…Perceived overregulation worries stakeholders
…GIPF bigger than Treasury
The management of the country’s N$133 billion pension fund industry continues to be a thorn in the flesh of industry players, especially when it comes to the level of regulation. Pension fund stakeholders met this week for the Retirement Funds Institute Namibia (RFIN) Annual Conference held under the theme “Retirement Funds Contribution to Economic Development in Namibia”. Discussions centered around the regulation of pension funds and the role , development of financial markets in Namibia, impact of pension funds to market development, contribution of retirement funds to Namibia’s economic growth as well as the social economic impact of retirement funds. Despite the inbuilt checks and balances for the pension fund sector, which makes it pretty difficult for any of the funds to operate beyond the ambits of the law, there have been concerns of overregulation. GIPF CEO David Nuyoma was one of those who questioned the level of regulation in the country when it comes to pension funds. Nuyoma called on RFIN to take up the challenges of the pension fund industry with the relevant authorities.
A key issue was raised around the allowable tax deduction of a maximum of N$40 000 per annum where the provision in South Africa is N$300 000 per annum. Nuyoma stated that this matter can be discussed with government, but that proposals should be made and resolved in a win-win situation for all parties involved. He seemed rather unimpressed over the exclusion of the asset class of property that was excluded from Regulation 28. “For heaven’s sake…With a major housing deficit, investment by pension funds in this sector is discouraged,” said Nuyoma.
Nuyoma said: “The retirement fund industry in Namibia has grown strongly in line with the global trends.”
He said the savings behaviour of Namibians has changed for the better in recent years, adding that most Namibians would opt for a saving scheme such as a pension fund as compared to other initiatives.
“The typical Namibian prefers entering into a compulsory savings arrangement, like a pension fund, rather than making regular, but voluntary, deposits in other savings vehicles,” Nuyoma indicated.
Official figures indicate that the total assets of the retirement funds in Namibia stood at N$119.6 billion in 2014, equivalent to approximately 85% of the country’s GDP.
Various procedures are said to be in place to ensure diverting Namibian investments into the local market. “Currently, approximately 10% of the 35% Namibian asset requirements are invested in Namibian primary listings. The rest is invested in cash, government bonds and dual-listed stocks… The Government has given notice that the dual listings should be gradually reduced in favour of Namibia and by 2018 only 10% be in South Africa” said Nuyoma. Nuyoma stated that “The introduction of asset managers also necessitated that we have a functional stock broking platform that would be able to process any decisions taken by asset managers… To ensure that this segment would be able to survive, regulations were put in place by the NSX to channel; a pre-determined amount of trades at a fixed price through local stockbrokers.”
This has been followed by the investment of N$1.98 billion through 11 different funds in Namibia alone, in compliance with the requirements of Regulation 28 and 29 which require all pension funds and insurance companies in Namibia to invest a certain percentage of the market value of their investments in unlisted investment inside Namibia. Localising decision making Ben Bertolini from Prudential Investment Managers outlined the need for Namibia to give life to the country’s capital resources by implementing business and academic friendly immigration policies as well as shifting decision making back to Namibia.
Bertolini expressed concern over the fact that despite the growing pension fund industry in Namibia, most decision-making processes continue to be handled in South Africa. “Make Namibia the Venture Capital Hub of Sub Saharan Africa and create strong angel investor base through tax incentives to the wealthy,” he said. Bertolini also highlighted the importance of developing a pool of highly educated work force for venture capital companies in Namibia. With Namibia currently faced with a housing crisis, Bertolini also touched on the role pension funds can play to solve the problem when he stressed the need for the provision of quality housing through asset backed securities.
Bertolini called for improved investment in the education sector and at the same time indicated that academics in Namibia are not absorbed to contribute to the country’s growth once they go into retirement.
“We have a challenge because there is no one to absorb the retired people, hence our academicians are not enough but it seems Namibia does not see this element,” said a concerned Bertolini. More pension fund investment Deputy Minister of Finance, Natangue Ithete who also graced the event, used the platform to call on retirement fund institutions to “diversify their investments in order to have development impact in Namibia.”
Ithete stated that Namibia has a huge gap in infrastructure which is partially attributable to low investment. He further “encouraged the retirement funds industry to, within the ambit of the regulatory framework, enhance its role in the development of Namibia in line with her national developmental plans as supplemented by the Harambee Prosperity Plan for the good of our economy and the Nation at large.”
Ithete confirmed by stating that “the retirement fund industry understands the rationale behind this policy (Reg. 28) and has heeded to the Government call. This is evidenced by the fact that 41% of the assets of the retirement funds were invested in Namibia as at 31 December 2014…”
“I am cognisant of the fact that most of the retirement funds have a higher appetite for local equities and hardly invests in other asset classes, except for a few retirement funds such as GIPF which continues to make significant investments in the servicing of land, housing and retail developments, ICT and healthcare facilities. I hope other pension funds will emulate this good example and diversify their investments in order to have development impact in Namibia.”
Ithete said that about N$13 billion had been paid out to retirement funds members for the past five years. “Even though the main purpose of retirement funds is to reduce old age poverty by providing income to their members after retirement and to support the dependents of their member after their death, retirement funds do play an important role in the economy…” Also stated was that it continues to function towards a growing economy by facilitating consumption smoothing by collecting savings over the life course and providing retirement income, insurance thus providing a backdrop against uncertainty over the time of death, disability, retrenchment, retirement, etc. and redistribution of income by enabling the pursuit of social norms and policy objectives through retirement funds.
The conference concluded that financial literacy remain a concern.
The average Namibian member of a pention fund is still oblivious in regards their rights and benefits.
GIPF is in the throes of relaunching the member education campaigns as it seems clear members do not understand their own benefits.