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ISSUE: q107
04/03/07
By Chileshe M. Chilufya
Pensions provide a number of broad economic benefits: reducing the cost of social security by encouraging long-term savings, and mitigating the effects of social dislocation such as political and labour unrest and the imbalance in the distribution of wealth.
A pension guarantees the provision of a decent standard of living for people in retirement and also provides a capital base for industries and government activities.
Currently in Zambian there are several types of pensions on offer: personal pensions, group occupational pensions and public pensions.
Regulation of these pensions is varied, as there are several statutes that have been put in place to regulate and ensure that benefits are secured and guaranteed.
However, in the spirit of best practice there is a need to harmonise various pieces of legislation such as the Pension Scheme Regulation Act, the Public Sector Pension Scheme Act and the NAPSA Act.
More so, the subject of pensions must be separated from the subject of social security management using a cross sectoral approach so that inter- and intra- sectoral mobility of labour and benefits will be enhanced.
A viable pension scheme is that which provides benefit to its members when due, according to the rules of the scheme. If this guarantee is taken out of pensions it stops being viable. Hence, we have a lot of pension schemes today that are not viable. The implication of this is that the fiscal health of government and that of beneficiaries is threatened. This is a global problem but the underlying reasons vary from place to place.
These issues are financial, legal, political, demographic and management related. Whichever of these problems are prevailing will dictate the solution to be adopted in terms of structural or parametric reforms.
The issues involved in the management of pension schemes are the factors affecting long-term investment of the pension fund to ensure its viability. In other words, how do we ensure a fully funded scheme with a reasonable level of contribution without compromising benefit over a long time horizon?
To every benefit there is a cost. This cost must be reasonably determinable over the long-term compared to the benefit it is hoping to provide. Apart from the whims of politics, the issues are basically macroeconomic and microeconomic. The macro issues affect the big picture i.e. monetary/fiscal policies, while the micro issues affect the smaller picture i.e. savings. Importantly, it is the working together of these factors that is more important in the way management of pension schemes is impacted.
Date: q107
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