We are the voice of the retirement funds: Melki-zedek Uupindi

By Sibangani Dube
November 2012
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After the conclusion of the Retirement Fund Institute of Namibia (RFIN) 6th annual conference themed “Mobilising Domestic Savings for Economic and Social Development” held in the capital recently Prime Focus caught up with Melki-zedek Uupindi the President/Chairperson of RFIN. This unfolding interview he shares with us insights on pension and investment in Namibia.

PF: It is one thing to set up an institution and quite another to run it in such a way that it meets its mandate. Would you say that the Retirement Funds Institute of Namibia (RFIN) lives up to its mandate?

MU: RFIN is no white elephant. It has been the voice of the retirement funds in the financial sector since 1997 and lives up to its mandate of protecting, promoting and advancing the interests of retirement funds, retirement funds’ trustees and retirement funds’ members.

This is evident from various engagements with regulatory authorities and policymakers as well as from our regular trustees’ training and information sharing sessions where industry members converge to network and confront topical issues affecting the retirement industry.

PF: Could you shed some light on the theme of this year’s annual conference: “Mobilising Domestic Savings for Economic and Social Development”, given that Namibia is a net importer of capital? Do market forces allow such directions?

MU: Well, the fact that there is a force that attracts foreign capital here is in itself indicative of the fact that we need capital.

Although the importing of capital or foreign direct investment is good for the growth of the economy, it’s time we realised that we can also use our own money to develop our own country, grow the economy and uplift the social wellbeing of our people.

It’s not that we don’t have the money. Mind you, the Namibian retirement funds have approximately N$70b. This makes up approximately 70% of Namibia’s gross domestic product (GDP). So we do have the money but the money is invested in other countries while our own country is underdeveloped.

The theme of this year’s RFIN conference is deliberately coined to echo Government’s efforts to allow financial institutions, such as retirement funds, to invest some of their money domestically.

The Government’s target is a minimum of 35% of the retirement fund’s money. This means that approximately N$25b will be pumped into the Namibian economy.

Certainly, the need is there but perhaps the question should be whether or not our economy can absorb so much capital and provide good returns to the retirement funds. The best judge, time, will tell.

PF: What guarantees are there that Namibian pensioners will get their money, given the internal and external factors at play?

MU: Generally, since there are tax incentives for persons who make financial provision for their own retirement, the law jealously protects retirement benefits to ensure that they are utilised to provide retirement benefits for the retirement fund members or their dependants. For example, retirement benefits are protected against the creditors of the member. Save for a few exceptions, retirement benefits cannot even be attached or accessed to deduct debts owed by the member, and even when the member becomes insolvent, the retirement benefits are deemed not to form part of his estate. However, this statutory protection is not enough as money is subjected to risks through investments.

Whether one is guaranteed to get his or her pension money, depends on the type of fund one is a member of. For example, a defined benefit fund promises guaranteed benefits regardless of what may happen to the money. This is because the shortfall in benefits or the risk of losing money or insufficient returns on investments is passed over to the employer. The members do not carry any risk and will always get their money as promised in the rules of the fund.

Unfortunately, there are very few of this type of funds in Namibia such as the Government Institutions Pension Fund (GIPF) and the old pension fund for Rössing Uranium Mine employees.

If one is a member of a defined contribution fund, there is no guarantee, because the member carries the investment risks themselves. So if the money was lost in bad or poor investments, the member would directly feel the pinch.

However, the converse is also true in that should the investments perform superbly, the member would directly reap the benefit.

PF: As a non-profit making body, how do you source money to run your office?

MU: We are a non-commercial entity. We depend on annual membership fees paid by our members. We also try to generate revenue from entities that wish to exhibit their products and services on our platforms such as conferences and other information sharing sessions.

PF: What effect does your organisation have on ensuring that prudent measures are in place in the administration of pensions?

MU: We are making big strides on this front by continuing to train pension fund trustees twice a year. This is to ensure that trustees understand their fiduciary duties and govern their funds in accordance with the law and principles of good governance.

The training is further extended to covering investments and benefits distribution. This is to ensure that trustees understand the investment environment and do not make irresponsible investments by taking unnecessary risks and to ensure that trustees distribute retirement benefits fairly.

PF: What is your take on GIPF; any lessons learnt on how things should be done?

MU: GIPF has a history of bad publicity but I think sometimes it is misunderstood. Take the issue of Kuleni Fund Administrators (Pty) Ltd as an example. Kuleni is a private company established by GIPF back in 1999 in order to provide administration services to various funds just like any other administrator such as Retirement Fund Solutions, Alexander Forbes, Old Mutual, etc.

The public misunderstood this and accused GIPF trustees of being shareholders in Kuleni and that they wanted to transfer GIPF money to Kuleni for self-enrichment. That, to me, is a total misconception.

Another issue that warrants discussion is the Development Capital Portfolio (DCP). The DCP fit very well into our theme of this year’s conference as it was established with this very same noble intention of mobilising domestic savings for economic and social development.

However, the execution of DCP projects turned out to be poor, which resulted in poor investment returns to GIPF. I personally do not believe that the projects funded under the DCP were bad.

For example, look at the country club, pig farm, grapevine and Ongopolo mine. These projects are still ongoing and continue to provide employment to our people.

Without prejudice to me and the ongoing investigations into the DCP, I suspect that some of the projects failed because of financial starvation and mismanagement by the project promoters and managers.

Notwithstanding the above, there are good lessons to be learnt from the DCP such that investment decisions should ideally be made on recommendation by the experts (asset managers) who have proven track records.

Asset managers must also align their interests with those of the investors by committing their own funds into the same projects alongside the investors.

PF: There is a public outcry on how pensions should be administered. How do you influence policy on this one?

MU: Let’s talk about the public outcry on how pensions should be administered before we talk about the influence. There is a strong misconception about pension administration. The public needs to first understand the purpose for which retirement schemes were established.

Retirement funds were established with the intention of providing an income to the members after their employment years are gone (i.e. after retirement), because they will not be earning a salary by then.

The funds also exist to provide an income to the members’ dependents after the death of a member, because the dependants would have lost their source of maintenance.

The funds are placed in the hands of trusted persons called ‘trustees’ who administer the assets in trust for the members pending their retirement.

During this period, the trustees have a duty to keep the assets safe, yet they are required to grow them by making good investments. This balancing act is no easy job and requires taking calculated risks.

Much of the public outcry is about members wanting to access their benefits while they are still employed. This outcry goes against the basic tenets of retirement funds and should not be satisfied.

Influencing of policy is one of our key objectives but I must confess that it’s not an easy job to do since it entails stepping into someone’s boundaries who may regard you as interfering with his or her duties.

Nevertheless, we engage policymakers and policy administrators to ensure that policies are not detrimental to the industry and are based on best practices.

PF: What are the key successes you have scored and how do you deal with the challenges you face?

MU: While we have been engaging policymakers and regulatory authorities on matters affecting the industry, we have managed to [and continue to] educate pension fund trustees on governance, investments and distribution of pension benefits.

However, we have challenges spanning from availability of finance to conduct research to influencing policies. Most policies are made in a rush, or rather, laws are made as a reaction to a particular situation without assessing the root of the problem and without conducting a proper industry impact study.

PF: Why is there so much emphasis on Regulation 28 and 29?

MU: Emphasis is put on these regulations, because they are the Government’s intended tools of requiring retirement funds to invest in domestic assets.

Specifally, Regulation 28 requires retirement funds to invest at least 35% of their money in domestic assets.

A range of 1.75% to 3.5% (which is approximately N$1.3 - 2.5b) of this money should not only be in domestic assets but in assets that are not listed on a stock exchange (unlisted investments).

Regulation 29, on the other hand, basically prescribes that unlisted investments should not be directly held by pension funds but should be held through special purpose vehicles such as separate companies or trusts that are specifically designated to hold these types of investments and that these special purpose vehicles should be administered by corporations registered with the Namibia Financial Institutions Supervisory Authority (Namfisa) and run by independent people properly qualified and skilled.

Succinctly put, Reg. 28 tells us what to do while Reg. 29 tells us how to do it.

PF: As for Africa, what is your take on developing pension models that are compatible with our own environment given the volatile situation we find ourselves in?

MU: Pension models have no relation to volatility. Volatility is inherent in the financial markets and is beyond the control of those in charge of retirement funds. One may think that retirement funds must completely avoid volatility by staying away from the markets that are volatile but then, this would affect the performance of the funds in the long run. The best way is actually to diversify the investments.

Talking about pension models that are compatible with our environment, I personally think that the models are not so incompatible.

However, I feel that we need to adjust our models to fit the purpose for which they have been established.

In Africa, the rate of unemployment and poverty is very high, so we need to widen the social safety nets and change our pension models to be responsive to this challenge.

Membership to pension schemes should be made a basic condition of employment, so that all employees can use the schemes as a source of income whenever they become unemployed.

Another change which can address this challenge is a compulsory partial or full preservation of benefits.

In the past, employees were very loyal to their employers and didn’t change employment so often.

Nowadays, employees’ mobility is very high and they tend to cash out their benefits every time they change employment and spend the money on items such as vehicles, etc. Very few of them invest the money.

By the time they retire, these people may not have accumulated sufficient pension so we need to change this system to the effect that members are only allowed to access their benefits when they become unemployed or when they retire.

PF: Thank you Mr Uupindi PF