By: Carmen Forster
Minimum Contributions
Even if a retirement fund member diligently preserves his/her retirement savings benefit, he/she will not be able to save enough to achieve a reasonable level of post-retirement income (around 75% of their pre-retirement salary) if the net contribution towards their retirement savings is less than 15% of their salary.
Some countries, such as Nigeria and Australia, have a minimum contribution towards retirement savings requirement. There is no indication that this will be introduced via FIMA.
Fees
The fees incurred by retirement funds detract from the growth in members’ retirement savings. 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 can prove to be challenging to manage effectively and we anticipate that FIMA will introduce additional compliance costs.
Investment returns
Another key contributor towards a good retirement outcome are 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 investment the assets, trustees need to bear in mind the following:
– The fiduciary responsibility that the trustees have towards the retirement fund’s members.
– The return earned on the assets should exceed inflation to ensure that the value of the members’ retirement savings is not eroded with time.
– The regulatory guidelines that place restrictions on the assets that they may invest in on behalf of the retirement fund.
– The importance of having a comprehensive and up-to-date investment policy in place.
– The need to source investment advice relative to the cost of doing so.
Regulation 13 of the PFA is the legislation that governs the way in which retirement fund assets are invested. The purpose of this legislation is to protect the retirement fund from unsound investments by limiting the fund’s exposure to certain assets.
It also recognises the importance of retirement funds as investors in the Namibian economy by requiring a minimum investment in Namibian assets, including unlisted investments.
Trustees are likely to focus more on investments than the role that contributions and preservation play in building a sustainable post-retirement income.
This is possibly due to the perception that this is the area over which the trustees have most control. Members are carrying the full impact of investment risk related to their investments and they expect that the trustees will invest in such a manner as to achieve the highest possible returns for the lowest risk cost.
This is easier said than done but certainly does not absolve the trustees from ensuring that they adopt sound investment principles and monitor their investment performance relative to these.
Food for thought
While there are some issues that need to be reviewed to improve on the reach and effectiveness of Namibian occupational retirement funds, it cannot be denied that these funds play a crucial role in our economy.
Carmen Forster is the Head of Production Development & Client Retention (Corporate Segment) at Old Mutual Namibia
