By: Nghiinomenwa-vali Erastus
The actuaries have recommended to the Government Institutions Pensions Fund (GIPF) to have a longevity reserve of around N$9,8 billion as pensioners and their spouses are living longer now.
This will be 10 per cent of its current total liabilities before the allowance for contingency reserves.
The actuaries have made these recommendations in the latest Fund Actuary Report for 2022.
“With regards to the Fund, an increasing number of pensioners over the age of 90 is now being observed,” the actuaries have reported.
By the end of 31 March 2021, liability for pensioners stood at N$32,4 billion. The longevity reserve has been kept internationally since most defined benefit funds and schemes are still exposed to experiencing increasing strains caused by increased life expectancy.
The actuaries explained that pensioners tend to live significantly longer than expected, based on historical experience and research.
They added that it has been experienced internationally that pensioners are living up to an average of 10 years longer, and this change has been experienced rapidly, within a period of 20 years, the actuaries found.
“We have also observed an increasing rate of new pensioners commencing since the year 2000 and at higher average pensions and therefore a need to project an increasing Longevity Reserve going forward,” they wrote.
For this valuation, the actuaries advised GIPF trustees to continue to retain the Longevity Reserve to enable the Fund to hedge against this risk.
Increased life expectancy has been the experience in the developed world; its impact has not yet been fully felt in Sub-Saharan Africa, the assessment revealed.
However, “one must expect that medical advancements and general progress will also lead Africa to observe similar experience,” the actuaries stated.
With regards to the GIPF, an increasing number of pensioners over the age of 90 is now being observed.
Pensioners within the Fund should be seen as a select group, the report read.
Therefore, despite the fact that recent experience has seen deteriorating life expectancy in Southern Africa, the actuaries explained that the Fund pensioners are individuals who have already survived through the possible vicissitudes of youth (notably the impact of HIV/AIDS).
Adding they are individuals who typically managed to achieve relatively long service with their erstwhile employers.
“Therefore, their life expectancy from the time of their retirement should be expected to be superior to that of the general population of Namibia,” the actuaries cautioned.
The introduction of free HIV/AIDS treatment and therapy for most of the population exposed to HIV/AIDS in most SADC countries, including Namibia, has contributed to ameliorating the impact of HIV/AIDs on life expectancy in Southern Africa.
Another validation for a longevity reserve is that surviving spouses, just as retired members, are also expected to live longer than expected.
“We have in the recent past performed scenario analyses whereby we estimated the impact of pensioners surviving longer than expected, based on international norms,” wrote the actuaries.
They indicated that the increased cost varies for males and females and for different ages, but the range was found to be in the region of 10 per cent to 13 per cent.
“We have recommended a reserve of N$9,8 billion, reflecting 10.0 per cent of total liabilities before allowance for contingency reserves,” wrote the actuaries to the trustees.
This will be reviewed again at the next valuation.
RENAME THE AIDS RESERVE
It is recommended that GIPF’s AIDS Reserve be renamed to Mortality Reserve to cover a wide variety of mortality risks not only limited to AIDS.
An AIDS Reserve is held to act as a buffer against the impact of deteriorating Mortality and Morbidity experienced caused by HIV/AIDS.
This was previously determined using a statistical model to assess the impact of worsening the HIV/AIDS experience in Namibia.
In the past, this reserve has been maintained at 7 per cent of the Fund’s liability in respect of Active Members.
However, at the previous valuation, it was reduced to 3.5 per cent of active members’ liabilities to reflect that, to a large extent, suitable intervention programs are currently in place in Namibia, and most employees would ordinarily then manage normal working lives.
The actuaries believe that the reserve should be maintained at the same level (3.5 per cent).
They have recommended a reserve of N$2,2 billion, reflecting 2.30 per cent of total liabilities before allowance for contingency reserves.
For over 20 years, employers have been paying a stable 16 per cent rate towards the Fund.
This is relatively high compared to what other employers typically pay towards retirement fund arrangements, the industry norm for Defined Contribution Fund would be roughly 10 per cent.