Why You Don’t Need The Stress of Trying to Handle Your Own Pension Situation
It’s the time of year when you’re involved in strategic planning and one consideration you have on your checklist of compensation or remuneration packages. Nowadays employees are looking for more within what you are offering them, and that is some form of security by way of a pension. Attracting and keeping quality staff without it is quite near impossible. But are you really up for the task of setting up your own company pension fund?
A pension can be defined as a fund into which a sum of money is paid during an employee’s time of service. However, do bear in mind to not confuse a pension with a severance package. The two are worlds apart; Payments for a pension are drawn to support the employee at the onset of retirement in the form of annuity payments for the rest of the retiree’s life. A severance package is typically a one-off payment made at the end of employment in circumstances of involuntary termination on the employee’s part.
There are two types of pension schemes available in Zambia, that you offer to employees. These are government and occupational schemes. Government pensions are statutory, and all employers are required by law, to remit contributions on behalf of their employees.
Pension schemes are typically designed in one of three ways;
- defined benefit scheme (DB)
- defined contribution (DC)
- or a mix of the two.
As can be deduced from the names, in a defined benefit scheme, a predetermined formula is used to determine the payable benefits. However, in a defined contribution scheme, the payments are not certain as your contributions are predetermined. It all depends on how much one has accumulated over time. The last one is a combination of the two.
One also needs to be quite conversant with the pieces of legislation that govern the framework of the terminal, retirement and pension benefits in Zambia, such as;
- Pension Scheme Regulation Act Cap. 255, Act No. 28 of 1996 (as amended by Act No. 27 of 2005)
- National Pension Scheme Act Cap. 256,
- Pension (Increases) Act Cap. 258,
- Service Commissions Act Cap. 259,
- Public Service Pensions Act Cap. 260,
- European Officers Pensions Act Cap. 266,
- Widows and Orphans Pension Act Cap 279,
- Non-Designated Expatriate Officers (Retirement Benefits) Act Cap. 280,
- Local Authority Superannuation Fund Cap 284,
- Workers Compensation Act No. 10 of 1999,
- Minimum Wages and Conditions of Employment Act (Cap 276).
- Social Pension Design Unit.
Lastly, registration with the Pensions and Insurance Authority(PIA) is compulsory. Any company that desires to offer fund management services from the 235 registered pension schemes, needs to be registered by the body. The PIA, oversees fund managers of pension schemes, making sure there is strict adherence to the necessary legislation and to their agreements with the trustees of the pension schemes.
Fund managers have the task of finding investment opportunities for the scheme and preserving the accumulated assets; making sure the scheme fulfils its retirement promise to it its members. The fund manager is also responsible for drawing up the framework of how the scheme will operate, including investment policies and expectations.
Upon establishment of the scheme, trustees have to be given actuarial advice concerning their investment. For a certain desired retirement outcome to be realized, a certain investment return has to be achieved in the long term. The PIA and trustees use this target as a monitoring tool to gauge the progress of the fund. This leaves the fund manager with the responsibility of achieving the best return possible for the scheme.
As the fund manager is the key person in all this, he also has to be evaluated quarterly as a short term measure, as well as annually on a cumulative basis. Should the trustees of the fund find the manager wanting, as in not achieving the agreed upon targets, the trustees have two options afforded to them. One is termination of the agreement or dialogue to rectify the situation.
Bearing all this in mind, it really would be advisable to skip all the hassle and let a professional fund manager handle all the details on your behalf. Speak to us today.