workers with good employer-sponsored pension schemes should be exempted.
“The reform is worth making. The process followed is not,” Simonis Storm says, arguing that rules and safeguards should be established before contributions are made.
The firm says a compulsory 15.9% charge, compared to the current 1.8% social security levy, could raise the cost of formal employment, particularly if exemption rules remain unclear.
Simonis Storm warns that forcing workers into a single state fund could pull money away from existing private pension arrangements.
Nangombe, however, says the Social Security Act allows for employees belonging to other approved pension funds or schemes to be exempted from a national pension fund membership.
The commission says the final criteria for such exemptions have not yet been determined.
More importantly, it says the actuarial valuation itself does not recommend a general opt-out for workers who already belong to private pension funds.
Instead, the recommended approach is universal coverage, with existing occupational pension schemes continuing alongside a national pension fund as supplementary arrangements.
Nangombe says this would allow workers to retain additional retirement savings while avoiding double charging through the integration of existing schemes.
He says workers aged 45 and above when the national pension fund is implemented, could potentially be given a choice between joining the fund and remaining with their existing pension funds.
He says the national pension fund design is intended to meet the International Labour Organisation’s Convention 102 minimum standard, which requires an old-age pension income replacement rate of at least 40% for a person with 30 years’ contributions.
PRIVATE PENSION INDUSTRY
The SSC rejects concerns that a national pension fund would weaken Namibia’s private pension industry.
It says existing occupational pension plans could provide additional retirement benefits.
“A prudently managed national pension fund would strengthen pension provision in Namibia over the longer term, rather than weaken it,” Nangombe says.
Simonis Storm, however, says a national pension fund should create new retirement savings rather than replace existing savings.
Namibia’s retirement fund industry had about N$301.9 billion in assets as at March this year.
Of this, about N$209.5 billion, or 69.4%, was held by the Government Institutions Pension Fund (GIPF), while N$92.4 billion, or 30.6%, was held outside the GIPF.
NO FINAL DATE
Although 1 April 2026 had previously been indicated as a possible starting date, a national pension fund has not yet been operationalised.
Nangombe says pension policy and legislation have not yet been finalised.
He says the most recent full actuarial valuation, based on data as at December 2019 and finalised in March 2021, is due for an update.
The updated valuation and policy review will inform planned tripartite discussions on several issues, he says.
The SSC also needs to establish the systems, policies and resources required to administer the fund.
“The timelines to actualise these processes will therefore be communicated as we progress,” Nangombe says.
Simonis Storm estimates that contributions could realistically begin at around 2030, with a possible range of between 2029 and 2032.
The proposed national pension fund is intended to provide retirement income to workers who currently have little or no pension protection.
