Pension payout pandemonium grips working class

Increasing fear of mass exodus
Compulsory preservation would make people less dependent on the government, analysts say.
PHILLEPUS UUSIKU
Working individuals who change jobs, go on early retirement or get fired, and who would like to cash out their retirement benefits, might only have until 1 October 2022 to do so.

According the new Financial Institutions and Markets Act (FIMA), people resigning after 1 October 2022 will only be allowed to claim 25% of their pension funds in cash. The bill stipulates compulsory 75% preservation of retirement benefits for people who withdraw from their retirement funds before the prescribed early retirement age of 55 years. The draft regulation will apply to every retirement fund registered under FIMA.

According to the Namibian Financial Institutions Supervisory Authority (Namfisa) CEO, Kenneth Matomola, the daft regulation will benefit working individuals by ensuring that they preserve a portion of their retirement savings throughout their working lifetime, as the average life expectancy in Namibia is 65 years.

In contrast, withdrawing retirement savings in cash before retirement and using them to meet short-term financial needs results in many people not having enough savings to take care of themselves and their needs, thus entirely depending on social grants from the government for survival when they retire, he said.

According to retirement fund expert Tilman Friedrich Senior, it i important to weigh various considerations having a bearing on pension fund beneficiaries on one end and the government on the other. “It has two sides; looking at it from the government’s point of view and the regulator, compulsory preservation would make people less dependent on government. On the other hand, it makes things less flexible as people generally use their pensions for pre-retirement expenses such as in cases of job losses,” Friedrich said.

Simonis Storm economist Theo Klein said this policy nudges people to keep their retirement savings intact until their retirement age. Hopefully, this policy will reduce the number of Namibians who retire with insufficient funds to live comfortably. “This will also benefit local asset managers as withdrawals from pension funds before retirement age will be limited, maintaining assets under management to some extent. This might have positive effects on the financial services sector,” he said.

Consultations

Considering that people have different aspirations such as going on early retirement to invest in sustainable business ventures, consultations are of critical importance.

Matomala noted that informal consultations on the regulation standards started around 2017 and 2018 with industry players (pension funds) through their trustees explaining the rationale of the regulation. “They were required to provide us with written comments.”

Since the law also provides for formal consultations, Namfisa gazetted the regulations and issued a public notice. “The formal consultation with industry players on all the draft proposed standards and regulations under FIMA is currently at an advanced stage." The solicitation of comments from the industry on these standards and regulations ended on 28 February 2022.

"In the meantime, Namfisa is considering and evaluating the comments received and, where necessary, consulting further on them with the industry before finalising the standards to be issued by Namfisa, and regulations for the minister of finance to consider for promulgation," he said.

Therefore, members of the public are urged to calm down and not resign from their jobs to retrieve their pensions, as the law has not been finalised yet. The final standards and regulations will be published in the Government Gazette on 1 October 2022 when FIMA becomes operational. The draft regulations and standards can be accessed on the Namfisa corporate website.

The Government Institutions Pension Fund (GIPF) yesterday said: “[We are] aware that Namfisa, as the institution that will be responsible for administering the FIMA and the regulations and standards under the FIMA, has commenced consultations with various stakeholders on the critical standards. The GIPF awaits feedback from Namfisa in this regard.”