NAPSA INVESTMENT CYCLE WILL BE DISRUPTED -CHIBAMBA KANYAMA
OPTION TO ACCESS PENSION CONTRIBUTIONS
(As we fast and pray)
• A huge negative impact on NAPSA investment cycle
• Emergency of self-actualized investors
• NAPSA can win through competitive returns
Social media (bloggers) have not been very kind to my brother Dr Aubrey Chibumba, former Director Genenral of the National Pensions and Savings Authority (NAPSA), who expressed concern that amending the NAPSA Act to give an option for members to withdraw part of their contributions before retirement was not a good decision. His remarks were made on Red Hot Breakfast on Hot FM. He stated there was no guarantee those funds accessed early would be usefully applied by members.
I wish I had full access to the interview to fully benefit from his arguments. He seemed to have provided useful advice based on his own experience as a well-trained professional in this specific area. Reading through the comments, it is clear whatever he seemed to put across did not matter to bloggers.
I concluded the issue of pensions is a highly emotive issue in Zambia. In developed countries where pension funds are well managed, individuals look forward to retirement days where they receive annuities that will enable them redeem any outstanding mortgages and even afford a lifestyle they did enjoy during their working life. In Zambia, people have died without accessing their pension contributions. The annuities are also quite low, very few can afford to earn a decent living.
What are the implications of amending the NAPSA Act?
IMPACT ON NAPSA INVESTMENT CYCLE
Pensions play an important role in funding investments. Most of the mining operations in Zambia are funded by pension money through the respective stock exchanges in Australia and Canada. In other words, the laws that make pensions compulsory are not necessarily focused at helping workers manage their post working life well. Pensions fund public and private sector programmes in a country. It is through these investments we enjoy economic growth and create jobs. Are these not some of the things we pray for on a day like this one?
The challenge on amending the Act is how NAPSA will manage its investment cycle. NAPSA will have to establish quite early how many members will withdraw part of their pensions at a defined point. This will be the best way NAPSA, through its fund manager, can determine how to march its liabilities with investment maturities. As things stand now, NAPSA knows a member who joins the scheme at age 25 will not withdraw the money until after 30 years. As such it will invest the money in a long maturing asset so that by the time the employee retires, the investment would have matured as well. I am not sure how NAPSA will work it out with the option. I guess its all worked out and am interested to access the information.
SELF ACTUALIZED INVESTMENTS BY MEMBERS
The celebration coming out of this amendment by members of the public points to one thing: Zambia’s workers believe investing money with NAPSA is a huge opportunity cost. They would rather get their money early, engage in enterprise and actualize their financial dreams on their own. The workers are saying they are better investors than NAPSA. If they can withdraw a K50,000 early, while they are still energetic, they can put up a small lodge in Sesheke and earn a regular income for next 50 years.
There are of course many temptations to accessing money before you are ready for it. However, as I have read through the various comments, the scheme contributors are saying dynamics in the Zambian economy have changed: people are now well educated about making quality investment decisions and with uncertainty regarding inflation, they are better off accessing the money now and make own decisions about where to invest it.
NAPSA CAN WIN THROUGH COMPETITIVE RETURNS
Amending the Act only provides for an option. It is not a must that individuals should access part of their contributions before retirement. Some will not withdraw a penny of their contributions. It means the ball to remain competitive is in the court of NAPSA. NAPSA must change its investment strategy to seek to offer better returns on investment.
NAPSA will now have to convince its members that it offers better than what people would gain if they withdrew part of their contributions and invested the funds on their own. In other words, the new Act is a serious work up call to NAPSA. It will no longer rely on the provisions of the law to invest people’s money the way it wishes. The workers have now been given a voice, that if they are not happy with how NAPSA is managing the money, they have an option to withdraw part of their contributions.