Pension funds plunder!
Expert calls for transparent

In the wake of recent scandals alleging misuse of pension fund moneys in South Africa, retirement fund administrators have been asked questions concerning the ethical administration of pension fund investments in Namibia.

According to Tilman Friedrich, the Managing Director of Retirement Fund Solutions, although the administration of pension funds is governed by a sizeable body of legislation, either enacted post-Independence or following South African precedent, pension fund investors and administrators should be aware of practices such as bulking of investment funds, bulking of capital for pension funds, and the potential for raiding of surpluses, biased advice given in the financial interest of the advisor, and other examples of maladministration that can result.

Tilman Friedrich, the Managing Director of Retirement Fund Solutions.

“All of these practices can be addressed through existing legislation, regulatory bodies such as NAMFISA, and the principles of common law, however the key players in bringing these problems to light and resolving them are the pension fund investor and administrator,” Friedrich says. He adds, “The key issue at stake here is the fact that investors and administrators must be fully aware of the decisions being taken on the investment and how the funds are being managed. In this regard, it is vital that the contractual aspects of the fund investment must be transparent, accounting practices and administration must be flawless, and reporting on the status of funds must be on a regular basis, never unduly postponed.

“Although any investment contains elements of risk and cost, the risk can be reduced by understanding of the circumstances surrounding it. The choice of an investment should not only be guided by returns within the risk profile, but also by the ability to manage risk with relevant communication and a clear understanding of the costs. If the pension fund administration company does not communicate regularly, there is obviously an additional, unwanted element of potential risk.” According to Friedrich, pension fund investors and administrators, who place their retirement interests in the hands of third parties, should also take into account independent audits and actuarial reporting in selection of pension fund administration companies. The use of independent parties and their opinions is vital to the security of investors as it will flag dubious practices and administration.

“Although transparency will not remove the risk of temptation on the part of unprincipled individuals or alleviate the pressures posed by corporate revenue targets, particularly in the case of listed companies whose shareholders expect the miracle of rising growth and profits in perpetuity with limited recognition of local realities, it will act as a warning mechanism to investors and administrators, and remove a large part of the potential risk of plundering of pension fund investments,” Friedrich concludes.