Namibia Financial Institutions Supervisory Authority (NAMFISA) says it is concerned about an increase in the withdrawal of pension benefits.
In its 2017 Annual Report, the authority said that it finds the high proportion of withdrawal of benefits concerning, as it indicates that members do not preserve their pension funds and instead liquidate their pensions prematurely.
“Retirement fund members would benefit and maintain their retirement fund benefits if they paid pension lump sums into new retirement funds when they change employment,” the Namfisa report said.
Lump sum withdrawal benefits, which accounted for 35.2 percent or N$2.3 billion of all benefits paid, increased by 4.6 percent compared to 2016.
For 2017, lump sum retirement benefits paid grew by 29.9 percent and accounted for 32.2 percent or N$2.1 billion of total benefits paid.
Namfisa said the total benefits paid in 2017 amounted to N$6.5 billion, which is an increase of 8.2 percent from the previous year.
Pension fund assets increased by 11.2 percent to N$152.9 billion in 2017, the report said.
Current liabilities increased by 88 percent to N$4.1 billion as at 31 December 2017.
“The significant increase was because of other liabilities, comprised of unallocated reserves. With regard to liabilities, the active members’ share account decreased by 0.5 percent to N$82.6 billion, while the pensioner accounts increased (as more members reached retirement age) by 14.3 percent to N$14.2 billion at the end of 2017.”
The decrease in the active members’ share account was a result of the increase in retiring members outnumbering the increase in active members by 2:1.
The additional active members who contributed to the active members’ account were fewer than the members who retired during the 2017 financial year.
“Moreover, the lump sums and pensions paid to retired members exceeded the amount of contributions made by new members. Consequently, the amount in reserve accounts decreased significantly from N$39.9 billion to N$25.5 billion as at 31 December 2017.”
The report said unclaimed benefits increased by 65.8 percent to N$172.8 million.
“This is a discouraging reversal of the trend observed in the previous reporting period, and indicates that fewer members who left without receiving their benefits are not being traced and therefore not getting paid,” the report said.
“Tracking down beneficiaries is challenging when inadequate information is provided, hence it is often difficult to pay unclaimed benefits.”
The funding level according to the sector regulator is assessed by matching the assets and liabilities of retirement funds. A funding level below 100 percent shows that assets are not sufficient to cover liabilities.
The report said the industry has maintained a funding level of between 101.3 percent in 2013 and 102.8 percent in 2017.
The high funding level for 2017 was reached because of increased investment returns during the reporting period.
The pension fund’s total investment assets increased from N$135.6 billion to N$151.4 billion as at 31 December 2017.
“The increase in total investments was primarily caused by investment returns. Stock market performance during the year mainly boosted by performance of investment income compared to additional contributions,” the report said.
Namfisa noted that while it is unusual for pension funds to hold more investments in fixed interest bearing assets, it is expected in Namibia because of the shallow market for equity instruments and the illiquid nature of actively traded shares on the Namibian Stock Exchange.
Namfisa said the bulk of the retirement savings remain within the civil servant pension fund, namely the Government Institutions Pension Fund (GIPF).
The Retirement for Local Authorities and Utility Services in Namibia, Old Mutual Namibia Retirement Annuity Fund, Rössing Pension Fund, Benchmark Retirement Fund, and Unipoly Retirement Fund were the five largest private occupational pension and provident funds as at 31 December 2017.
Total fund membership increased by 3.5 percent to 333,179 comprising of 289,241 active members and 43,938 pensioners.
“New entrants into the workforce, which stemmed from employees who replaced retired members and new recruitments, resulted in an increase in pension funds’ active membership,” the report said.
Pensioner members also increased during 2017 as more members reached retirement age as defined in various pension funds.
“The decline in membership since 2014 reflects the general economic conditions possibly leading to job losses. The moderate improvements in some key activities are reflected in the marginal growth in the active members,” the report said.
Total contributions received increased by 0.9 percent to N$6.8 billion for the year ended 31 December 2017, while the active membership increased by 1.3 percent.