…Identifies six problems in the fund
Government wants more control in the public pension fund because “it currently has little influence on the investment policy and management of the fund despite it effectively guaranteeing the investment performance of the GIPF assets”.
This proposal is contained in GIPF’s reform proposal drafted by government, seen by The Patriot, which could see sweeping state pension changes, including a proposal which could see increased government influence in the management of GIPF and how the fund should invest funds.
While GIPF maintains that the only shortcoming it faces relates to SOEs migrating to private pension funds because it has no defined contribution component like private pension funds, government feels compelled to exert more control over the fund which assets under management in excess of N$93 billion.
Government feels GIPF has several structural weaknesses that are blocking the facilitation of development of the transformative industries that Namibia needs.
It also feels the fund does not lend itself within a proper governance framework and structure to address the developmental needs of government.
“The GIPF’s link and integration to GRN’s long-term economic agenda and transformation is weak and needs restructuring and improvement,” said former attorney general Sakeus Shanghala in government’s GIPF reform proposal.
Critics have argued that the move to exert more control over GIPF could destabilise the Fund while others see the reform proposals as a mechanism by the ruling politicos to have more control over resources and to transfer wealth to themselves.
Government feels there are at least six direct problems with the current GIPF arrangements.
These challenges, according to the reform proposal, hover around issues such a lack of clarity around the treatment of assets in excess of the benefit liabilities.
“At present these excess assets are being applied to give higher pension increases than promised and to subsidise employer contributions.
It is not inconceivable that at some point the trustees may decide to apply this excess to enhance benefits.
The trustees may do this without reference to government, and even though this may increase the potential liability of the government in terms of its balance of cost obligation,” states the proposal.
Government also feels, in its current format, GIPF is exposed to a potential cross subsidy between participating employers in respect of their contribution obligation.
“Although government effectively guarantees the investment performance of the GIPF assets, the government has no input or control over the investment policy of the GIPF, nor is it involved in the supervision of the asset managers and asset consultant engaged.”
Government also feels sidelined when it comes to the investment strategy of the fund, especially when it comes to offshore allocation.
“Government has no direct input over the actuarial methodology and assumptions applied to determine the amount of the GIPF benefit liabilities,” lamented government, adding that it has no direct input into these scenarios that pose financial risks to government.
Government is also not entirely happy with the board of trustees composition.
“Two thirds of the board of trustees represent member constituencies.
Whilst this not problematic in itself, it is not ideal because such trustees are likely to consider their fiduciary duties to be owed primarily to their constituency; which may not necessarily coincide with government interests. In other words, at time of fiduciary duty runs incongruent to their responsibility towards the guarantor of the fund,” states the proposal.
Government has made it clear that it wants to align its responsibility and to be involved in any program or activity that can affect the nature of liabilities of GIPF as well as to improve representation of government in the management of GIPF.
Under the proposal, GIPF will have a body called Namibia Sovereign Investment Corporation that will receive the identified and allocated excess funds, invest and conduct its activities in Namibia.
The corporation, according to the proposal, is also expected to lay the foundation for a Namibian Sovereign Wealth Fund, into which future surplus can be directed.
The board of the corporation will be appointed by the prime minister, who will also determine its investment policy.
According to the reform proposal, assets of the GIPF backing its benefit liabilities and contingency reserve accounts would be managed by the GIPF Investment Corporation(GIC).
“GIC will be responsible to facilitate the growth of the Namibian capital markets and a local world class asset management skills base.”
If the reforms are pushed through, GIPF would also be required to agree the actuarial methodology applied to value the benefit liabilities and the funding of any contingency reserve accounts with the GRN actuary.
The prime minister will also be given powers to appoint the majority of the GIPF board of trustees.
Currently the GIPF board is made up of 3 officials from the Public Service Commission and 3 individuals apponted by the Office of the Prime Minister.
The Fund’s CEO David Nuyoma in December 2015 wrote to Shanghala that any changes made to the Fund should ensure continuity of the operations of the existing fund.
Nuyoma informed Shanghala that many participating employers(mainly SOEs) have dumped the fund to join private pension funds which are defined contribution funds.
“Most of them left for the reason that GIPF, being a defined benefit fund, has almost endless employer liabilities which cannot be quantified in advance.
SOEs therefore move out of GIPF to defined contribution funds where their liabilities are easily quantifiable and where they can also restructure and retrench employees without incurring additional liabilities,” said Nuyoma.
Nuyoma fears that if a defined contribution fund is not established, participating employers may move out of the fund.
Nuyoma said the GIPF Bill and the rules governing the fund should be different.
He said the Bill should deal with governance, administration and investment matters while the rules deal with benefits, processing and payments.
“Should the attorney general be amenable to this approach, we propose that the process of amending the rules should be assigned to the GIPD while the attorney general is attending to the drafting of the Bill,” said Nuyoma.
Who pays the bill?
In November 2017 during a board retreat at Midgard the board was requested by Sakeus Shanghala and Finance Minister Schlettwein to settle the N$10 million bill.
This fee was to be paid to the company engaged by the Office of the Attorney General after he commissioned a study to have GIPF restructured. When probed on the specific areas that needed restructuring, Shangala was vague on details and retorted that the Fund was not as efficient as can be.
This is against the background of GIPF being one of a few funds who are fully funded in line with international benchmarks.
At the time of going to press it was unclear who paid the bill as GIPF trustees refused to do so.