MARTHINUZ FABIANUSTHE CURRENT uproar over Namfisa’s draft regulation on partial compulsory preservation of pension fund capital upon termination of pension fund membership before retirement age has aroused interest among young and old.
Articles on pension fund topics are usually largely ignored, especially among the younger population. The overwhelming public outcry and public interest had been primarily driven by a video message by politician Job Amupanda, which enjoyed social media attention.
In the years shortly after Namibia’s independence, there was a lack of trust in occupational pension fund schemes and for good reason. Pension fund membership, contributions and benefits were still divided along racial lines.
Blue-collar workers then had good reason to be hostile and touchy about their employers ‘ pension funds. They were, for example, subjected to vesting scales, where the employer’s 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 one-third of your pension fund savings, but with the two-thirds payable in annuities.
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 pension funds. This led to the creation of provident funds, where the total lump sum was paid to the labourers when they left service.
The provident fund concept has remained with us up until today and several employer pension funds have been set up as provident funds. However, with increased financial education, most people 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.
Some of the most astute and very 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 those retired people who squander their retirement savings.
The calls made by mostly young people to withdraw their retirement savings because of Namfisa’s draft law 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 went into panic mode at the dawn of Namibian independence and withdrew their pension fund savings. There was huge doubt and fear that the new Namibian government would nationalise or misappropriate their pension fund savings.
I witnessed first-hand how many former Rössing Uranium employees who were retrenched in 1992 – because of the drop in uranium and other commodity prices – fell into abject poverty after squandering their pension savings.
Rössing was known for providing very good pension benefits and many of the employees with years of long service were surprised with the payout of millions of Namibian dollars upon retrenchment.
With little or no financial acumen, these former employees watched helplessly as their savings disappeared into thin air because of reckless spending. The same scenario played out elsewhere where mass retrenchments were experienced, most notably at another mining town, Tsumeb, with TCL in those days.
For a quick lesson on pension systems, the government’s universal old-age grant of N$1 300 provides a basic income upon retirement and serves as the first pillar of the social safety net. You don ‘t need to have been employed in your lifetime or to have been a taxpayer to qualify for this grant.
A 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 yet operational. If enacted, every employed person may be forced to contribute to such a fund.
The third pillar is the occupational pension fund schemes currently regulated by Namfisa. Occupational pension funds in Namibia have catapulted pillar three of our pension systems.
The fourth and last pillar would be individual retirement savings plans, called retirement annuity funds. Since the creation of retirement annuity funds (RAs), contributions made to RAs cannot be withdrawn until at least age 55.
The argument (as also alluded to by Namfisa’s CEO) is 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. Namfisa’s CEO, in his press release and response to the many questions on the subject, inferred that pension fund trustees may have failed in their duties or laid the responsibility to communicate to the members of pensions funds regarding the draft law squarely on the shoulders of 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 wrote to the speaker of parliament and to various government ministers, and even to Namfisa itself, requesting them to call for public consultation and discussion on Fima when it was still a bill in parliament. Unfortunately, our cries landed on deaf ears.
The current upheaval could, to a large extent, have been avoided. What is needed is the urgent and resolute assurance of 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 pension fund members and is in the interest of the country from a savings and investments pool point of view. Only when members are adequately financially educated will they understand.
