CABINET APPROVES ENPF CONVERSION

EZULWINI – Finally, the road to the conversion of the Eswatini National Provident Fund (ENPF) into a national pension scheme looks clearer.

This is because, after many back-and-forths, Cabinet has finally approved in principle the exercise. The conversion to a pension fund means that the ENPF will change to a defined benefit scheme. Under this form of pension scheme, at retirement, a member will receive a monthly payment until they die, as well as a lump-sum pay-out, which would be a certain percentage of the entire savings calculated on the years one had been part of the scheme.

Approval

The news of the approval of the proposed conversion was conveyed by Prime Minister Russell Mmiso Dlamini in his statement at the Cabinet Retreat, which had been held at the Royal Villas since Monday and ended yesterday.
The PM said, in view of the presentations and discussions over the past week, a variety of decisions were taken, which touch on the different ministries and government departments.

Under the Ministry of Labour and Social Security, he said: “In principle, Cabinet has approved the conversion of the ENPF into a national pension scheme, and the Ministry of Labour and Social Security will bring a Bill for Cabinet consideration by the end of February 2025.”

Conversion

Last year, our sister publication, the Times SUNDAY, reported that some Cabinet ministers were opposed to the conversion. It was alleged that Minister of Public Service, Mabulala Maseko, was among those opposing the exercise by virtue of his mandate, which is to protect the interests of the Public Service Pensions Fund (PSPF) that falls under his portfolio.

Maseko, however, came out to set the record straight, stating that he was not against the proposed exercise. Maseko stated that he would never frustrate the proposed conversion, but that he represented the interests of public servants who are the members of the PSPF. Meanwhile, the issue of the conversion has dragged on for over 10 years, and the ENPF management and Board has persisted and not given up on the plan.

Presentation

Last year, the management attended the Cabinet Retreat and made an attempt to make a presentation, but this ended up not happening because there were many other organisations that had come to present. The management is said to have been advised that they would be called to Cabinet to make the presentation. It should be noted that the Ministry of Labour and Social Security has now and again shared feedback on the progress made regarding the conversion.

In the ministry’s last annual performance report for the 11th Parliament, it was highlighted that the International Labour Organisation (ILO) had conducted a fact-finding mission in the country, where they engaged with the different stakeholders, including the PSPF, to get their position regarding the conversion. According to the annual performance report, the PSPF highlighted that they wanted to be excluded from the conversion; likewise, Business Eswatini also stated their concerns regarding the exercise.

Challenges

In 2023, it was reported that the PSPF had stated in a report that it believed it would suffer a ‘natural death,’ as it would quickly run out of funds and eventually face serious financial challenges due to the following: Paying out benefits more than it receives in contributions; selling assets (disinvesting) in order to meet the cost of promised benefits and administration of the scheme; and limited investment due to the lack of funds and a constrained investment strategy.

The PSPF argued that in the last few years, it had been facing liquidity challenges wherein the current contributions were not sufficient to cover the benefits and expenses on an annual basis. “A further reduction of the contributions (10 per cent to ENPF) will exacerbate the situation,” the PSPF reportedly said, further arguing that the contribution rate of 10 percent payable to the new national pension scheme would be taken from the 20 per cent currently paid to the PSPF; that is, total contributions would reduce from 20 per cent to 10 per cent of payable salary.

However, the ENPF came out to allay fears by stating that there would never be any natural death of the PSPF. The provident fund said what should be appreciated was that the PSPF is an occupational pension scheme, just like the other pension funds in the country.

“The national pension fund will act as a first tier in the social security system in the country, thus complementing the occupational pension schemes, inclusive of PSPF, and will provide an extra savings channel for workers to have more than one source at retirement,” said the ENPF.

Sufficient

On the argument by PSPF that it has been facing liquidity challenges in the last few years, the ENPF said the former is what is actuarially termed a mature fund, therefore it is not surprising that contributions are not sufficient to pay benefits and expenses. It was also the argument of the PSPF that the benefits of the scheme were determined taking into consideration that the employer committed to contributing 20 per cent to the scheme.

“A reduction of the contribution rate would necessitate a reduction in the benefits payable. It has been actuarially determined that the benefits would reduce to 1/3 of the current contributions,” said the PSPF. There was also another argument by the PSPF that it would have to make forced sales of its assets at inappropriate times in order to honour promised benefits, which may result in a long wait for benefits to be paid.

Transfer

However, the ENPF ruled that out, saying none of its assets would transfer to the PSPF and that the status quo on how the latter manages cash flows would remain. There was also an argument of constrained investments, where the PSPF argued that reduced contributions would lead to a constrained investment strategy and lack of diversification, which would also affect the economy.

In response, the ENPF has stated that an appropriate investment strategy is driven by an asset liability modelling, which would, among its outputs, project cash flow needs. The PSPF’s proposal is that the new pension scheme should focus on employees who do not have pension coverage at all, and not seek duplicate benefits.

Completed

Worth noting is that the delay pained Members of the 11th Parliament, as they had anticipated having the conversion completed by the time their term of office came to an end. During their last sitting to debate the budget of the Ministry of Labour and Social Security, the former Members of Parliament (MPs) took turns relaying frustration caused by the delay.

Also, the 10th Parliament eventually left office without having passed the legislation that will ensure the conversion.
Instead, a Bill that they debated and were ready to pass was eventually withdrawn, and they left office. The then MPs made it known that if their term of office came to an end without the Bill having been passed, they would have failed the nation. The MPs requested the minister to come out in the open and tell them who exactly was delaying the process. They mentioned that if it was Cabinet, they were ready to take the matter further.

Key

Stakeholders in support of the ENPF have argued that it was key for the Kingdom of Eswatini to have a national pension scheme as was the case in other countries, including Singapore. The Singapore pension scheme is one of the oldest and most developed national schemes in Asia, according to the Mercer CFA Institute Global Pension Index. Even though the scheme has received backlash in the past, the government made amends and reviewed some of its metrics.

The Kingdom of Eswatini is said to have modeled the one that exists in Tanzania, where the National Social Security Fund (NSSF) covers all other employers in that country and participation for both employers and employees is compulsory.

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