Africa-Press – Eswatini. Privilege to Reply
BY MICCAH NKABINDE, ENPF CONVERSION SPECIALIST
It is with great respect for the on-going public debate that we respond to the concerns raised in the recent Times of Eswatini Sunday article by Mr Thembinkhosi Dlamini, the Executive Director of the Coordinating Assembly of Non-Governmental Organisations (CANGO). His academic paper, titled: “The case for pension reform in Eswatini, Noise or Music”, raises important points. As someone deeply involved in the design and actuarial work behind the Eswatini National Provident Fund (ENPF) conversion into a Defined Benefit (DB) pension scheme, I welcome this opportunity to clarify how the proposed model addresses these risks; and indeed offers a sustainable, inclusive social protection mechanism for EmaSwati.
Below, I respond, point by point, to Mr Dlamini’s main arguments.
The arguments raised by Mr. Dlamini regarding the financial risks and structural suitability of the proposed Defined Benefit (DB) ENPF scheme, as outlined in the Bill, warrant a detailed and technical assessment. The core objective of the ENPF Bill 2025 aligns directly with the National Social Security Policy of the Kingdom of Eswatini, namely, the alleviation of abject poverty in the member’s retirement life by providing a predictable and sustainable income floor.
The choice of a DB structure for a Pillar I compulsory social security scheme is not only justifiable but, as argued below, is the model to achieve this national policy objective, given the inherent characteristics and constraints of the Eswatini economy
Dlamini’s paper reads: “The proposal to establish the new NPF as a Defined Benefit (DB) scheme, where the benefit formula is guaranteed by law, is the most significant financial risk in the Bill.”
There is nothing wrong with a DB scheme provided it is actuarially valued and monitored. The proposed bill, as an example, differs from C102, in order to add cushion on better sustainability in future.
A social security scheme cannot be DC due to the inability of individuals to manage their finances. The lives of individuals mimic the DB environment.
The conversion of DB to DC schemes in SADC could not have taken place without these schemes being in surplus, otherwise members would have had to take a haircut on their benefits or employers pump in money to such schemes. These changes were mainly motivated by company preferences for predictability on their financials eg the need for IAS19 or not. There will always be the exception which had promised benefits higher than contributions.
He said DB schemes are primarily suited for developed economies with stable demographics, long life expectancies and deep, predictable capital markets.
Developed countries do not have stable demographics. They have ageing populations which makes it expensive to run a DB scheme (increase the dependency ratio on unfunded schemes). Even where there is stability, this stability is at an age way higher than eSwatini or most African countries (the cost of any scheme, is actuarially expensive for an older average age).
Long life expectancies make DB scheme expensive since liabilities run for a longer period. It is hard to understand how this can make a DB scheme better suitable as alleged. The actuarial value of a liability is its predicted future cashflow, which entails the modelling of the longevity of the cashflows. It is common sense that the longer the predicted cashflows, the higher the capitalised value needed to guarantee those cashflow and vice-versa.
No economy has a predictable capital market. Nonetheless, capital markets can be accessed from anywhere. As an example, even the smallest funds in eSwatini, have access to the capital markets from developed markets. This is where the power of pooling becomes important. The legislation in Eswatini permits such. It is also important to note that the experience of ENPF is not that foreign investments deliver superior returns to local investments. This is additionally to ENPF wanting to be a creator of jobs with monies of emaSwati as opposed to exporter of jobs.
Demographic volatility – Unexpected changes in mortality or life expectancy directly increase the liability of the national pension fund, a risk borne entirely by government.
These shocks are modelled at inception. The scheme is designed with an expected normal funding level of above 100% from inception. Extreme shocks, such as Covid, investment shocks are historical shocks which DB schemes have proved to withstand if properly designed.
Investment risk – Unlike DC schemes where members bear investment risk, government must cover any funding gaps if returns fail to meet actuarial assumptions.
Social security schemes are long-term going concerns. Short term investment shocks do not threaten the long-term sustainability of the scheme. It is also important to note that a scheme can fall short of its actuarially assumed investment return and still remain financially sound. It is not the individual assumptions that define the future of a scheme, but rather the combination of these assumptions. As an example, a return of 10% and salary increase of 8% will roughly give the same actuarial result as a return of 8% and salary increase of 6%. This example is critical since in the long run, the return turn to positively follow the inflation rate. This scheme has also been valued on close to risk free basis ie government bonds yields, making any risk assets return outperformance a benefit rather than an expectation for the scheme.
Political risk – The guaranteed benefit is highly susceptible to political manipulation, potentially leading to unfunded promises that create future national debt burdens.
The Bill is clear on how to deal with such issues. In particular, an actuarial sign-off is needed for all benefit changes. On the investment side, it is actuarial professional standards to comment on the suitability of any investment strategy backing long term DB liabilities. This protects both the Asset and Liability side of the scheme.
Eswatini lacks a universal, non-contributory basic social grant (Pillar 0), which international organisations advocate as the foundational safety net.
This is not true. The old age grant is non-contributory (funded through the fiscus like all non-contributory basic social grants) serves as Pillar 0 in eSwatini.
This absence forces the newly proposed contributory Pillar I (the ENPF Bill) to carry the entire weight of guaranteeing minimum social adequacy, a function it is structurally ill-equipped to perform without significant financial risk.
The ENPF bill is contributory i.e. meant only for members who make contributions to it. It thus cannot and will not carry the burden of individuals who do not contribute to it. Even for members who contribute, their rights are limited to what is stated in the bill i.e. based on service and contributions made, amongst others. No two members are guaranteed the same benefit, unless they have the same service and make the same contributions throughout their working lives.
He notes that the key lesson from these reforms is the necessity of a gradual, phased transition and the careful management of vested rights.
All vested rights will remain intact with the transition. This transition can be said to be gradually phased in the sense that no benefits will be payable immediately due to insufficient pensionable qualifying service to members.
Dlamini further observes that as SADC champions regional integration, benefit portability becomes a critical policy consideration.
This is specifically catered for in the bill Clause 95 in particular.
Retirement funds – He reports that unclaimed retirement benefits constitute the largest share, accounting for more than half of the total value of unclaimed funds.
The main reason for large unclaimed benefits in South Africa is getting hold of dependants. This is not an issue in Eswatini due to the small size of the country. This is evident in the financial statements of pension funds in Eswatini.
In his academic paper, he notes that while this is beneficial to its members, the PSPF is politically contentious due to significant, albeit managed, unfunded liabilities, and its privileged position creates a two-tiered system of social protection that exacerbates national inequality.
PSPF does not create a two-tiered system. It is not different from any occupational pension scheme in the country. The fact that pension schemes are compelled to annuitize at least 2/3 of the lump sum at retirement, offers guaranteed income to their retirement, although on an unpredictable basis since they mainly come from a DC environment. Not to say that the “excess” return on PSPF has assisted a lot with reducing the deficit. The “excess” return on other occupational schemes has resulted in improved benefits for their members. The two-tier common lack specific motivation.
The Executive Director says the PSPF represents the strongest existing scheme but is now the central point of resistance to universal reform.
PSPF is underfunded. It can thus not represent the strongest existing scheme in the country. It also does not offer the greatest benefit in the country. A number of schemes offer benefits higher than PSPF, either through higher contribution rates and/or through better investment returns which move entirely to the benefit of members as opposed to partly deficit funding. The strength of PSPF is only in the government being able to meet the deficit as and when needed. This has not been tested since it is a going concern and has never reached trigger points (and will less likely in the future) that would have force the State to fund the deficit in full.
Thembinkosi Dlamini, writing in his personal and professional capacity, states that the structure results in a high-aged dependency ratio, where a relatively small formal sector workforce supports a large, increasingly vulnerable elderly population.
This has no bearing on ENPF since it is a contributory scheme.
Conclusion
The proposed DB structure for the ENPF is a robust and appropriate model for a mandatory Pillar I scheme in Eswatini. The risks identified are standard to DB schemes and are effectively managed through modern, professional actuarial design, continuous monitoring, and strong governance controls mandated in the Bill (e.g., actuarial sign-off).
The DB approach directly supports the national policy objective of alleviating abject poverty in retirement by shielding members from longevity, investment, and inflation risks inherent in DC schemes, providing a guaranteed income floor based on service and contributions.
WHY SOCIAL SECURITY MATTERS
Social security is, at its core, about protecting people from the financial shocks that come with life’s major stages and uncertainties. It is a shared system that helps spread risk and ensure that no one faces hardship alone. In simple terms, it keeps families from falling into poverty when they grow old, lose work, get injured, or face economic difficulty.
In Eswatini, social security operates through two main approaches. The first is the contributory system, where people and their employers pay into a fund throughout their working lives. When they retire or face certain risks, the benefits they receive are tied to how much and how long they contributed. The ENPF is the country’s best-known example of this model. The second approach is non-contributory assistance. This is paid for by government revenue and provides a basic safety net for those who may not have had formal jobs or the ability to contribute. Social pensions for the elderly are a familiar example of this.
These systems are especially important because Eswatini faces deep economic challenges. Poverty remains widespread, with more than half the population living below the national poverty line. This means many families lack a stable financial foundation and are highly vulnerable to even small economic shocks. The large informal sector adds to these vulnerabilities. Up to 70% of workers operate outside formal employment, which means they are not covered by traditional provident or pension schemes. They work, earn, and support families, yet remain unprotected when crises arise.
Older people are also at risk. Under the current provident fund model, retirees receive a one-off lump-sum payment. While helpful in the short term, it often runs out quickly, leaving many elderly citizens struggling to meet basic needs and relying heavily on family or community support.
To address these gaps, the Government has introduced the Eswatini National Social Security Policy (NSSP), a blueprint for a stronger, fairer, and more inclusive national system. The vision is to ensure that every citizen—whether formally employed, self-employed, or in the informal sector—has access to some form of protection. The policy also aims to move away from once-off payouts toward regular pension payments that offer stability and dignity in old age. Above all, it seeks to bring all parts of the system together so they work in harmony and share risk across the whole nation.
A key step in this journey is the transformation of the ENPF into a fully-fledged National Pension Fund. This change is designed to provide long-term income security and create a foundation for a more resilient and inclusive social protection system for generations to come.
Source: Eswatini Positive News – News Website
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