Namibia: Pension Payouts At 55 Are for Your Own Good – Namfisa

THE Namibia Financial Institutions Supervisory Authority (Namfisa) has said setting 55 years as the only time people can access their retirement savings is in their best interest.

Because of this, the authority’s management says it will recommend to the minister of finance to make it part of law that when a person retires, and is not yet 55, they can only get 25% of the amount they have saved.

This recommendation if unopposed and accepted by the finance minister can become law come 1 October this year.

It further suggests that only when a person turns 55, will they receive the remainder (75%) of their pension credit, and not as a lump sum, but in monthly payments.

Explaining this stance, Namfisa chief executive officer Kenneth Matomola said if it becomes law, it “will benefit working individuals by ensuring that they preserve a portion of their retirement savings throughout their working lifetime”.

He said Namibians should be aware that “the main purpose of a retirement fund is to gather and grow savings to provide an income to the member when s/he retires, or otherwise to the member’s dependants if the member passes away”.

He added that, if the member becomes disabled and thus unable to work before reaching retirement age, the retirement fund may provide such member with a disability benefit, usually in the form of monthly payments.

The proposal, now in draft regulation form – Regulation RF.R.5.10, will be issued if approved under the Financial Institutions and Markets Act.

This act regulates all pension, retirement funds, medical aids, as well as insurance companies, among a host of other non-banking financial services.

Matomola said the draft regulation, if approved, would be better compared to withdrawing retirement savings in cash before retirement and using them to meet short-term financial needs, which results in many people not having enough savings to take care of themselves and their needs.

He said this leads to them entirely depending on social grants or the pillar one pension from the government for survival when they retire.

Asked whether consultations were made with beneficiaries, Matomola said only formal consultation with industry retirement funds was done.

He added that these consultations ended on 28 February 2022, and the retirement funds have approved the proposed regulation to only pay out 75% at retirement age of 55.

Generally, a retirement fund is a special pool which people pay money into so that when they retire, they will receive money regularly as a pension.

This payout can either be as a lump sum, or a lump sum at first and thereafter monthly payouts depending on the rules of the fund.

Asked what would happen if an individual desires to retire before 55 and pursue other ventures, Matomola said such individuals can only access their 75% funds at retirement age.

The chief executive could not answer questions on pension fund expatriates, nor whether there are conditions that could have retirees access their funds before 55.

The retirement funds industry had an asset base of N$201 billion at the end of October last year.

Most of these funds are invested in government bonds, treasury, several listed companies and very minimally in unlisted companies.

Data from the authority show that for the first time in the past five quarters ending 31 October 2021, benefits paid out were less than contributions collected. However, the pension funds were still maintaining a liquid ratio.

Asked whether the new regulations were meant to address this unsustainable scenario where contributions are less than the payouts and, therefore, causing a liquidity crunch, Matomola said such assertions were “incorrect” and the regulations are for the benefit of the employees.

CONCERN

There has been talk that some people are planning on resigning to access their pension payouts before 1 October, but Namfisa deputy chief executive Erna Motinga warned against it.

“We cannot go for short-term gratification in lieu of a long-term benefit. Resigning in a short term because of this regulation will be wrong.”

Chairperson of the retirement fund at the University of Namibia Vonkie Olivier said the trend is that people are resigning to lay their hands on those funds and then they become the responsibility of the government when they retire because they do not have pension money to live of.

“I agree that money should go for that purpose and it is a worldwide trend that people are forced to preserve because when they don’t preserve, they take their money and squander it and then they don’t have money,” he said, further elaborating that he does not want to generalise, as not all persons squander their money.

He, however, said the preservation is more European, and Africa has different circumstances and thus he suggests that there should be a mix between preservation and making the funds available to those who might be going through financial hardships due to job losses and tough economic times.

Olivier further said although pension funds should implement these acts governing the sector, there are many loopholes and gray areas.

“People should have access because it is their money. What I’m saying is, it’s not that they won’t have access to this money. For instance, what happens if you are fired? Should the pension fund then keep your money until you have reached retirement age? I believe there should be a hybrid between forced preservation and taking everything, because people should make provision for their old age,” Olivier elaborated.

Executive dean of the faculty of economics at Unam, Jacob Nyambe explained that given that the labour market fluctuates a lot, and people tend to change jobs over time, they are used to taking their money and taking up other employment.

As a result, he said people are used to this trend and the labour market is not dynamic enough to create jobs, and one may not be able to sustain themselves should they fail to get a job elsewhere.

“However, on the side of the receiver of revenue, it would mean a lot of money in circulation. For instance, GIPF would have an opportunity to get more and invest that money in all the productive sectors it sees necessary,” he noted.

Nyambe also stressed tendencies where people resign to obtain the funds, use it all up but become impoverished when they fail to find employment.

However, Fima would not entertain such tendencies, he said. The economist recommended that the government should come up with a mechanism to assist those who resign but are unable to find work with funding on a monthly basis until they find work.

Namfisa wants to be a front-runner, as no country in the region caps people’s pension payouts to a certain age, Motinga said, adding that South Africa was mooting a similar regulation.

After these recommendations, Matomola said, the finance minister might accept or reject the regulations.