MASERU
On 10 May 2024, from 10:00am to 12:30pm, an intriguing symposium that was sponsored by Metropolitan Lesotho in collaboration with the National University of Lesotho and the National University of Limpopo took place in the form of a webinar. This virtual gathering was one of many that have been designed to address various issues pertaining to financial services and how they operate. The 7th discussion was themed: Pension Funds in the SADC region- Contemporary issues. Experts were invited to form part of the panel and to deliberate on these matters. On the panel was Professor Mtendeweka Mhango (moderator), Miss Dineo Makati-Mpho (Botswana representative), Mr. Naleen Jeram (South Africa representative) and Miss Relebohile Seshemane-Kalake (Lesotho representative).
The primary objective of the retirements funds from inception is to provide an individual with benefits upon retirement or in the unfortunate occurrence of death. Additively, Mr. Jeram contributed that of late, retirements can be accessed when members withdraw or when spouses divorce each other, and this is dependent on different countries’ legislations. He suggested that the prime purpose of a retirement fund has been watered down and maintained that regardless of this, such deductions may be allowed according to each country’s legislation.
In other countries, there are multiple instances in which the retirement fund can deduct, however, Lesotho is only confined to four (4) instances according to Section 33 of the Pension Funds Act which are:
- Maintenance order for dependents
- Housing loan by the pension fund
- Housing loan guarantee by the employer
- Compensation to employer for misconduct by employee (damages)
Should these instances be increased or decreased?
Miss Relebohile stated that careful consideration should be taken into the purpose of the fund when looking at deductions that should be permissible. She said that looking at the economy of Lesotho and its financial constraints, she could advocate that they be decreased for instance, having to compensate an employer as an employee for misconduct. She says that deductions should always be aligned to the pension fund. Miss Dineo spoke on the matter to say legislation has changed in Botswana regarding a retiree having to spend their pension money on rent or mortgage.
She stressed the importance of not losing sight of the purpose of not losing sight of pension which is preservation- for old age or for dependents in the event of death. In most cases, people look to the government in their old age and cannot work for themselves to assist them with money and the government chooses to provide that assistance as early as when they are still working hence the micromanagement of funds by the government.
Are reasons for restricting access of funds clear enough for members to understand?
Mr. Jeram said he believes that most if not all members do fully understand the reasons but as humans, they will always seek for a way out, in other words, they will always look for means to employ to access these funds. Empirically, he said he believes that it is just a minority that will challenge the system, but the majority understands. Miss Relebohile said that in the context of Lesotho, there is not enough education which explains why the funds cannot just be accessed at a given point in time except for the designated time. She added that there must be an in-depth understanding which is difficult to put across because of lack of interest in retirement fund matters. Another point she made was that financial circumstances tend to push people to resort to alternatives that may enable them to access those funds.
She also reiterated that education that showcases the complexities of accessing funds before time is also vital. According to Miss Dineo, the 2023 Court of Appeal states that in Botswana, you cannot access funds early. The law does not agree for unaccrued funds to be accessed. She says that relatively, people value and take pride in having a pension which makes them somewhat disciplined. She said the law required those that earn P 5000 per annum to purchase annuity, but this has since been increased to P 20 000 per annum. Due to appreciation of the legislation, those earning 20 000 p/a have not been recorded requesting for early access to funds but those caught in the transition (P 5000 p/a before the change was made) are the ones who make these requests.
When spouses divorce each other, a member cannot access benefits immediately in Botswana, but in South Africa this is permitted and it seems that many prefer it this way because in some cases, others stage a divorce only to access these funds then get back together afterwards. Mr. Jeram shared that all marriages apart from an ‘out of community’ contract allows pension sharing. The understanding is that pension is an asset, and it should be shared as such even though it is not accrued.
Which model of death benefits is mostly preferred, which assists social security?
Regarding death benefits, there are two models that can be used. The first one being that which is followed by South Africa which states that the decision about who the funds are administered to is left to the trustees of the fund, they are given the leverage to do as they see fit. The second one is used in Lesotho, Section 34 of the Pension Fund Act says, “a fund shall require a member to fill out a death benefit nomination form detailing the nominated beneficiaries in the event of the death of the member and on an annual basis, request the members to update the death benefit nomination form. Where a member fails to update the death benefit nomination form as required, the most recent benefit nomination form will be used the event of the death of a member.” Miss Relebohile added that the Act has its deficiencies, but it can be improved.
On the other hand, Botswana is on the fence in terms of these two models. Section 29 of the Retirement Funds Regulation, 2016 states the following,” (1) Subject to sub regulation, a fund shall require its members to complete beneficiary nomination forms on entry to the fund, when the member’s dependents change, or when the member changes his or her desired distribution amongst dependents. (2) The member shall identify, on the beneficiary nomination form, each dependent and any desired beneficiaries who are not dependents whom the member wishes to receive a proportion of any lump sum death benefit payable and shall state what proportion of any lump sum death benefit should be awarded to each dependent or beneficiary, and the member may give reasons as to why that particular distribution is his or her preferred distribution. (3) If the board is satisfied that there are no dependents other than those stated on the most beneficiary nomination form and that the member’s desired distribution amongst beneficiaries is reasonable, the board may accept the direction given by the beneficiary nomination form.” Both Lesotho and Botswana shared the same sentiments about people not filling in the beneficiary nomination form which becomes a challenge when the member is no more.
A question was posed as to gain clarity on what the law says about informal workers. How are people with irregular income catered for? Mr. Jarem responded saying that it is quite evident that there are other people who are not conversant with issues of pension and that currently, the South African legislation does not cater for them however, ways are being thought of, to bring them into the net.
In their closing remarks, Miss Dineo said that the interaction enabled each of them to gain insight and will assist in improvement from one jurisdiction to another. She compelled employers to participate more fervently, and they should take the lead. Overall, she said that employers are the ones who know their employees and that the fund only interacts with contributions. Miss Relebohile emphasized the importance of teaching about the founding principle and understanding the purpose of the retirement fund. She said that even when new ways are implemented, it is highly imperative to go back and refer to why the fund was initiated in the first place and to learn from other countries. Mr. Jeram’s final words were that the best way to bring about change is to check where the jurisdiction has gone right or wrong. He said that pension fund does not exist in a vacuum, and he advised that it should be mandatory to complete a beneficiary nomination form to avoid having issues at the end.
