When Namibia became independent, Namibia took over the South African laws applicable to Namibia at the time. One of these laws was the Pension Funds Act, and South African pension fund management practices also continued, based on the same laws.
For longer than I care to remember, South African and Namibian funds offered death- and disability benefits. In most cases, insurance companies did and still reinsure these benefits. Rules would refer to the fact that these benefits are reinsured and are subject to the insurer’s terms and conditions, limitations, and exclusions. Except for the GIPF, funds in Namibia are too small to carry any death or disability risk. In a pure defined contribution fund, the fund would not have any reserves to absorb any difference between the benefit it has to pay and the insurance recovery. Namibian funds may still maintain a reserve for such purposes, but FIMA prohibits defined contribution funds to maintain a risk reserve. South African defined contribution funds are not allowed to carry such reserve.
In 20017 NAMFISA issued circular PI/PF/Cir/01/2017. This circular served to advise funds that no Board of Trustees is permitted to abdicate any of its powers, duties, or responsibilities... in the process of outsourcing certain functions to service providers... The Boards of all Funds are further advised that they will be held fully responsible for action taken by a service provider or other person on behalf of the Fund.”
Since the beginning of this year, NAMFISA no longer accepts any reference to the fund’s insurance policy. All-of-a-sudden it requires full disclosure of the insurers’ terms and conditions, restrictions, and exclusions, arguing that a general reference to the insurance policy is an abdication of the board’s powers and that the trustees must take all decisions regarding death benefits. This requirement derives from NAMFISA circular PI/PF/Cir/01/2017 that it issued nearly five years ago!
NAMFISA also quotes section 11(d) of the PFA. Section 11 (matters the rules must include) states the following in subsection (d): “the conditions under which any member or other person may become entitled to any benefit and the nature and extent of any such benefit;” Therefore, according to NAMFISA, rules must reflect all terms and conditions, limitations and exclusions. NAMFISA goes further and effectively outlaws the exclusion of causes relating to civil commotion, strikes, and labour unrest, arguing that these are the member’s constitutional rights. Whether NAMFISA will apply the same logic to insurance companies is not known yet. NAMFISA now acts as custodian of any law in the Republic of Namibia, including its constitution. It extends its reach even further. It argues that any reference in the rules to an insurance policy means that the fund is undertaking insurance business. It supposedly contravenes section 10 of the PFA. That section allows funds to only carry on pension fund business, as defined in the PFA.
Effectively from one day to the next, pension funds are now accused of doing business illegally. For the past eight months, NAMFISA has been declining many, if not most, applications to register rule amendments and rules. Many funds are paralysed, very often to the detriment of the member.
In practice, funds cannot mirror all the insurance company's terms and conditions, limitations, and exclusions in the fund’s rules. When assessing any claim, insurers must apply their expertise and exercise discretion, and anyone questioning the insurer can refer the matter to court. Consider COVID-19, which was declared a pandemic. We know that such pandemics occur infrequently. Insurers suffered severe losses from this pandemic. They will not have taken a pandemic into account when they set their premiums. It also does not make sense to price in occurrences that happen rarely. The insurer would rather exclude such surprises in the future. How is pandemic defined so that rules can include this term? International conventions may have defined this term, but there will be many other terms for which no convention exists. The question then is whether the insurer applied reason in its interpretation of a term.
If a fund is large enough, it can self-insure life events. Else, it must purchase insurance coverage from an insurer. Whether large or small, any fund can only carry an element of risk through building up a reserve. Building up a reserve implies cross-subsidisation between member generations and is not fair to those members that do not benefit from the reserve while others are benefiting from the reserve. Any risk beyond what the fund effectively self-insures, the fund must place with an insurance company. The trustees are grossly negligent if the fund does not insure the excess risk and can end up in jail under FIMA. The moment a fund purchases insurance for excess risk from an insurance company, it must ensure that no further liability can arise. It must ensure that it does not offer a benefit that the insurer does not cover. The fund must then insert a copy of the policy in the rules or ensure that the rules generally refer to the policy. From a user’s perspective, there is little difference between these two alternatives. It’s a question of studying the insurance policy addendum of the rules or studying the separate policy. Most members are not affected by the terms of the risk cover and would not want a set of rules containing a copy of each insurance policy.
On the contrary, no member would have the courage to study rules comprising of hundreds of pages. Pension funds do not attempt to satisfy the needs of each member but are group arrangements aimed at satisfying the needs of a majority of members at an affordable cost.
The retirement funds industry is facing a serious challenge since the beginning of the year. It is as if the government introduced a new law, although nothing actually changed. NAMFISA’s interpretation of 50-year-old sections of the PFA is now causing havoc in the pensions industry. Unfortunately, the current state of affairs is suffocating the industry without benefitting the member. It is causing frustration, undue delays, and additional, unproductive work for NAMFISA and the industry.
NAMFISA should first consult the industry and consider its inputs before instituting new requirements or issuing a circular to avoid such situations. If these inputs conflict with NAMFISA’s views, NAMFISA should obtain a legal opinion on its submissions and the submissions made by the industry. The legal opinion should then become the basis for a circular. Before officially issuing the circular, NAMFISA should obtain industry inputs on a reasonable time frame to implement any changes the circular will require. Finally, NAMFISA should issue an official circular to the industry.
Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.