Africa-Press – Namibia. Retirement is not the end of the road. It is the beginning of the open highway.”
These words rang true as New Era’s Edward Mumbuu (EM) sat down with lawyer and pension industry expert Vincent Shimutwikeni (VS) for a conversation.
Our discussion offered a panoramic view of Namibia’s retirement and pension landscape.
The sector not only plays a vital role in the country’s gross domestic product (GDP) but also helps ensure that those who have completed their working years can enjoy a dignified and secure life in retirement. “The idea is to continue eating those eggs and bacon in retirement,” Shimutwikeni quipped.
EM: This week, the Government Institutions Pension Fund (GIPF) provided almost N$1 billion for its pension-backed housing scheme. What’s your take?
VS: It’s a welcome development, but I think we need to understand it in context or this phenomenon of housing back pension back housing loans.
EM: Let’s break it down. Some people understood this pension-backed home loan scheme as borrowing a portion of the pension to build homes. For the layman, ‘I have worked for 30 years. My pension has grown to, let’s say N$3 million. With this arrangement, I could take from my pension N$500 000 or N$200 000, build my village home or upgrade my townhouse, whatever the case may be, and owe no one’. But it looks like that is not the case.
VS: I want to take you back to. This phenomenon or this idea of pension-backed housing loans, is not a new concept. So, it’s not something that was introduced now or brought about by GIPF or government. It is provided for in the Pension Funds Act. It has always been there. Other occupational funds/private funds have been providing pension-backed housing loans for years. This is a 1966 Act. So, from independence, the government could have offered these pension-backed housing loans if they wanted to, like other private or occupational funds have been offering them. The difference was that with the private pension funds over the years, the interest rate was not fixed as you’ve seen it implemented now.
Housing is a critical issue. Although we must separate issues in the sense that it doesn’t, we mustn’t necessarily see it as addressing the housing issue in the country. It’s not a panacea.
But the idea is for it to assist, financially, members who wish so. How it will operate is that you will be entitled to take about one-third of your accumulated savings. You may utilise this towards either purchasing land or a home. You may use it to finance an existing home loan or for renovations. Those are the only instances in which the Pension Funds Act allows for somebody to reduce their benefits. The idea is we must always keep at the back of our minds that the intention of pension and retirement funds is to ensure that you have sufficient resources to cater for yourself once you’ve reached the age where you’re not able to work anymore. The idea is to avoid old-age poverty. Like the argument you brought, it tries to meet our constitutional rights or some rights, for example, to dignity halfway, because the argument would be that housing is a right for dignified living.
But at the same time, that’s why there are certain restrictions. Like, you can only utilise one-third of it. And then there’s the aspect that you’re bringing now of repayment. The idea is that when you reach retirement age 60, there’s a calculation that you would need this amount to continue living a life that you have been living previously.
So, this repayment doesn’t necessarily see it as the traditional way of taking from the banks and paying interest to the banks. Whatever you repay goes back to GIPF, and that interest is paid back into your kitty. So, you’re almost basically paying yourself back the interest.
It’s helping you and ensures that by the time you reach 60, you still have those resources that you would have had had you not taken that loan.
EM: People pay tax on the income from which my pension is derived. But then, upon resignation, about 18% is taxed on your pension. Is that not double taxation?
VS: I think it’s a very interesting point to bring up. It brings me back again to the issue that, for me, concerns financial literacy. So, for our members, I really think we need to first have strong financial and pension literacy in understanding pensions and taxes in terms of the Income Tax Act and the Pension Funds Act. This is in terms of what you stand to be taxed when resigning and taking your full payout as opposed to transferring it to preservation or your next employer.
So, yes, when you resign, you will be taxed heavily. I’m sure you’ve seen that [NamRA commissioner] Sam Shivute is very serious. So, unfortunately, those are legislative measures that are there that we can’t avoid. You will be taxed. Mine is rather from a financial perspective, to say, when you do resign or leave your employment before reaching the retirement age, rather transfer your pension or whatever you have accumulated to your new employer or an annuity, because then it’s not taxed. I would say that is my advice, rather than transferring it, because you are taxed heavily when you resign.
Financial literacy [in countries like Colombia] is considered a fundamental consumer right, where financial industries or financial entities are required by law to provide financial literacy and educate their members and clients. However, this must also be done by professionals. I think we should also look into moving in that direction. I think we must make it mandatory for retirement funds to have financial literacy sessions and classes with their members. We need to really look at just enhancing the regulatory framework when it comes to financial literacy.
EM: The Social Security Act makes provision for a National Pension Fund and National Medical Aid Fund. These funds have been dormant since 1996. A study was then again conducted in 2011 around the practicalities and all that. I also know that in the Harambee Prosperity Plan, one of those features is prominent. Talk us through the process.
VS: You rightly pointed out that the national pension fund is provided for in terms of the Social Security Act of 1994. These discussions have been there for many years. It’s my understanding that over the years, different modalities have been proposed, and different experts from across the world have come here to provide technical services at a high cost, which has, till this day, not provided any way forward.
The idea is really to remember that when you talk about pension, the idea is always to avoid old age poverty and cater to members after their working years, when they are physically unable to work. So, there are other current social nets.
Social security, as it stands, has funds in terms of the disability fund and all of that. But are those sufficient to cater for you or provide for you in terms of the lifestyle that you had? So, the pension fund is with the idea that it will cater for all sectors – formal and informal. We have a large informal sector in this country. Current occupational pension funds or private pension funds, as much as we say that they contribute to this economy, have assets totalling more than N$260 billion. Most of these participants are formal employees. We don’t have members in the informal sector.
The idea of the National Pension Fund is to cater to everybody, rich or poor, black or white. But in terms of the implementation of the National Pension Fund, there have been various issues that have stalled its implementation, which is basically the design.
What type of design must this pension fund take? And then we ask the question of what happens to the existing occupational or private pension funds that have existed for over 30 years and have contributed to this economy. We can’t shy away from the fact that they’ve contributed. They’ve been run and managed well. To simply say we’re bringing a national pension fund and do away with the private occupational funds would be disastrous.
The contention has been what type of national pension fund we would have. The International Labour Organisation, we understand, and their experts have come to advise the Social Security Commission and government in terms of the approach it must take.
We hear that they are proposing defined benefits, and it’s to the exclusion of occupational/private funds. Like any other legislation that impacts the economy and members, there must be a proper consultation where all stakeholders come to the table. We talk about the existing oc cupat iona l funds and fund administrators. We talk about Namfisa, the regulator. We talk about the Social Security Commission and the finance ministry.
We must come together and look at what the best model is based on our circumstances as a country.
This thing of just taking social security schemes from first-world countries and coming to impose them or trying to apply them on a third-world country like Namibia would be disastrous because those countries in the first world have institutions that are capacitated. They’ve had different labour markets. They’ve had these schemes for many years, while our situation is very different. We need to look at a national pension scheme that will possibly have more than 500 000 members. Those are all the dynamics that need to be looked at. I would strongly advise against just [doing away with occupational funds] if it’s true what I’ve heard about the ILO recommendations and the advice given by their experts in terms of the modality that we should follow as a National Pension Fund. I think it would be very disastrous, considering the existing pension funds that are operating and the role they play in the economy. All stakeholders must come to the table and look at what will be the best way to roll out the National Pension Fund, which doesn’t compromise or overlook the role that the existing pension funds have played for over thirty years.
EM: Talk to us about the controversial Regulation 13 of the Pension Act.
VS: It’s really to channel funds into our domestic markets. This was done through special-purpose vehicles or unlisted investment managers. The idea was noble, too. I mean, it’s a noble idea to channel funds into our domestic markets to grow our economy and infrastructure. When this regulatory measure was implemented, there were various factors that one needed to consider at the time – probably the domestic market at the time wasn’t. It’s no offence, but I think some investment managers may have taken it as an offence, but the reality is that there weren’t various options for different retirement funds or pension funds to choose from. The market just wasn’t growing, but these were locked in 10-year funds. Various factors have contributed to it being a very sensitive topic. Various factors contributed to the outcome not being what was anticipated. We need to consider that, in 2016, there was a big economic downturn in Namibia, where many of these were exposed to the construction industry. There were also the Covid-19 shocks and setbacks in 2019. So, various factors contributed to many of these investments not yielding the desired results.
EM: Recently, it emerged that younger MPs, following their five years of having served in Parliament, do not qualify for the same retirement benefits as those who are 55. They feel it’s unfair.
VS: Theirs [pension fund] is very interesting. It is governed by the Members of Parliament and Other Office Bearers Pension Fund. It’s very interesting because, as opposed to all other pension funds, that is the only pension fund that is established by an Act of Parliament, and some rules are gazetted. It’s a unique pension fund because its tenure is also unique. They [MPs] are, as opposed to the normal person who is employed permanently and retires at the age of 60, guaranteed and set. Parliament’s term is five years, so it’s interesting. So, there are those contentious issues that a member of Parliament needs to read their fund rules. They need to understand how the fund operates because their tenure is a full term of five years, and there are differences in terms of what you get. For example, if you don’t complete the full term, then you will only be entitled to what you have contributed, your employer’s and employee contributions. And you are then not entitled to the pension for life. But then there’s also a guarantee that you get if you retire or reach the retirement age of 55. Those are the arguments that they are currently having in Parliament. They are discussing it on an equity basis. Those are the issues that political office bearers face. They [MPs] need to discuss it, and there’s normally a thing where people used to shy away from discussing MPs’ salaries, benefits and pensions because maybe it’s political or sensitive. But I always say that we need to discuss it because old age poverty doesn’t discriminate. Whether you are an honourable, professor or doctor, we are all going to need money to sustain ourselves post-retirement. So, these are things we must discuss. To the MPs, the young MPs particularly, they must discuss, agitate and see what the best way is forward for them in terms of their pension fund and retirement.
EM: From an expert’s bird’s-eye view, what point would you like to drive home to our readers and viewers?
VC: Mine is just on preparing adequately for years when you can’t formally work. Old age poverty doesn’t discriminate. I want everybody to live a dignified life until their last remaining days. The bacon and eggs that you were able to have when you were 42, I want you to be able to have them when you are 75. Financial literacy: Let us educate ourselves. Let us understand our pension fund and rules. Let us understand the benefits. Let us understand what it takes when you withdraw, when to withdraw and what you are going to be entitled to at retirement. And while it’s early, seek financial advice and understand what decisions you need to make now so that you can live a dignified life for the rest of your life.
Source: neweralive
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