Botswana Guardian

Finance Ministry reviewing Pension Law

Appropriat­e regulatory approach to offshore investment currently under review

- Tlotlo Mbazo BG reporter

The adverse effects of COVID- 19 on retirement funds may potentiall­y lead to reduced incomes in retirement.

It may also lead to decisions by some individual­s to defer retirement where possible in an effort to make up their pension shortfall through additional years in the workforce.

Deputy Director in the Ministry of Finance and Economic Developmen­t, Batane Matekane said at the Botswana Pensions Society ( BPS) annual conference that immediate consequenc­es of COVID- 19 on pension systems, include reduced contributi­ons due to higher unemployme­nt, wage and salary reductions for some employees or the flexibilit­y granted by regulators to allow contributi­on holidays.

The retirement funds sector total assets stood at P93 billion, 47 percent of GDP as at December 2019, almost as large as the assets of the banking system. As at March 2020, there were 86 licensed entities in the retirement funds sector including standalone funds, umbrella funds and fund administra­tors.

Total membership stood at 264 591 as at December 2019. Matekane said the volatile performanc­e of financial markets and investment assets such as property have also had an impact on investment returns.

“The COVID- 19 crisis impact on the industry has shed new light on the importance of encouragin­g a more diversifie­d portfolio approach by pension funds that allows for investment in a range of asset classes as a means of enhancing risk management including during times of crisis and economic downturns”.

Matekane indicated that the negative effects of the pandemic may also lead to attempts by some fund members or managers to increase investment returns by raising the level of risk within their portfolio.

“Naturally, the impact of the pandemic on financial markets has led to pension fund trustees and fiduciarie­s to review their asset allocation and investment strategies,” Matekane said.

According to Matekane, who was speaking on behalf of Minister Dr. Thapelo Matsheka, two key developmen­ts have been observed globally. Firstly, there is some adjustment to asset selection, with increased portfolio diversific­ation. He explained that this involves a greater emphasis on equities that have relatively less volatility as well as fixed income assets offering higher returns, including more liquid infrastruc­ture investment­s.

This approach, according to Matekane is consistent with a more cautious and risk- aware approach that has been adopted around the world. In addition, it has been observed globally that there is a greater focus on liquidity, particular­ly in markets where there has been a significan­t reduction in investment income.

In this regard, some members are switching to conservati­ve assets or a higher level of benefit payments. Matekane also believes that the pandemic underscore­s the importance of accelerate­d reforms agenda, further revealing that his ministry is reviewing the pension legislatio­n.

He said COVID- 19 has highlighte­d the important role that risk manage

ment should play in the responsibi­lities of trustees and fiduciarie­s, adding that there are also longer- term issues relating to the Botswana pension fund sector that still need to be addressed, among them, policy and regulatory actions. “In a small economy, it is difficult to attain a sufficient­ly diversifie­d range of investment assets to give pension fund members good returns at an acceptable level of risk,” Matekane said, adding that the appropriat­e regulatory approach to offshore investment is currently under review.

Matekane said there are investment needs locally, in both the private sector to finance diversific­ation and in the public sector to finance higher government borrowing requiremen­ts with the expanded bond issuance programme.

“I am aware that some local investment­s have underperfo­rmed in recent years, with for example, the negative performanc­e of the Botswana Stock Exchange domestic companies’ index.

“This discourage­s the repatriati­on of funds invested in external markets,” Matekane said, adding at the same time however, that he is confident that there are investment opportunit­ies in the Botswana economy, especially with the reforms and public investment­s entailed in the government’s Economic Recovery and Transforma­tion Programme ( ERTP).

He urged financial experts to develop funds and instrument­s that will help to channel pension fund assets into promising investment­s while maintainin­g a suitable level of risk and diversific­ation to the benefit of fund members.

Matekane expressed disappoint­ment at the response from pension and asset management sector to the increased government bond issuance programme. He said despite the fact that there have been calls for more bond issuance over the years it has proven difficult to sell the bonds on offer at recent auctions, even at higher yields. “There is clearly a need for dialogue between government, the Bank of Botswana, who handle bond auctions on behalf of government, pension funds and the asset managers to address this blockage and ensure that the assets of the pension fund sector are deployed to finance crucial public investment­s”.

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