The Insurance and Pension Commission (IPEC), an industry regulator, has closed down more than 224 occupational pension funds in the past 13 months as they had become unviable.
Occupational pension funds usually manage collective retirement schemes, which help employees when they retire. In order to consolidate the industry and safeguard the interests of pensioners, IPEC is also considering plans to establish “umbrella funds”, or sector-specific multi-employer pension schemes, which it believes will likely minimise the exposure of contributors to the various pension schemes.
IPEC Commissioner Tendai Karonga told The Herald Business that it had to move in to stop the “haemorrhage” in the sector by closing struggling funds in order to protect the interests of pensioners.
“In the case of most pension funds which were dissolved; sponsoring employers were facing viability challenges and therefore could not remit contributions to the funds. Usually, a proportion of the contributions by the sponsoring employer is dedicated to meeting operating expenses of the fund.
In the absence of contributions being remitted to the fund, the expenses of running the fund may end up being recovered from the assets of the funds.
“This implies that in the absence of adequate investment returns to offset expenses recovered from the fund’s investments, the total asset base of the fund gets depleted. Depletion of the fund’s assets implies reduction of member values in the fund. In a bid, to stop this haemorrhage, the Commission saw it fit to dissolve the funds and distribute the proceeds to the members to protect their interests,” said Mr Karonga.
IPEC statistics indicate that the country currently has 1 328 occupational pension funds, which represents a decline from the 1 552 funds that were registered as at December 31, 2016.
According to Mr Karonga, IPEC will engage with the Ministry of Labour and Social Welfare in order to push for the establishment of “sector-specific multi-employer pension schemes”, which will help in rationalising costs associated with running such pension schemes, including creating a viable pool for national savings.
“If this is approved, it means employers that would have been categorised into a specific sector will contribute to one pension fund. “That fund will house sub-funds for each and every sponsoring employer. The determination of the sector specific pension funds will be done is consultation with the Ministry of Labour and Social Welfare and worker representative organisations. The umbrella funds will house the hundreds of high-cost and low-membership occupational pension funds that were set up by several employers. This will help in achieving the much-needed cost rationalisation within the occupational pension system,” said Mr Karonga
Such a structure would help employers that will be contributing on behalf of employees to focus on their core business. It is also believed that the independent and professional management of the funds will be in the best interests of both employees and the economy as well.
Mr Karonga said: “The strength of umbrella funds is that they result in the establishment of strong and independently managed funds, which enjoy economies of scale and thus leads to reduction in administration costs and therefore enhancing the capacity to mobilise long-term national savings on a large scale.
“The independent professional management of these umbrella funds will also facilitate time savings on the part of sponsoring employers by allowing them to have more time to focus on their core business issues.”
Experts say pension funds can be leveraged to support economic growth since they provide a pool of long-term plans that can be used to fund key infrastructure projects.