GiPF's sustainability and investment strategy
AFTER nearly four months at the helm of the largest pension fund in the country, CEO and principal officer of the Government Institutions Pension Fund (GIPF) Martin Inkumbi (MI) recently sat down with New Era for a comprehensive analysis of the fund.
During the one-on-one interview with New Era's head of business, Edgar Brandt(EB), the new head of the GIPF talked in-depth about the state of the fund, its sustainability and investment strategy, as well as the impact of impending legislation for the financial services sector.
Inkumbi's appointment at GIPF was effected on 15 January 2024, taking over from seasoned veteran David Nuyoma. Inkumbi and Nuyoma accepted the coveted GIPF position after leading the Development Bank of Namibia.
EB: Tell us about the image of the GIPF you had before joining this institution, and how that image has changed now that you are in the mix of things.
MI: Thank you for the opportunity to talk to you. I must say, one of the things that came to me is that when I was outside GIPF, especially us coming from the financial sector when we look at GIPF, we see this big pot of money. After all, GIPF has one of the biggest balance sheets in the country, close to N$165 billion.
So many times, the view is, how could this money be invested and managed, and how can it impact the Namibian economy? I think, very often, the liability part of GIPF is not talked about, but when you come inside, you realise investments must be properly balanced. Investments must be properly managed to cater for the future needs of members.
EB: Is it sustainable for the GIPF to continue disbursing postretirement benefits in the short-, medium- and long-term?
MI: Yes, obviously, we mostly have postretirement benefits. But there are also benefits that can be provided before retirement, for example, ill-health or death. In terms of sustainability, this is the centre of the GIPF's business. We always need to understand and estimate the future liability of the fund. Obviously, we are assisted by experts such as actuaries, who value and estimate the future liabilities of the fund, and compare that to the assets, which is the money we have invested across the globe. These experts measure whether those funds are enough to meet future liabilities.
Currently, GIPF is well-funded at 115%. It is advised that a well-funded pension fund should have a funding level of between 105% and 115%. This means GIPF is at the higher end of this threshold, and it is in quite a strong position to meet future liabilities. The challenge now is that we need to continue making sound investments to protect our assets.
EB: In terms of sound investments, where does GIPF invest most of its assets? Is it locally or internationally?
MI: Well, it is very close to 50%. The fund has about 50% invested locally, mainly in listed assets, such as bonds and dual-listed assets. Also, we invest in government bonds and commercial papers. These comprise our domestic investments and the rest, the other
50%, is invested globally.
EB: Does GIPF make direct investments, or do you work through third parties such as asset managers?
MI: The fund always works through investment and asset managers. Firstly, we start with an investment strategy that is informed by future liabilities. This guides us in terms of the type of assets we should invest in for a desirable return. Then we identify selected assets through pre-selected asset managers.
EB: I think asset management is one of the most crucial aspects of any fund. So, in terms of the local capacity of fund and asset managers, what can GIPF and other market players do to further boost capacity in this specific sector?
MI: I think there's always room for improvement. But I think, to be inclusive, it's also very important to bring in asset managers from universities and colleges. GIPF has started with this programme and it is ongoing, which is working very well. I think towards the end of this year, we will do an evaluation of our Incubation Programme to determine the future of this initiative.
EB: Let’s quickly talk about the structure of GIPF. Right now, the fund is listed as a defined benefit fund. This is in contrast to similar entities that are defined contribution funds. Can you maybe briefly explain to us what the difference is between those two classifications, and which one holds more risk for GIPF?
MI: As you correctly mentioned, the GIPF is a defined benefit fund, meaning members' postretirement benefits are pre-determined and guaranteed, informed by a number of variables. This includes the number of years a person is a member of the fund, and the salary level the person was earning. Those are some of the variables that determine GIPF benefits, which are guaranteed for life. That is the main difference between a defined benefit and a defined contribution fund.
Also, a defined contribution fund means a member is entitled to what they have contributed to the fund, as well as the returns generated from this contribution.
The defined contribution fund probably poses a lower risk. While, in a defined benefit fund, which is the case of GIPF, there is a guarantee that a member will receive a specific amount until the end of their life.
EB: GIPF recently held a responsible investment symposium. Tell us about the outcome of that symposium, and perhaps how important it is for GIPF’s investments to be made responsibly.
MI: It is very important to GIPF. The fund has taken the position of being a responsible investor. The fund would like new investments to preserve the environment and to have a positive social impact, and also to be made following good governance practices. The idea is that if you follow such an approach, you will be more likely to have a positive impact on the community and the environment. The symposium was really to align GIPF's vision and expectations with investment and asset managers.
EB: The new FIMA (Financial Institutions and Markets Bill) regulations have been a bone of contention – both for retirement funds as well as for individuals. One of the major issues is the proposed preservation clause. What is GIPF’s view on the proposed legislation, specifically the preservation clause?
MI: There is always a misperception that the FIMA bill is a GIPF initiative. I want to make it clear that it is not. It is a law being crafted that will hopefully be effective in the near future. GIPF is merely one of the entities that will need to adhere to the new law.
Yes, there is an issue around the preservation clause that stipulates a limitation on how much a person can withdraw from their pension before retirement, for example when they change jobs. FIMA proposes that members preserve their pension to keep it for retirement.
There are those who are adamant it is their choice, and believe they can make better use of the funds. However, we have seen many Namibians who, after retirement, find it very difficult to make ends meet. My personal view is that it is better to preserve your savings until such a time that you need it at retirement age.
EB: How do GIPF’s benefits compare to similar products in the market?
MI: It is my view that GIPF benefits compare quite favourably to similar market products. We just recently announced a 5% inflationary adjustment for our annuitants – and overall, the fund's benefits are quite competitive.
EB: How does the process work if GIPF members want to use some of their funds to either build a home, or to make alterations to an existing structure? MI: My predecessor, before he left, announced a home loan scheme. Most of the background on this has already been done. This is one of the benefits for GIPF members to access part of their funds to renovate or build – even in an unproclaimed area. There will be a third party or a few third parties for this programme.
EB: In terms of a growth forecast, where do you see the fund moving in the near future?
MI: I expect there to be steady asset growth in line with the market. But, in terms of membership in the fund, we do not expect much growth. We have seen over the last few years that the number of public servants is not growing significantly.