PIA FORUM with DOREEN KAMBANGANJI
LAST week, we looked at the types of pension schemes in Zambia, what determines the benefit paid by a scheme and the importance of being on a pension scheme. This week, we continue with the same topic and we focus on investment of pension funds and protection of scheme members.
Investment of Pension Funds
Saving for retirement is an important social policy tool to avert old-age poverty. It is widely recognised that a pension scheme represents a long-term contract between the employer “sponsor of the scheme” and the members. Under this arrangement, employees give up part of their current salary through pension contributions in exchange for future retirement benefits. It is, therefore, important that pension funds are properly invested so that they are able to yield positive returns for the members.
In Zambia, the government has established the environment for fund managers (who are responsible for investing these funds) to flourish by enacting the Pension Scheme Regulation Act No. 28 of 1996 (as amended by Act No 27 of 2005). Any company that desires to offer fund management services to the registered pension schemes need to be licensed by the Pensions and Insurance Authority (PIA).
The PIA, through prudential supervision, monitors and ensures that the registered fund managers adhere to the necessary legislation and the agreements that they have with the trustees of the pension funds.
The role of the fund manager can be summed up into two key roles; find investment opportunities for the scheme and preserve accumulated assets so as to ensure that the scheme fulfils their retirements promise. The asset manager will have an agreement with the scheme that gives the framework in which the asset manager will operate. The agreement will also outline the expectation of the scheme.
The asset manager has a duty to achieve the best possible return for the scheme. Where the trustees find that their asset manager has failed to achieve the desired target it is incumbent on them to revisit their relationship with their asset manager either by remedying the situation or terminating the agreement.
What protection is there for the contributions made to occupational pension schemes?
One would want to know if contributions made to occupational pension schemes are protected. The Act has many provisions that protect the member’s interest in the respective pension funds. For instance, the Act clearly lays down how pension funds should be managed and it also stipulates the rights of the members. Members should take keen interest in knowing how their scheme is being managed and how their money is growing!
Who bears losses in a pension scheme?
Like any other investment, pension investments can either rise or fall depending on the prevailing economic conditions. The major concern is on the latter; the fall in the value of pension investments. One would ask: who bears the investment loss in a scheme? In the case of a defined benefit scheme, the benefit is already defined and thus will not be affected by the performance of the investments, the sponsoring employer in this case bear the cost of the deficit that will arise as a result of poor investment return. In the case of a defined contribution, recall that what is defined is the contribution rate and thus the funds will be affected by the performance of the investments and the member suffers the loss.
What happens when a scheme loses money not as a result of poor performing investments but as a result of fraud?
The Pension Scheme Regulation Act in Section 32 requires managers, administrators and trustees of pension schemes to take up liability insurance against negligence or dishonesty of the directors, officers or employees of a pension scheme in order to safeguard the members’ interests. This means that when a wrong decision is made or an employee of the service provider commits fraud .i.e.  through theft, the insurance company will come in and make a payment to offset the loss (depending on the quantum specified in the policy). This means that members of the scheme will not suffer any losses as a result of operational issues so long as the liability insurance has been taken.
You can get details on pension contributions from your employers or trustees. Trustees and/or the scheme investment managers can give you details on the investments that the scheme is making. Take keen interest in the affairs of your scheme and get to know the design, the contribution rates, who your service providers are etc.
Your feedback is always welcome. Get in touch with us through email: pia@pia.org.zm or you can visit our website www.pia.org.zm for more information.