Government Institutions Pension Fund (GIPF)’s CEO Martin Inkumbi sat down with Observer Money on a wide range of issues regarding the operations of the biggest pension fund in the country. He talked about the GIPF’s investments, the proposed FIMA Bill and the future stability of the fund. Inkumbi was appointed as Chief Executive Officer of the GIPF effective 15 January 2024.
Observer Money (OM): The fund is in a healthy state at the moment, going forward what are some of the negative factors that may affect the performance of the fund?
Martin Inkumbi (MI): In terms of geopolitical and economic events, the fund has investments in all major economies, domestically, regionally, and globally. Consequently, the performance of the global economy significantly impacts the fund’s ability to achieve its asset growth targets. We manage these factors by adopting a dynamic approach, including investment diversification, proactive adjustments to the strategic asset allocation model when required, and effective risk management strategies. The GIPF is a long-term investor and hence take a long term view with its investment positions.
When it comes to interest rates and inflation, lower interest rates increase pension liabilities, while inflation erodes the actual value of benefits and remains the biggest actuarial and investment risk to the fund. Fluctuations in investment returns and market volatility influence the fund’s ability to cover liabilities and maintain stable funding levels. That is the case indeed and our main preoccupation is to keep the fund fully funded.
The strategic asset allocation of the fund remains responsive to the global economic and financial markets, demonstrating tactical agility and efficiency. It adapts to changing conditions, proactively seizing opportunities, and optimises resource allocation to ensure flexibility and sustainable performance.
Looking at regulatory changes, changes in pension regulations impact funding requirements, investment strategies, and benefit structures. The implementation of Financial Institutions and Market Act (FIMA) will impact the fund on many fronts and will increase costs. The fund continues to assess the impacts of this new legislation and has prepared for operational changes. These also includes considering making changes to our policies and the rules of the fund if and where required. We remain committed to comply with regulations.
Employment trends of the participating employers play a central role in the sustainability of the fund. The extent to which the fund is admitting members through public sector employment determines the level of contributions received for benefits payment purposes.
The GIPF actively tracks the contributions/ benefits payment ratio and has put in place a number of mitigating responses to ensure sustainability. The number of active members and they contributions will impact the size of the fund. If the number of active members and their contribution falls, the fund size could decline in the long term, but for as long as the fund remains fully funded, even if its size is smaller, it will still be in a sound position, because it is still able to meet the future pension annuities of its members.
In terms of cybersecurity and cybercrime, information and security breaches can lead to the loss of public confidence, funds, and reputation. There is a risk of unintended disclosure or access to confidential information due to inadequate information security awareness or mechanisms.
The GIPF values the opportunity to safeguard entrusted assets and information by continuously updating its firewalls and end point security. Additionally, the fund utilises this opportunity to conduct ongoing security awareness training and acquire comprehensive cyber security insurance. Lastly, all GIPF employees have signed confidentiality agreements with the fund and we are expected to respect that.
The GIPF has invigorated its investment into digital innovation and transformation to acquire, develop and implement solutions that strengthen the key business areas of the fund. We continue to monitor the adequacy of our IT systems and upgrade them where necessary, to keep up with technological advancement, improve security and services to our members.
In terms of Environmental, Social, and Governance (ESG) performance, stakeholder expectations are gaining prominence, prompting businesses to actively involve themselves with stakeholders, particularly in terms of ESG performance. The COVID-19 pandemic has expedited this demand, mirroring a worldwide focus on sustainable ESG practices. Investment managers are now anticipated to weigh the ESG impact in conjunction with risk and return, propelled by the quest for sustainable returns and the creation of long-term value.
On the issue of longevity risk, increasing life expectancy can lead to higher pension payments, requiring effective risk mitigation strategies. Defined benefit pension funds face heightened longevity risk when assumptions used in estimating future liabilities are inaccurate. The fund ensures the conduct of accurate assessments and easily accessible sensitivity analysis.
OM: 34 years after independence a lot of your members must be retiring now or nearing retirement, is the fund in a position to pay out a large number of pensions and stay sustainable at the same time?
MI: Yes, the fund is well funded. Our recent actuarial valuations indicate a healthy funding level of around 110%, implying that the fund is able to meet its future liabilities and remain sustainable.
OM: Then there is the issue of younger members fearing that the fund will be depleted by the time they retire in 20 to 30 years’ time, what is your comment on this?
MI: GIPF exhibits robust financial performance, strengthening its financial position to N$151.8 billion in the 2022/2023 fiscal year, a 2.6% increase from the previous year. The fund rigorously reviews expected future contributions, asset-liability matching, and contingency reserves, to ensure the fund’s ability to meet long-term obligations. Our primary focus remains on providing peace of mind for our members today and in the future. We eagerly anticipate the next statutory actuarial valuation for the period ending 31 March 2024, which will guide our strategic financial decisions to ensure long-term sustainability.
OM: The government has not employed many workers in the last few years, how has this affected the fund’s ability to recruit new members?
MI: We have seen a positive growth in membership by 460 during the 2023 financial year, contributing to a rise in contributions received of N$146.4 million. We however also saw a significant increase in benefits paid to members. The benefits paid surged from N$5,5 billion in the previous year to reach N$6.9 billion as of 31 March 2023, and the deficit was financed by the positive investment returns. The funding gap is not a concern, provided the deficit is adequately covered by investment returns and the fund remains well funded.
OM: Outside Namibia, South Africa, China does the GIPF plan to diversify its investment portfolio somewhere else?
MI: Yes, investment diversification is one of the fund’s risk management strategy. The fund has exposure to European Property, Developed Market Equities as well as Emerging Market Equities, outside of China.
OM: What further plans do you have in terms of investing in unlisted companies?
MI: There is still a huge opportunity for the tourism, agriculture, renewable energy and now the emerging oil and gas industries. Supporting the expansion and grow of existing business ventures and new ones in these industries can foster economic growth by attracting foreign direct investments and expanding employment opportunities.
OM: How prepared is the GIPF on the outcome regarding the proposed Financial Institutions and Markets Act (FIMA), which mandates that members retain 75% of their minimum withdrawal benefit until they reach 55 years of age? Should it be decided that members can withdraw 100% before reaching the age of 55, what impact will this have on the fund?
MI: GIPF like any other pension fund, waits for a response from the regulator on the preservation clause and FIMA’s other provisions. We will interrogate the new regulations once the regulator has provided a revised act and should there be gaps in our processes, we shall expedite the closing of such gaps. Regarding the issue of preservation, the GIPF has always had preservation as an option for its members who choose to resign or move to another employer who is not a participating employer of the fund. Withdrawal of benefits will reduce the size of the funds’ assets, but such action will also reduce its future liabilities. For as long as the fund remains fully funded, that is, its assets exceeding future present value of liabilities, there should be no major concerns for the fund.
OM: What is the GIPF’s position on FIMA and what have you presented on the ongoing consultations being carried out by the Ministry of Finance?
MI: The misconception that must be corrected is the fact FIMA as a new legislation is not the brainchild of the fund, GIPF is simply an administrator and will have to comply with the law. This far, all-pension funds in the country are administered in terms of the Pension Fund Act, 24 of 1956 and this is the piece of legislation that FIMA intends to replace. Preservation is only but one component under the new law.
What the fund has done proactively was to ensure that all its active members in the age categories that will most likely be affected by compulsory preservation, are urged to attend all stakeholder engagements organised by the Ministry of Finance and to air their views.
OM: Lastly to you have any other clarifications regarding anything concerning the GIPF?
MI: The GIPF will continue to create value for the members. Its investments should earn above inflation returns. Its investments, especially local investments, should have a positive impact on the economy, people and environment, addition to yield the required returns
