Retirement is crucial for the economy

Martin Endjala

Occupational retirement is seen as a crucial element in the economy of Namibia because it enables people who retire after reaching the age of 60 not to falter financially but to continue to sustain themselves.

Based on information sourced from the Namibia Financial Institution Supervisory Authority, as of the third quarter of 2022, the number of Namibian retirement fund members stood at 238 603. Of these, 94 291 were members of the Government Institutions Pension Fund.

“This number is higher than expected considering our high unemployment rate, large informal sector, and the fact that occupational pension schemes are not mandatory in Namibia,” Old Mutual Namibia’s Head of Production Development and Client Retention (Corporate Segment) Carmen Forster said.

Foster opined that South Africa and Botswana estimate that 60 percent of their formal sector is covered by retirement funds and added that it is a trend which is also likely to be the situation for Namibia.

Despite being a long-standing and well-run industry, the effectiveness of pillar two of the retirement provision in Namibia is curtailed largely due to the lack of compulsory preservation.

‘Namibia is one of the few countries in the world that does not have compulsory preservation rules for retirement savings. Unfortunately, this has supported the practice of members withdrawing benefits when changing jobs,” she said.

Last year the public was informed about the draft FIMA regulation stipulating the requirement to preserve at least 75 percent of retirement savings when leaving a retirement fund.

This legislation Foster said, reflects the government’s intention to reduce the likelihood of retirement fund members being impoverished after retirement.

The mandatory preservation requirement would allow for retirement savings to continue to grow with compound interest and provide for a higher income after retirement.

The draft mandatory preservation legislation has, however, met with opposition from many Namibians, who believe that it takes away their right to choose how to utilise their retirement benefits.

One of the concerns raised by critics of the proposed compulsory preservation regulation is that there is currently no social security net to support Namibians who lose their jobs.

These employees depend on being able to access their retirement savings to support themselves and their families while they are unemployed.

Meanwhile, several countries have allowed members to have early access to their retirement fund savings to alleviate financial hardship arising from the Covid pandemic.

Malaysia was the first country to allow members of their compulsory national social security fund to access their benefits prior to retirement age. In Africa, both Uganda and Zambia introduced similar interventions in 2022.

Foster said that South Africa is planning to introduce the so-called ‘two pots’ pension system as of 1 March 2024. This will allow for one-third of future contributions to retirement funds to be payable to an accessible savings pot and the remaining two-thirds to be payable to a pot that is subject to compulsory preservation rules.

“The thinking is that it will provide a reasonable balance between accessibility and preservation requirements,” she said.

The draft FIMA compulsory preservation regulation has been, however, withdrawn pending further consideration and consultation with the wider public.

Another key contributor towards a good retirement outcome is the returns earned by the retirement fund. Retirement fund trustees are responsible for the investment of the retirement fund’s assets when deciding on how to invest their assets.

The fees incurred by retirement funds detract from the growth in members’ retirement savings, Foster noted that retirement fund trustees should ensure that fees charged for services rendered to the retirement fund are necessary and reasonable.

Fees related to an increase in compliance requirements she said, can prove to be challenging to manage effectively and there is an anticipation that FIMA will introduce additional compliance costs.

“While there are some issues that need to be reviewed to improve the reach and effectiveness of Namibian occupational retirement funds, it cannot be denied that these funds play a crucial role in our economy,” Foster concluded.

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