Investigations by The Patriot on Sunday have uncovered a behind the scenes tug of war between multi-billion Pula pension funds on one hand and the Minister of Finance and Economic Development, Kenneth Matambo and Non-Bank Financial Institutions Regulatory Authority (NBFIRA) on the other. At the centre of the unravelling dispute is the interpretation of the new Retirement Funds Act (RFA), which came into effect on 01 April 2017 together with the Regulations supporting its enforcement. Specifically, the parties disagree over provisions for self-administration and in-house investment management, recently introduced by Botswana Public Officers Pension Fund (BPOPF). Last month NBFIRA directed BPOPF to appoint an administrator, submit a plan of action and provide quarterly progress reports on the matter. Other smaller pension funds likely to be affected the hard-line stance by the regulator include Debswana Pension Fund (DPF), Deloitte and Touche, BDO, Ernst & Young and Fincraft Retirement Fund who have been self-administering services long before BPOPF adopted the strategy and started implementation in November 2016. Although NBFIRA concedes to challenges created by the interpretation and practicality of the new Act, particularly section 15, it has nonetheless resolved that the new law abolishes self-administration by pension funds. This position is shared by the minister, who in June 2017 declared that self-administration is not recognised under the RFA. The regulator has, as far back as March, advised self-administering pension funds that in order to comply they will have to either incorporate separate companies in order to conduct fund administration services or appoint separate administrators. This new development will require the establishment of separate boards, service providers and staff movements as the new companies enter into new employment contracts.
Pension funds who administer their services in-house will have none of that and remain unmoved in the conviction that there is no such provision in the Act. Convinced that there is limited or no capacity for the provision of pension administration services locally, concerned pension funds have ganged up to form a Self-Administration Working Group to engage the regulator and government with a view to find an amicable solution. From outset they point out that outsourcing administration is likely to compel some industry players to exit the pension industry. This could come at a significant financial cost to the individual members of the pension funds, and to government as there will be need to provide social security programmes for the affected people. Self-administering pension funds also dismiss the NBFIRA interpretation of the new RFA as flawed because the Act is silent on self-administration. They argue that if parliament had intended to abolish self-administration it would have done that specifically and clearly. They are adamant that NBFIRA's interpretation is at odds with fundamental rules of statutory interpretation. Such interpretation, they submit, is unworkable and could lead some industry players to exit the market, wind down their retirement funds and place their employees on contracts because they would no longer be able to leverage their existing internal capacities. Others said the costs would drive them out of the industry as there would be an undesirable situation where they would have to appoint their competitors to provide a service to them which they do themselves, which would give rise to conflict of interest. Their position is based on legal opinion sought before and after insourcing of the services, which saw the termination of a long standing lucrative contract between BPOPF and Alexander Forbes. Before the roll out of in-house administration, BPOPF had engaged the regulator extensively but the issue of non-compliance was never raised either by NBFIRA, government (minister) or legal consultants engaged to review the RFA before it came into force. Industry stakeholders are now suspicious of the motive and timing of the decision to render self -administration illegal, when no such view was ever raised before pension funds invested heavily in building capacity in-house. Ironically, NBFIRA gave the pension funds the green light to continue with implementation of insourcing administration services. But this concern by the regulator was only expressed after BPOPF followed three other pension funds by resolving to bring the administration of their services in-house in November 2016 as part of their corporate strategy, which the latter has just completed migrating in-house. There is growing speculation in the pension funds industry that the loss of lucrative business by Alexander Forbes, coupled with personal interest from some players linked to the regulator could have spurred political interference that now seems hell-bent of reversing insourcing through regulations. The Patriot on Sunday has also learnt that Government (and the regulator) sneaked in the contentious regulations and put them to use while stakeholders expected further engagement, after they were given what was supposed to be just a draft. The regulations came into effect on April 11.
In yet another contentious issue, and with protestation from BPOPF, NBFIRA has slapped the Fund with a P1.7 million supervisory levy for the assets previously held through BPOPF Offshore. The regulator believes that by directly appointing offshore managers the Fund was directly managing these assets, and therefore should pay the levy to the regulator. In defense BPOPF countered arguing that all assets have since been brought back in-house, and further they are not licensed asset managers who are regulated by NBFIRA. In any case, BPOPF maintained that NBFIRA does not have jurisdiction on offshore asset managers and therefore could not impose supervisory levies on assets it does not regulate. The supervisory levies would be charged annually and therefore create a continuing liability that erodes value for members. In an interesting development, which buttresses suggestions that the regulator is targeting BPOPF, it has emerged that there are other local pension funds who have appointed offshore managers directly but are not being charged any supervisory levies demanded by NBFIRA. The jury is still out on how the matter will pan out because the ministry of finance recently indicated that they await legal advice on the matter.
Molefe's star shines
Notwithstanding the acrimonious relationship, BPOPF boss Boitumelo Molefe has entrenched herself as the darling of the pension industry after she recently presented impressive results to the board as indicators of performance in the last quarter. The period under review covers the first measurement period for the implementation of the new corporate strategy, which was set at 01 June 2017. In the period operational expenses decreased by around P4.9 million, while net assets of the fund increased by around P3.4 billion. Member contributions also increased by P445.6 million while P2.3 million benefits were paid. Global bonds struggled in the 2016/17 financial year returning only 3.5%, while a more colourful picture emerged on the offshore markets, where both emerging markets and developed market equities delivered a strong performance of 14.5 % and 12.5% respectively in USD terms. Although the local equity was negative returning -9.6%, the local bond market recorded an impressive 6.1% over the 12 months. Assets increased by 6% from P55.02 billion in 2016 to P58.09 billion in 2017 primarily due to unrealised gains on investment. Total income increased by 16% from P1.25 billion in 2016 to P6.18 billion in 2017, attributable to investment income. On the other hand, benefit payments decreased by 4% from P2.44 billion in 2016 to P2.34 billion in 2017 as a result of data cleansing that took place before claims were paid. Counter to the sterling performance, overall expenses grew by 11% from P393 million in 2016 to P434 million in 2017. An independent valuation of all properties of the fund indicated that as at 31 March 2017, the property portfolio grew from P446 to P506 million.
Board of trustees
An attempt by former chief executive officer of BPOPF, Kabelo Ebineng, to return to the board as an independent trustee was quashed when he failed the vetting process. Apparently when conducting the fit and proper test, NBFIRA discovered that Ebineng has in the past been involved in the management of corporates that ended up in liquidation. In July, former Botswana Public Employees Union (BOPEU) president Andrew Motsamai resigned from the board of trustees – where he sat in the Finance and Investment committee – on account of fulltime employment as executive chairman of Babereki investments. The name of Masego Mogwera has been submitted to replace him. Two other new alternate trustees, Tebogo Tomango and Vela Mothoka, have been successfully vetted into the board of trustees. Government employees who are nominated by their employer to sit in BPOPF boards will be smiling all the way to the bank after a change which will allow them to be paid sitting allowances in their personal capacities. The decision will be backdated to 01 April 2017. Trustees and employees of the fund who sit on external boards on behalf of the fund will also be eligible to earn sitting allowances in their personal capacity from such.