ABOUT NAPSA REFORMS: THE GOOD, THE BAD AND THE UGLY
By Sean Tembo – PeP President
1. A few days ago, Cabinet announced that it had approved an amendment to the National Pension Scheme Act of 1996 in order to allow for early partial withdrawals from the pension scheme. Cabinet further told us that this was done in fulfilment of the campaign promise which President Hakainde Hichilema made to the electorate while in opposition. While featuring on a Hot FM radio morning breakfast show yesterday, the Presidential Spokesperson Mr. Anthony Bwalya said that no stakeholder consultations were made before coming up with this policy decision because according to him, “…it’s not like we are talking about amending the Constitution. It’s only a Napsa Act that we are proposing to amend …”.
2. Does NAPSA need to be reformed? My answer is yes, definitely. Is this proposed reform to allow for early lumpsum withdrawals a good idea? My answer is a definite no.
3. For the past 20 years or so, NAPSA has been operating like a Nigerian pyramid scam; very quick to collect contributions, but very reluctant to pay benefits when they become due. NAPSA funds have been diverted and abused by every successive Government since MMD, with the type of abuse varying depending on the level of imagination of a particular Government. The most common type of abuse is where NAPSA management are directed by senior Government officials to buy a property or shares in a company at an extremely exaggerated price. Of course that property or those shares in a company will belong to someone connected to the senior Government officials, and then they split the top soup. So you’ll find a property worth $5 million being sold to NAPSA at as high as $75 million. Unfortunately this type of abuse is not only limited to NAPSA but is equally rampant at Worker’s Compensation Control Board and more recently at NHIIMA as well.
4. NAPSA’s investment management strategy has been pathetic. For starters, there is no transparency as the 1996 Act does not compel the authority to publish it’s financial statements. But based on what we can physically observe, such as the construction of more than 300 houses near heroes stadium in Lusaka, as well as more than 1,000 houses in Kalulushi which stayed for more than 5 years without being sold because the asking prices were too high, it is clear that most of NAPSA’s investments are not financially sound. In the 5 years plus that these NAPSA properties remained unoccupied, private security companies had to provide security 24 hours a day, at an exorbitant price. By the time that these properties were being sold, NAPSA had paid more money to private security companies than the value that was realized in selling the properties.
5. So if the New Dawn administration is serious about making NAPSA better, there is plenty that needs to be reformed, which we shall list down below:
(I) NAPSA should be allowed to operate independently from Government interference, including the interference of the President himself. In order to achieve this, the corporate governance principles of NAPSA should be strengthened by ensuring that the majority of the Board Members are representatives of trade unions. You must remember that NAPSA manages contributions of workers, therefore anyone who is not representing the interests of workers has no business sitting on the NAPSA Board.
(ii) NAPSA Management should be appointed by the Board and not by the Minister of Labour and Social Security. By allowing Government to appoint NAPSA Management, the institution becomes inherently susceptible to manipulation and abuse. Remember that Government is an employer and cannot therefore be trusted with managing the funds of its employees. The best people who can genuinely protect and enhance the funds of the employees are the employees representatives who are the trade unions. An independent NAPSA Board will ensure that the Management is held to task for their performance.
(iii) NAPSA is too big to be efficiently managed. In this regard, Government should consider splitting NAPSA into three separate pension schemes being for the civil servants, for parastatal bodies and government agencies and for the private sector. That is the best practice when it comes to pension management across the world.
(iv) NAPSA should start paying a lumpsum of at least 50 percent upon someone’s retirement, with the balance payable in monthly or quarterly instalments. Additionally, NAPSA should establish customer service standards for payment of benefits. Benefits should not take more than 5 working days to come out when one retires or dies. Any delay in processing of benefits should result in a penalty charged to specific NAPSA employees involved which should be deducted from their salaries, in the same way that employers are charged penalties for late submission of employee contributions. That should be sufficient motivation to make them do their job properly.
(v) It should be made a criminal offense for NAPSA Management to use workers contributions to fund charity and CSR projects. It makes no sense for NAPSA to be pumping millions of Kwacha of worker’s money into its football team, when the retired workers are destitute and waiting for years to get their benefits from NAPSA. We have always argued that public funds are not for charitable or CSR activities. If the Management and employees of NAPSA want to own a football club, let them make contributions from their payroll to fund such a football club.
6. After making the above reforms, NAPSA should be able to operate properly and to the benefit of the workers who make the contributions. The proposal to allow workers to make a partial lumpsum withdrawal of their pension is largely motivated by the frustration by most workers due to the long delay in accessing their NAPSA benefits once they reach retirement age. And also the failure by NAPSA to make a partial lumpsum payment. Therefore, if these issues are specifically addressed by the proposed wider NAPSA reforms above, the workers should be happy.
7. Government’s proposal to amend the NAPSA Act and allow for an early partial withdrawal of benefits is too narrow in scope and will not address the wider NAPSA problems outlined above. The argument that people need to access their money while they are still young and energetic is too simplistic. To start with, a pension is not an investment annuity. The idea behind a pension is to give you social protection. In other words, to prevent you from becoming a destitute when all your brilliant investment plans fail. We all have brilliant ideas of how we want to invest our money and become rich, but more often than not, those plans tend to fail. The idea behind a pension is that if we lose everything we have, we should at least be able to buy food and rent a one-roomed house for ourselves until we die. In other words, a pension provides a social safety net to prevent us from becoming totally destitute. That is why the contributions are nominal. What the New Dawn administration is proposing is that people should spend their social safety net while they are still young! A pension should not be mistaken for an investment plan.
8. Given the fact that NAPSA’s average returns on investment are far below the inflation rate, and going by President Hakainde Hichilema’s argument that people need to spend their social safety net while they’re still young and energetic, then perhaps instead of contributing to NAPSA for 10 years and then withdrawing what you have contributed, why not just scrap NAPSA altogether? Because the President is telling us that the people do not need a social safety net when they are old and nolonger in gainful employment. Indeed, the President needs to make up his mind. If he believes that Zambians need a social safety net, then NAPSA should only be accessed after someone reaches retirement age and not before. If he believes that Zambians do not need a social safety net, then he should abolish NAPSA altogether. Remember that NAPSA comes with a lot of administrative costs, so it is pointless to have NAPSA and yet it is not providing a social safety net to citizens because they withdraw their money when they are still young and energetic instead of when they are old and vulnerable.
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SET 19.10.2022