Private Portfolio – Tweaking the Pension Act
I read with great interest the interview with the new CEO of the GIPF which was reported in a previous issue of the Economist. I now wish to propose one or two suggestions to Mr David Nuyoma in this regard.
Mr Nuyoma was quoted as saying that he reckons the time has arrived to take a look at the Pension Act of 1956 to see if it should not be adjusted to changed pension fund expectations today’s members may have. I fully agree that this is an excellent idea. However, I notice in the media how members of the GIPF as well as other pension funds often express the view that they wish to be able to access their retirement funding before they retire. May this be seen as a “modern” member expectation?
What I am about to say now may not make me popular. Due to many reasons from our past as well as present situation, and mainly because of an inadequate to dysfunctional education system, the majority of the people in Namibia are financially illiterate. This means that many people in Namibia who are members of pension funds need protection. They must be protected from themselves to preserve their hard earned pension money for their retirement. Pension funds are not retirement funds any more. They have become resignation funds. The only people who are getting rich from these funds are the fund administrators. I often see how members of pension funds resign and willingly become part of the unemployed other half of the Namibian population purely to access their retirement funds.
There are a couple issues involved that I would like to point out to Mr Nuyoma. The first is that I believe that the majority of the pension fund members who cash in their retirement funds before retirement do so to spend it on consumable items. It means that it is money wrongly applied and nothing other than money down the drain!
If I am not mistaken the Pensions Act allows pension money to be accessed for housing purposes. It is merely a pension fund rule stipulation that prevents it. But I have also seen how pension fund money is accessed for “housing” purposes and then spent on consumables. The rules/law should be tightened up to prevent this from happening.
So-called preservation funds are also exactly the opposite of what their names indicate. Preservation funds have from the beginning been a way to access 100% of the employer contributions upon resignation. Nothing get preserved.
Another issue that I feel very strongly about and have mentioned here before is the way income tax is applied when cashing in pension moneys. I think it is criminal for the state to take a 28% bite out of a person’s pension money when that person never had any income tax benefits from his contributions and government never sacrificed due to tax deductions the pension fund member could have had. I am referring to members of pension funds who earn less than N$40 000 per year and are thus not even registered as tax payers. From how I see it, when they cash in their pension money, it may not be taxed in any way because they never enjoyed any tax benefits from it and government never made any sacrifices. It is just plain theft!
If I had to make changes to the Pension Act I would make it illegal for any person to access his or her pension money in any manner before reaching the age of 55 – or even 60 for that matter because most people do not retire at age 55. I would also change the Income Tax Act so that poor people’s pension money can no longer be “stolen” by government.
I also believe that trustees of pension funds should play a far more active roll on behalf of the members of the pension funds who are the owners of the funds. Especially when it comes to a member retiring, to ensure that he or she receives their pension benefits in time.
I fully agree with Mr Nuyoma that transparency is required in a pension fund. I think transparency in the pension fund industry needs to be reinvented. Currently members are forced to accept whatever figures they are presented with upon withdrawal or retirement and it would be a huge stride forward if these members can actually see how these figures are derived at.