South Africa: Radical Measures Set to Overhaul Pension Funds

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South Africa: Radical Measures Set to Overhaul Pension Funds

By Pocyline Kung'u, AllAfrica.com

June 13, 2003

Nairobi - In a bid to reverse the near-fatal decline in the pension funds industry, Finance Minister David Mwiraria proposed radical changes intended to restore activity in the sector.

He proposed to increase investment opportunities for small schemes with fund values below Sh5 million to allow such schemes to invest up to 100 per cent in Government securities.

Acknowledging the need for increased domestic savings, the minister recommended to increase the maximum ceiling per contributor from Sh4,000 to Sh20,000.

For the security of employee benefits at a time when a company becomes insolvent, the minister proposed to amend Section 331 of the Companies Act to give priority to unpaid retirement benefits contributions as is currently given to accrued but unpaid wages and salaries.

To protect contributors' earned benefits, he proposed to reduce the vesting period for employer contributions from five years to three years of commencing and pensionable service.

In addition, Mwiraria proposed to remove the requirement for defined contribution schemes to undertake actuarial valuations every five years.

However, the Retirement Benefits Authority (RBA), will continue to monitor returns on investments to ensure scheme funds grow at reasonable rates.

Several amendments to the Insurance Act were made to reduce the cost of compliance and to strengthen the regularly capacity of the Insurance commission.

He shortened the period for preparation and submission of audited accounts from six to four months in order to harmonise the accounting period with the rest of the financial sector.