How good governance can help Tanzanian pension funds overcome premature withdrawal

Good governance is of crucial importance if the existing pension funds are to overcome the challenges such as the existing pre mature withdrawals of pension contributions being faced. The pension fund situation in Tanzania, has worsened in the last few years due to the effects of the global financial crisis.

Public pension funds are established by various Acts passed by law makers who are members of Parliament of United Republic of Tanzania (URT) and asserted by President of URT Public pension funds are financed by both employer and employee facilitate and organize the investment of employees' retirement funds contributed by the employer and employees. The public pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement.

Among the most impactful effects have been the increase rate of premature pension contribution withdrawals and therefore as a result of decline in contributions by pensioners and as a direct result of unstable employment and lower real wage growth. Essentially, more persons have been withdrawing their pension contributions and at the same time are earning the same or less, which in deed affect their ability to contribute to pension funds. This is further compounded by high levels of unemployment and a shift from formal to informal activities, as more persons attempted to conduct side small and medium businesses to either supplement their income or replace that which they had lost in the hostile job market.

To combat these factors, that have been debilitating to an area this should be referred to as the channel for retirement which links households, financial institutions, the government and the world, the only way out here is the good governance within public pension organisations to be seen as the solution. Good governance should be in the context of public pension funds' success being of importance to both the clients and the broader economy.

Within good governance, focus should be given to the covering all aspects of this concept including financial policy and regulatory framework. Transparency improves governance and inspires confidence in the product and company alike. To achieve this, the consistent review of policies which guide pension funds is important, as is the public dissemination of accounts and quality reports.

Country wide, there are several challenges that pension funds face and which must be dealt with if they are to return to pre-crisis levels of achievement. These challenges are an aging population, lack of diversification in investments, inadequacy of funds and the inability to predict contributions and benefits by pensioners. The number of premature withdraws have tremendously increased due to the prevailing socio-economic factors.

Lack of aggressive efforts on public education  to educate members to retain their contributions once the employment ceases so as to benefit from the pensions offered by the Fund. Non performance of the loan portfolio due to the non complying borrowers and the prolonged legal action procedures once the defaulters are taken to court.  The existing of unfair competition in the process of registration of new members whereby some social security funds use unethical means to induce registration of members. And tax on Fund’s income which is said to reduce the financial capacity to pay meaningful benefits to members.

There is a need in collaboration with social security regulatory authority (SSRA) to come out with deliberately achievable targets to bring back the hope for the existing public pension funds and the investment market as reforms, though difficult, are very possible. These reforms must tackle governance, regulations and the sustainability of pension funds.

For governance, public pension funds should assess the performance persons managing pensions’ funds, conduct regular reviews of employee compensation mechanisms, identify, monitor an correct conflicts of interests, implement adequate risk measurement and management system and be proactive in dealing with the major risks facing funds.

Consideration should be given to regulations, excessive reliance on current market values when determining pension contributions should also be avoided, limiting contribution holidays and excessive waiver of pension contributions, stability of long-term contribution patterns and incorporating flexibility into funding should strongly be encouraged.

Achieving sustainability can be done through by the generation of adequate returns to meet business daily obligations, improving efficiency in public pension products and service delivery, increasing capacity through enhanced training opportunities and building credibility and expertise.

The responsibility of standard setting should not remain solely with the newly established Social Security Regulator Authority (SSRA). The existing public pension schemes such as Parastatal Pensions Fund (PPF), National Social Security Fund (NSSF), Local Government Pensions Fund (LAPF), Public Service Pension Fund (PSPF), national health insurance fund (NHIF), and Government Employees Provident Fund (GEPF) should continually attempt to improve governance beyond what is stipulated and try to surpass even industry best practices, as regulation is too often reactive in a business that requires one to successfully act proactively in a fast-paced and stochastic environment.