By Staff Reporter

WINDHOEK, April 24 — Retirement benefits are an essential aspect of any country’s social welfare scheme, with different nations using various models of pension provision. In Namibia, the government has adopted the World Bank model for pension provision, which consists of three pillars. In this article, we will consider Pillar 2, which deals with occupational retirement funds.

Occupational retirement funds have been part of the Namibian financial sector for over 50 years. Although it is not mandatory, many Namibian companies sponsor or participate in a retirement fund on behalf of their employees, as retirement benefits are often an important part of the package offered to staff. In comparison to other African countries, such as Ghana, Zambia, and Nigeria, which have started pursuing the compulsory establishment of occupational pension schemes to enhance retirement savings benefits accrued under other pillars, Namibia does not have such requirements.

The Namibian government has sought to encourage the provision of retirement benefits by offering tax incentives to employers and employees. These incentives include tax deductibility of employer and employee contributions to retirement funds, no tax levied on returns earned by retirement funds, and only two-thirds of the benefit payable on retirement being taxed. If quantified, the value of these tax incentives would be significant.

Namibian retirement funds are currently regulated by the Pension Funds Act, Act No. 24 of 1956 (the PFA), inherited from South Africa, and no amendments have been made to the PFA since Namibia’s independence in 1990. However, the PFA will be replaced by the Financial Institutions and Market Act, Act No. 2 of 2021 (FIMA), allowing for key amendments to recognize retirement fund industry developments over the past 33 years, moving from a rule-based to a risk-based regulatory environment, and providing the Namibian Financial Institutions and Markets Authority (NAMFISA) with more supervisory and regulatory powers. The Income Tax Act, Act No 24 of 1981 (the ITA) outlines how retirement fund contributions, returns, and benefits are to be taxed.

Based on information sourced from NAMFISA, the number of Namibian retirement fund members was 238,603 as of Q3 2022. Of these, 94,291 were members of the Government Institutions Pension Fund (GIPF). This number is higher than expected considering the country’s high unemployment rate, large informal sector, and the fact that occupational pension schemes are not mandatory in Namibia. However, the effectiveness of the Pillar 2 retirement provision in Namibia is curtailed mainly due to the lack of compulsory preservation.

Namibia is one of the few countries in the world that does not have compulsory preservation rules for retirement savings. This has supported the practice of members withdrawing benefits when changing jobs. Approximately a year ago, a draft FIMA regulation stipulated the requirement to preserve at least 75% of retirement savings when leaving a retirement fund. The legislation reflects the government’s intention to reduce the likelihood of retirement fund members being impoverished after retirement. The draft mandatory preservation legislation has met with opposition from many Namibians, who believe that it takes away their right to choose how to utilize their retirement benefits.

One of the concerns raised by critics of the proposed compulsory preservation regulation is that there is currently no social security net to support Namibians who lose their jobs. These employees depend on being able to access their retirement savings to support themselves and their families while they are unemployed.

Several countries have allowed members to have early access to their retirement fund savings to alleviate financial hardship arising from the Covid pandemic. Malaysia, Uganda, and Zambia introduced similar interventions in 2022, while Eswatini allowed emergency access to occupational retirement fund savings in 2020.

In conclusion, while Namibia’s Pillar 2 retirement provision has been around for over 50 years and has been well-regulated, the lack of compulsory preservation rules for retirement savings is a significant hindrance to its effectiveness. Despite opposition from some Namibians, the introduction of mandatory preservation legislation is necessary to improve the retirement outcomes of Namibians. However, it is important to strike a balance between accessibility and preservation requirements to cater to those who may face financial hardship in times of crisis. Minimum contributions towards retirement savings may also be worth considering in the future, as they can help ensure that Namibians save enough to achieve a reasonable level of post-retirement income. Ultimately, the goal is to create a retirement system that is sustainable and equitable for all Namibians. – Namibia Daily News