Understanding the context of pensions in Namibia in 2023
One of the things that 2022 will be remembered for is the intense debate about the future of pensions in Namibia. The implications of the Financial Institutions and Market Act, No. 2 of 2021 (FIMA) and its subordinate legislation caused major concern about how much retirement saving flexibility we will have in future.
Implementation of FIMA has been postponed and the Minister of Finance, the Honourable Iipumbu Shiimi, has convened an Advisory Committee to assist him with reviewing Chapter 5 of FIMA, which is the section of FIMA that pertains to retirement funds, as well as the subordinate legislation.
It will be interesting to see if the Advisory Committee deliberations result in significant amendments to Chapter 5 and/or related subordinate FIMA legislation. Any such changes would take into consideration not only the retirement funds that are legislated under FIMA but also the broader framework of wellbeing of elderly Namibians.
In this article, we will consider the models for pension provision that have been designed by the International Labour Organisation (ILO) and the World Bank and how current pension provision structures in Namibia compare with these.
The ILO and World Bank Models for Pension Provision
The table outlines the ILO and World Bank models for pension provision. They are virtually the same. The only difference being that the World Bank Model makes allowance for financial support that the elderly receives from their family members. Please note that for the remainder of this article, we will be referring to the World Bank Model.
Apart from Pillar 1, all the Pillars of Retirement Fund Provision are currently operational in Namibia. Provision has been made in legislation for the establishment of a National Pension Fund, which would introduce pension provision under Pillar 1, but this has not yet materialised.
The Namibian Context
Namibia is one of few African countries that provides a universal old age pension to all its resident citizens that are aged 60 or over. As of 1998, this pension benefit has been referred to as the Basic Social Grant (BSG). The BSG, which currently amounts to N$1 400 per month, plays a key role in alleviating poverty in Namibia as a considerable number of elderly Namibians rely on this income to survive and, often, to support their families.
The proportion of the Namibian population that relies on the BSG is expected to increase over time for several reasons.
Ageing Population
Namibians are living longer - thanks to improvements in healthcare - and the increase in life expectancy is anticipated to continue now that Covid has become endemic.
Namibian women are having fewer children - a trend that is also expected to continue. As a result of these developments, the Namibian population will age over time, with an increasing proportion of the population being aged 60 or over.
No Mandatory Savings Requirement
There is currently no mandatory requirement for employers to sponsor a retirement fund for their employees. Tax incentives have, however, been provided to employers to encourage them to do this and the members of employer-sponsored retirement funds receive a tax benefit on their contributions to these funds. When members exit their retirement fund, however, they can access all the retirement savings that they accrued in the fund.
As a result of this lack of mandatory requirement for retirement savings, most Namibians either have insufficient or no retirement savings. (As noted in the article titled “Comparing Notes with South Africa” that we published late last year, the Old Mutual SA Retirement Gauge estimates that 94% of South African retirement fund members find themselves in this position. A similar proportion of Namibian retirement fund members is likely to be in this position as approximately 75% of withdrawal benefits disbursed by retirement funds are paid to members as cash benefits.)
High Unemployment Rate
Reliance on the BSG is expected to increase in future due to the high unemployment rate in Namibia, particularly amongst the youth.
The Necessity of Pension Reform
Increased reliance on the BSG will strain the government’s budget and inhibit their ability to increase the BSG to counter the impact of inflation. Reform is thus required to improve retirement benefit outcomes so that Namibians are less reliant on the BSG. This is probably why FIMA, and its subordinate legislation allow for the introduction of compulsory preservation of retirement savings and make provision for the annuitisation of retirement benefits.
Implementation of FIMA has been postponed and the Minister of Finance, the Honourable Iipumbu Shiimi, has convened an Advisory Committee to assist him with reviewing Chapter 5 of FIMA, which is the section of FIMA that pertains to retirement funds, as well as the subordinate legislation.
It will be interesting to see if the Advisory Committee deliberations result in significant amendments to Chapter 5 and/or related subordinate FIMA legislation. Any such changes would take into consideration not only the retirement funds that are legislated under FIMA but also the broader framework of wellbeing of elderly Namibians.
In this article, we will consider the models for pension provision that have been designed by the International Labour Organisation (ILO) and the World Bank and how current pension provision structures in Namibia compare with these.
The ILO and World Bank Models for Pension Provision
The table outlines the ILO and World Bank models for pension provision. They are virtually the same. The only difference being that the World Bank Model makes allowance for financial support that the elderly receives from their family members. Please note that for the remainder of this article, we will be referring to the World Bank Model.
Apart from Pillar 1, all the Pillars of Retirement Fund Provision are currently operational in Namibia. Provision has been made in legislation for the establishment of a National Pension Fund, which would introduce pension provision under Pillar 1, but this has not yet materialised.
The Namibian Context
Namibia is one of few African countries that provides a universal old age pension to all its resident citizens that are aged 60 or over. As of 1998, this pension benefit has been referred to as the Basic Social Grant (BSG). The BSG, which currently amounts to N$1 400 per month, plays a key role in alleviating poverty in Namibia as a considerable number of elderly Namibians rely on this income to survive and, often, to support their families.
The proportion of the Namibian population that relies on the BSG is expected to increase over time for several reasons.
Ageing Population
Namibians are living longer - thanks to improvements in healthcare - and the increase in life expectancy is anticipated to continue now that Covid has become endemic.
Namibian women are having fewer children - a trend that is also expected to continue. As a result of these developments, the Namibian population will age over time, with an increasing proportion of the population being aged 60 or over.
No Mandatory Savings Requirement
There is currently no mandatory requirement for employers to sponsor a retirement fund for their employees. Tax incentives have, however, been provided to employers to encourage them to do this and the members of employer-sponsored retirement funds receive a tax benefit on their contributions to these funds. When members exit their retirement fund, however, they can access all the retirement savings that they accrued in the fund.
As a result of this lack of mandatory requirement for retirement savings, most Namibians either have insufficient or no retirement savings. (As noted in the article titled “Comparing Notes with South Africa” that we published late last year, the Old Mutual SA Retirement Gauge estimates that 94% of South African retirement fund members find themselves in this position. A similar proportion of Namibian retirement fund members is likely to be in this position as approximately 75% of withdrawal benefits disbursed by retirement funds are paid to members as cash benefits.)
High Unemployment Rate
Reliance on the BSG is expected to increase in future due to the high unemployment rate in Namibia, particularly amongst the youth.
The Necessity of Pension Reform
Increased reliance on the BSG will strain the government’s budget and inhibit their ability to increase the BSG to counter the impact of inflation. Reform is thus required to improve retirement benefit outcomes so that Namibians are less reliant on the BSG. This is probably why FIMA, and its subordinate legislation allow for the introduction of compulsory preservation of retirement savings and make provision for the annuitisation of retirement benefits.
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