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Effectiveness of Pension Fund Management

Effectiveness of Pension Fund Management BY malevolent 1 . 1 Background Pension Is a fixed amount of money paid regularly to somebody during retirement by the government, a former employer, or an Insurance company. Pension plans vary from self-directed plans such as individual retirement accounts (Iris), to union sponsored defined benefit plans. The mall purpose of a pension scheme as explained by Palpation, P. And Letups, D. (2004) Is to provide a certain level of income replacement at retirement. The objective of pension financing is to allocate, in an orderly and rational manner, the cost of providing these pensions.

It is necessary to determine at which pace the resources will be raised over the years (the financing system) and how the annual financial burden will be shared among the financiers of the scheme. According to the International Social Security Association ( October, 2011), public perceptions of whether a contributory social security organization is efficient, effective, trustworthy and legitimate -and thus sustainable – will be to an important degree a measure of how well It Is seen to govern contribution collection and compliance processes.

Most pension schemes In Zambia such as the National Pension Scheme Authority (NAPS) administer a defined benefit scheme under

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the provisions of the National Pension Scheme Act Number 40 of 1996. NAPS Implements polices relating to the National Pension Scheme (NAPS) as well as controls and administers the operations of the Scheme. Jeffrey R. Brown and others (2010), emphasizes that by nearly any measure, state and local pension plans are important in an economy.

Because the responsibility for funding these schemes lies with the sponsoring government, even taxpayers that are not employed in the public sector have a stake in how these pension funds are managed. Finances play an important, if not pivotal, role in a healthy retirement. Managing money, knowing where one stands financially, forecasting needs for the lifestyle of choice, are all necessary activities to leading a fulfilling happy retirement. Until the basic needs of life are met, the greater Joys of socializing, esteem, and fulfillment cannot be achieved.

Knowing how to evaluate one’s worth and forecast future needs Is necessary to achieve the anticipated retirement so frequently cherished. By planning early and managing decisions and actions effectively, an individual can ensure the est. possible retirement (Jean Butters, 2004). The purpose of this study is to assess the effectiveness of the current legislation governing the pension system in Zambia, its efficiency, identifying the causes of the flaws in the pension system and recommend solution based on the findings, and also compare theory with practice in administration of the pension funds. . 2 Problem Statement The overall research problem to be addressed In this study Is to assess the efficiency and effectiveness of the Pension fund Institutions In Zambia In the management of members contributions. 1. 3 Research question Are pension schemes in Zambia profitable to members? 1. 4 Objective of the study In this Study, the objective is as follows: To analyze and assess whether a member’s contribution to a pension scheme in Zambia matches the expected economic return 1. Significance Following the objective of the research given, it will enlighten members of pension schemes to make informed decisions about investment for retirement, it will highlight the current flaws in Pension Fund administration and provide practical solutions; It will highlight the need for efficient and effective communication between he pension scheme manager and respective members, hence promoting transparency. 1. 6 Conceptual framework Occupational pension plans are mandatory in Zambia. Most workers are enrolled as result of their work agreement.

Contributions made to pension schemes by the members are a major source of liquid resource on the financial markets. Most retirees in Zambia solely depend on pension for sustenance. The key words are: pension scheme management, pension funds investment and returns, Computation of pension packages, regulatory framework, sustainability, reliability, and 2. 0. O LITERATURE REVIEW NAPS among other pension schemes in Zambia is viewed by quarters of the society as being too expensive as a basic scheme, the system design may have been good but the implementation is somewhat flawed and is troubled.

OSPF is sufficiently troubled waters and could become insolvent and fail to provide sustainable benefits to members. The Local Authorities Superannuation Fund (LASS) and Compensation Funds have not been receiving sufficient public support as appropriate vehicles for delivery of sustainable social security. Except for NAPS, the other state schemes are to likely to meaningfully contribute to the economic growth, let alone offer sustainable and indexed linked retirement benefits to members.

With limited applicability to NAPS, collectively these public schemes may actually fail the political agenda of providing social security to the formal sector and meaning social security to the wider society (Man Hanta, 2005). This view is also shared by international writes such Clive Bailey (and others) in their world bank report viewed all Samba’s pension schemes as systems that suffer from a series of significant weaknesses reflecting deficiencies in their design, in their administration.

These deficiencies have not only been exposed but aggravated by the economic crisis and the radical measures necessary to face its structural causes. Zambia needs to restructure its social protection system to correspond to, and complement, its new economic strategy (Clive Bailey, Monika Queasier and John Wood, 1997). The packaging of benefits for pension fund contributors is what mostly create problems.

Oral Cough (2009), highlighted that Occupational pensions comprise an important element of the nineteenth and early twentieth centuries employers set up and continued to provide occupational pension schemes in various forms to retain their employees. Philip Booth (2002), while analyzing the techniques on real estate data to take pension-plan asset-allocation decisions, he stated that Portfolio decisions are, of course, taken on the basis of ex-ante expectations and not ex-post values of the mean and standard deviation of returns.

It is therefore reasonable to ask, before proceeding to determine efficient portfolios, whether the asset -return statistics would form a reasonable basis for expectations. Many researches have concluded that the goals of a national ensign system are to assure secure and adequate incomes to workers whose earnings have been reduced as a result of invalidity or old age, and to assure adequate incomes to the surviving dependents of deceased workers.

The International Social Security Association (ASSAI), in its 2010 advisory report stated that these goals of a pension scheme must be achieved while ensuring mid- and long- term financial sustainability of the benefit programs. The ultimate objective of social security systems is to honor benefits when they are due, this means, first of all, being financially sustainable. Pierre Palpation and Denis Ultimate in their paper entitled “Optimal funding of pension scheme” (2004) stressed also that the main purpose of a pension scheme is to provide a certain level of income replacement at retirement.

The objective of pension financing is to allocate, in an orderly and rational manner, the cost of providing these pensions. It is necessary to determine at which pace the resources will be raised over the years (financing system) and how the annual financial burden will be shared among the financiers of the scheme. Gary Burblers (2009), states that Economists emphasize that these goals should be achieved wrought programs that are affordable and that the programs should not interfere with the goal of the maintaining adequate national saving.

He also pointed out that the buildup of funds in individual retirement accounts can boost private and national saving. For most workers the relationship between contributions and ultimate retirement benefits is much more transparent in the case of individually owned investment accounts than it is in traditional public pension system. The effectiveness of management of organizations tasked with the management of Pension Fund attracts a lot of questions.

In Zambia, most employees contribute to the National Pensions Superannuation Authority which is government controlled, this organization is one of the major sources of funds for capital projects for both private companies and government. Mukluk,G. Asher (2006), outlined the importance of effective pension management. He gave an example of India where the Life Insurance Corporation of India (LICE) had been managing a plan that invests all the monies received from various employee retirement benefit funds into a pooled fund, of which 95 per cent are invested in government securities and bonds and 5 per cent in equities.

However, Self-Managed Trust funds are governed by the restrictive investment guidelines, which limit the earning potential of those funds. Rowdy Mimicking (1996) stresses as well by illustrating the importance of the primary pillar of the Malaysian ‘Pension’ System, the Employees’ Provident Fund, its noted that they have a dual role of as provider of basic social security to significant proportion of the Malaysian population and as a source of long-term investment funds for state-led initiatives. Introduction 3. 1 The research design to be used is the exploratory type.

A mixed-method approach ill be employed in the collection and analysis of data, which will involve both quantitative and qualitative data collection techniques. 3. 2 Data collection Method The research will use secondary data which will be obtained from various sources such as the internet, Text Books and publications made both locally and abroad. Primary Data will be used as well. It will involve interviews and the usage of questionnaires that will be issued to both selected individuals and institutions, With a view to identifying reform needs in the governance or administration of pension fund and its regulatory structures. 3.

Quantitative Technique Quantitative techniques such as Ratio Analysis, investment appraisal will be employed gathering quantitative data that will be used to compare pension funds in Zambia to total assets under management, asset allocation and analysis of data reported by pension funds and investment returns. This will include the usage of Computer packages such as Excel, SPAS. The main sources of quantitative data will include the following: * Zambia Congress of Trade Union * Ministry of Home affairs * National Pensions Authority * Pension scheme providers such as NAPS, LASTS, African Life Assurance Central statistics office

Pension Schemes will include the following: * National Pension Scheme Authority ( NAPS) * Local Authorities Superannuation Fund (USAF) * Mukluk Pension Trustees Ltd * African Life Financial Services Zambia Ltd Pensions and Insurance Authority ( PIP) * Office of the Registrar The World Bank Website * Data and Research * Financial Sector Development Department * Policy Research Department Ministry of Finance and National Planning Ministry of Labor and Social Security. Zambia Association of Pension Fund Managers International Social Security Association (ASSAI).

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