• Barclays accused of 'eating' pensioners funds
• Barclays Pension Fund surplus at over P51 million
• Pensioners demand share of profits
• Pension Fund profits cannot be shared- NBFIRA
The over P51 million surplus in the Barclays Bank Pension Fund (BBPF) has created discontent and resentment with pensioners demanding that management give them a share of the profits, accumulated by its assets and investments over the years.
The acrimony has been aggravated by the bank's decision to transfer the administration of the Pension Fund Defined Benefit scheme from Alexander Forbes to an insurance company. A meeting held in Gaborone on Monday to discuss the surplus issue almost degenerated into chaos as pensioners took turns telling Alexander Forbes executives- administrators of BBPF that they cannot address them on the issue as they do not have the mandate. They demanded that Barclays management come and update them on the surplus issue since negotiations have been on-going for many years. In fact Paul Masie- the Managing Director of Alexander Forbes conceded that they were not privy to the ongoing negotiations between management, pensioners' association and the board of trustees over the distribution of the multimillion pula surplus in the fund.
Masie assured pensioners that the legal right of members will not be compromised by outsourcing of annuity to an insurance company. He said the transformation is not only happening at Barclays but has already been undertaken at more than 13 financial institutions in the country. He gave the example of Standard Chartered Bank where the exercise was concluded in 1997.
Masie shocked the pensioners when he revealed that it is unlawful to share profits of a pension fund. Unlike in countries like South Africa, Botswana does not have specific legislation on the distribution of a surplus in a pension fund. He said Section 13 of NBFIRA Act prohibits the distribution of any surplus in the Fund to the employer or the members (pensioners). "According to the Act the surplus belongs to the Fund and should be retained there. It is not possible (to share the surplus). That's the nature of how these things work," Masie told a stunned crowd. Clearly none had anticipated such an explanation. But they kept fighting. A member of the Eagles Pensioners Association-an association of Barclays pensioners, said Masie's explanation was in contrast to the goings-on at the bank as they had made some concessions. She also revealed that in the past the bank had granted an increment to the monthly income for members of the Fund. According to the Rules of the Fund pensioners should be paid the lesser of 2.5% or inflation. Masie explained that if the pensioners were given an increase in the past it would have been the discretion of the board of trustees but not supported legally.
Former Kgatleng East MP Isaac Mabiletsa-the most vocal pensioner at the meeting, argued that the rules of the fund can be tampered with to accommodate an increase in their benefits as is the case with other more stringent laws. "In a democratic set up like Botswana there is nothing like the rules cannot be changed. We have dealt with tougher legal instruments and found solutions that benefitted all. It can be done here with the pensions fund," he said. Mabiletsa further argued that the conservative 2.5% annual increment adopted from systems of the early 1950s when the fund was established is out-dated and should reviewed. He urged the board of trustees to come up with creative solutions to the current impasse to ensure that pensioners benefit from the surplus that has accumulated in the fund.
The surplus in the Fund at the time of conversion from defined contribution to defined benefit was estimated at P51 million, the meeting was told. Sources of surplus were a voluntary severance undertaken by the bank around 1995, and another voluntary exercise which further increased the surplus.
So incensed were the pensioners that they declined a request from Barclays Internal Communications department to take photographs at the meeting, for archiving. They even dismissed a presentation by an expert on Pension Funds as an academic exercise that cannot resolve the surplus issue and therefore a waste of their time. They just wanted the money!
As the meeting heated up some former Trustees even accused Barclays decision to use a conversion rate of (1/720)- the lowest in the market, of fraudulent conduct. They complained that the bank ripped them off by selecting the lowest rates in the market during the conversion, which has reduced some pensioners into paupers. However Masie said the accrual rates of two different entities does not necessarily have to be the same, as each entity determines its own.
No amount of explaining from Alexander Forbes and other insurance experts could convince the pensioners that they were not sold a dummy. They insisted that they are entitled to a share of the surplus, regardless of NBFIRA Act. In fact their argument was given credence by one Trustee-a Mr Baitseng, who said the board has been discussing the issue of surplus with management for many years. As negotiations progressed NBFIRA was invited to advise on the matter. Actuaries were engaged to assess estimates of the total cost for the Fund to inform the decision on the surplus, which was passed to NBFIRA. A final report from the actuaries is expected in March 2015, but will have to be presented to NBFIRA for approval.
The Patriot on Sunday is reliably informed that Barclays management had agreed that funds remaining in the surplus after payment of transfer fees to the insurance company adopting the pensioners should be distributed among members but NBFIRA objected. Their argument is that such proposal would be in contravention of the law governing pension funds.
Some pensioners complained that by taking a holiday from contributing to the Fund Barclays denied them an opportunity to have earned more, or even added to the surplus.
Barclays Bank of Botswana is a subsidiary of Barclays Bank PLC which holds a 67.82% shareholding. Barclays has been operating in Botswana for more than 60 years and is one of the leading banks in the country employing over 1,200 people and serving over 160,000 customers and clients. Barclays offers personal banking, credit cards, and corporate banking products.
Pension & Provident Funds
Pension funds are governed by the Pension and Provident Funds Act (Cap 27:03), and until March 2008 were regulated by the Registrar of Pension Funds at the Ministry of Finance and Development Planning. They now fall under the NBFIRA, and new legislation is planned. The most recent report of the Registrar, giving details of pension fund operations, only covers the period to the end of 2006. As at December 2006, there were 123 registered pension funds; five of these were umbrella funds which administer pensions for a further 118 funds. The pension fund sector is dominated by the Botswana Public Officers Pension fund (BPOPF), a funded, defined contribution scheme for public officers. At the end of 2006, the BPOPF accounted for 76% of all pension fund members, and 70% of total pension fund assets. Other significant funds include those of Debswana, the banks and major parastatals. Around 40% of the formal sector labour force are members of pension funds, although membership is much higher in the public sector than in the private sector.
The establishment of the BPOPF transformed the pension fund sector, as well as the asset management industry. There are at present no specific regulations for the asset management sector, although it falls under the general purview of the NBFIRA. Almost all pension funds contract out their investment management to domestic asset management companies (although two of them contract directly with offshore managers for the offshore portion of their funds). The major asset managers, ranked approximately by the magnitude of assets under management, are: Botswana Investment Fund Management (BIFM); Investec Asset Management; Fleming Asset Management; Stanbic Investment Management (SIMS); Coronation Fund Managers; Allan Gray; African Alliance; Metropolitan; and Legae Investors.
BIFM is as subsidiary of Botswana Insurance Holdings Ltd (BIHL), which is listed on the BSE and is 54% owned by Sanlam of South Africa. Fleming is majority owned by local investors. Investec, SIMS, Coronation, Allan Gray, African Alliance and Metropolitan are subsidiaries of South African asset management companies, while Legae is locally owned. The first six manage portions of the BPOPF portfolio, which is by far the most important client among pension funds. Besides pension funds, asset managers also handle the assets of long-term insurance companies. Most pension funds are now Defined Contribution funds, having converted from (or replaced) Defined Benefit funds over the past decade. Pension funds have experienced a rapid growth of assets under management (AUM), from P9 billion in December 2002 to P34 billion in December 2007, driven by the funding of the BPOPF and good investment returns during the bull market – both domestically and offshore - over this period. AUM fell in 2008, as both domestic and offshore equity markets declined, and were P28 billion as at December.
Pension funds are entitled to hold up to 70% of their assets offshore. This reflects the lack of absorptive capacity in domestic financial markets; concerns that requiring too much to be held locally could cause asset price bubbles; and a desire to secure the greatest returns for pension fund members by allowing asset managers as much freedom as possible to invest in a range of assets. With very high savings rates in Botswana, high levels of liquidity in the banking system, and extensive investment by pension funds in the domestic equity and bond markets, there have been relatively few concerns about savings being invested offshore. The share of assets held offshore has been gradually rising, from 45% at the end of 2002 to 60% at the end of 2008. Offshore investments are attractive both because of the much greater range of assets available compared to domestic markets - and hence diversification benefits - as well as exchange rate gains.
Given the relatively young age of most pension fund members, asset managers have invested predominantly in equities, which account for nearly 70% of total assets. The remainder is split between bonds (20%), cash/ near cash (10%) and property (1%). The high proportion of domestic cash investments (mostly in BoBC-linked accounts) reflects the lack of other domestic investment opportunities.
One of the major problems facing local asset managers relates to life insurers and annuity providers. Obtaining matching assets for annuity liabilities requires domestic government bond-type assets; any other assets incur either credit risk (for non-government issuers), currency risk (for non-pula assets), or duration risk (for shorterterm assets). Given the shortage of government bonds in issue, asset managers have to take on more risk than is desirable, and face a tricky task in balancing the various risks.
[Aditional reporting from Econsult]