| "IS IT PENSION FUND SCAM?" |
| Written by Chibamba Kanyama |
| Friday, 03 July 2009 03:25 |
Additional Commentary
Since most funds are now on the defined contribution schemes, it has become very clear that this scheme is never mitigated against inflation as contributors to the pension funds (employers and employees) will entirely depend on the fiduciary role of pension fund managers to protect their assets. Unfortunately, this has not been the case and many employees will see it as a scam. They will not understand why the risks associated with the investments will be borne by the pensioners when the fund managers should have taken prudent investment decisions as well as asset-protection measures; including exit fund guarantees. We must know that the pensioners never made the investment decisions. The fund managers decided the investment assets. Compliance to pension fund management requires that fund managers adhere to principles of effective and efficient risk diversification measures through an optimal investment-mix policy. In other words, investment managers should never invest more than 30 percent of the funds in any single portfolio; especially in a highly volatile economy. What this means now is that the fiduciary role of pension funds has been highly compromised and pensioners will be hit hard. In any case, the executives in the pension funds are receiving full compensation based on the same funds that have eroded. The charging system for pension funds allows for protection of the investment so that pension funds still maintain an incentive to be rewarded on the basis of how they grow the fund. My suggestion is that pensioners retiring now must be given their full values including cumulated bonuses over the years without any discounting based on the current market rate of return. If there are any losses, let these be born by the fund itself and not individual pensioners. This is because over a period of time, the fund will still grow and make up for the previous losses. And in the interest of good governance, the Pensions and Insurance Authority should compel all pension funds to publish the financial reports for the previous year and last quarter immediately. Chibamba Kanyama |
