Editor's Comment

Pensions Fund should invest in real estate

IT IS in public domain that payments to retirees have and continue being a huge challenge in Zambia.
Retirees have had to wait for years to get their dues while others have died without getting their entitlement.
As a result, many senior citizens have been relegated to old-age poverty and destitution.
The Public Service Pension Fund (PSPF), in particular, as a social security scheme established to provide for collection of contributions and payment of terminal benefits for government workers and the public, has over the years struggled to pay retirees.
We have had situations where Government has had to come in to bail out the fund by paying outstanding retiree benefits to alleviate their suffering.
Last year, the Zambia Daily Mail published a story stating that PSPF needed K1 billion to settle 1,824 pending payment cases as at end of May.
While the fund continues to struggle with payment of retirees due to economic hardships, the constitution demands that members should be paid on the day of retirement.
The advice, therefore, given by Secretary to the Cabinet Roland Msiska for the fund to diversify its investment portfolio by venturing into housing and real estate is indeed commendable and should be taken seriously.
The Secretary to the Cabinet realises that if the fund is to meet the constitutional requirement of paying its members on the day of retirement, diversifying its investment portfolios is inevitable.
Much more now that the markets have become extremely volatile due to both internal and external economic shocks.
Infrastructure and real estate generally have monopolistic positions and provide essential services to communities. As a result, demand for these services is relatively insensitive to economic weakness and price increases.
Research has proved that in some Western countries, infrastructure assets have produced stable, predictable and growing returns that in some cases have provided an inflation hedge.
The low volatility of demand and inherent inflation protection characteristics of infrastructure assets result in their low correlation to other major asset classes.
Infrastructure and real estate will provide PSPF with an attractive diversification opportunity and the possibility to reduce the risk and at the same time improve returns.
It is commendable that the fund has actually already made a step in the same direction by investing K6 million in the PSPF Panganani Business Park.
This project will no doubt go a long way in improving the financial position of the fund.
However, as Dr Msiska advised, the fund should also consider investing in housing infrastructure considering that currently we have a deficit of 1.3 million housing units, which is projected to reach over 3 million by 2030 if nothing is done.
Countries like Chile and Canada have demonstrated that pension funds can grow their investment portfolio through infrastructure and real estate.
Actually, the trend world over is that most pension funds are investing in infrastructure and real estate to minimise the risks that come with a volatile economic environment.
While housing provides an investment opportunity in Zambia, PSPF will do well to cater for low and middle class by providing low- cost houses.
The fund should, however, bear in mind that investment in infrastructure and real estate is long-term and should, therefore, also devise viable short-term ventures to ascertain liquidity and complement long-term investments.
This is the only way PSPF will fight old-age poverty and destitution caused by its failure to fulfil financial obligations.

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