Workers still entitled to pension lump sum

Pension funds will still allow a tax-free lump-sum payout on a portion of retirement benefits under the proposed regulations of the Financial Institutions and Markets Act (Fima).

During consultations with pension funds yesterday morning, the Namibia Financial Institutions Supervisory Authority (Namfisa) said it had advised the minister of finance to remove an article of the new law that would have prevented those payouts.

“It was a very productive, very engaging meeting.

There was a lot of clarity given and we will have an update for the public very soon,” spokesperson Victoria Raimond told The Namibian yesterday.

The Retirement Funds Institute of Namibia (RFIN), which represents the retirement fund industry, had raised concerns that the implementation of Fima would force all members of retirement funds to annuitise their benefits.

This means that at retirement, a person could only receive monthly payments.

Under the current legislation, one-third of the benefit value can be paid out to a person tax-free when they retire.

For members of provident funds, it is also possible to get the remaining two-thirds as a cash payout although this is taxed.

RFIN chairperson Klaus Laborn yesterday said the engagement with Namfisa was very positive.

“Namfisa advised that the current arrangements under the current laws will prevail.

The minister will stay the section in the Fima act that relates to 100% annuitisation of retirement benefits. Members who retire now still get one-third tax free, and then take cash for the remaining two-thirds,” he told The Namibian

However, he said the intention of the government is clearly to move away from provident funds and towards annuities.

The policy intention is to bring Namibia in line with International Labour Organisation (ILO) standards, which require periodical payments to be made to pensioners to ensure a high quality of life.

“That’s the intention of the government, but under what timeframe that’s going to happen we can’t tell you,” Laborn said.

The finance ministry confirmed that the specific paragraph that caused controversy is exempted from coming into operation with Fima because it remains subject to consultation.

When asked whether minister Ericah Shafudah would introduce the paragraph later, ministry spokesperson Wilson Shikoto says the minister will pronounce herself on the issue “depending on the outcome of consultations”.

RFIN director Vincent Shimutwikeni says the morning of consultations consisted of working through several concerns that had been raised by the industry.

“From our perspective as RFIN, we were particularly encouraged by the open, transparent, and seemingly genuine consultations that took place,” he says.

However, Shimutwikeni adds that the consultations could have been arranged much earlier to avoid uncertainty and concern experienced by industry members.

In addition to representatives from retirement funds, several employers and unions attended the consultations.

Namibia Food and Allied Workers Union deputy general secretary Absalom Willem says union members are less concerned about lump-sum payouts than their ability to access their benefits before retirement age.

Those rules are covered by the retirement fund preservation rule, which is being drafted and will be introduced separately from Fima.

“For now, it’s fine. The issue of saying you must wait until you retire to access your funds, that’s the bigger issue for the union,” he says.

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