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By: Nghiinomenwa Erastus

The country’s active pension funds have been struggling with liquidity since 2018, Namfisa 2020 annual report shows.

Liquidity is a measure of a pension fund’s ability to meet its short-term financial obligations as they fall due.

In the pension industry, monthly contributions play an essential role in meeting a fund’s liquidity requirement as they are used to pay for the fund’s ongoing liability (benefits).

Thus, reduce the fund’s need to divest money from the market to pay for

benefit claims when they fall due.

From 2018 to 2020, the 129 active pensions liquidity levels have never gone beyond 100%; the report shows- been 97,8%, 89,7%, and 80,3% respectively for the past three years.

The last time the pension funds annual contributions were above expenses and benefits paid out was in 2017. To date, pension expenses and benefits are more than contributions.

With reliance on investment to fill the gap- highlighting the need for high returns investment of the funds’ assets.

“Since the 2018 reporting year, the industry has relied on investment income to cover the liquidity gap,” Namfisa wrote on the report.

Namfisa warned that the high level of benefits and expenses “may pose a threat to the pension fund industry’s stability and financial viability if investment income does not adequately cover the liquidity shortfall”.

Moreover, observation on the 2021 first-quarter assessment also shows no improvement as the ratio deteriorates further to 80,3% from 82,4% at the end of December.

According to Namfisa explanation, a ratio of 100% means that contributions

would cover the payment of costs and benefits, while a lower value indicates that contributions received would fall short of that aim.

The regulator/Namfisa committed to keeping monitoring the liquidity level of the industry.

“The liquidity ratios of the industry will be closely monitored to ensure timely action is taken to avoid detrimental impacts of the declining liquidity position of the industry,” the 2021 first-quarter report read.

The report indicated that the downtrend in liquidity (ability to meet short-term obligations) reflects a 3,4% growth in contributions vis-à-vis a 15,6% increase in benefits and expenses paid.

The difference in the rate at which contribution income and benefits expenses grew reduced the ability of retirement funds to pay benefits from the inflow of contributions without liquidating investments.

By the end of the first quarter ended on 31 March 2021, the quick ratio (contributions received divided by benefits paid) was 100,5%, compared to 99,5% at the end of last year.

The current ratio (current assets divided by current liabilities) worsened from the first quarter of 2020 to 2021.

The current ratio of 80,3% as of 31 March 2021 “indicates that current assets were insufficient to settle current liabilities of the industry,” Namfisa reported.

The 2020 report shows that total contributions received by the pension fund industry

edged 3,4% upwards to N$9,3 billion at the 2020 year-end.

Total benefits paid in 2020 increased by 10% to N$9,1 billion compared with the previous year.

“The benefit growth correlates with the retrenchments and retirements observed during 2020 owing to the impact of Covid-19,” the regulator highlighted.

The industry’s benefit payout has been growing for the past five years and is expected to continue in the foreseeable future.

As the pandemic places negative pressure on employment and probably leads to further job losses.

The latest data for 2021 first quarter shows that the funding level as assessed by matching the assets and liabilities of retirement funds- was at 101,3% as of 31 March 2021.

A funding level below 100% shows that assets are not sufficient to cover benefits.

The industry has maintained a funding level between 101,2% and 101,6%  over the last five quarters.


Julia Heita

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