Our Comment - On Pension Fund

CAN SOMEBODY STOP THE MADNESS? 

According to James Mhura, the CEO of Old Mutual Unit Trust, the trust  has approved a proposal by its shareholders to start offshore investments, which is the keeping of money in a jurisdiction other than one’s country. Apparently, there is no objections from the Reserve Bank.

Pension money is serious money and it is usually the largest amount of savings in most countries. It is also “patient” money which can be used for long term investments.  For countries like Malaysia and Singapore such funds were the backbone of the economy,  with Central Providence Fund (CPF) accounting for 50 per of national savings in Singapore   Until quite recently, these  most  successful pension schemes in the developing counters  did not allow investments in foreign securities. Only recently has Singapore permitted investment abroad and this only when the pension funds are huge.  Instead, they massively invested the funds domestically. Temasek, the CPF’commercial arm owns and manages a net portfolio of $308 billion[ (as of 31 March 2018). Temasek owns the iconic Singapore Airlines.

The restrictions on investing abroad not only force these funds to invest locally,  but also the ban on investing abroad is aimed at discouraging capital flight which will by unrestricted foreign investment institutionalize capital flight and deny domestic investors from benefitting from savings of the nation.

In South Africa, Old Mutual, which had thrived under apartheid, was allowed by Thambo Mbeki to move its headquarters to England. The consequence was massive haemorrhaging of the South African economy. Much of what is called foreign investments into South is simply round-tripping by these pensions fund- domiciles in London but freely extracting economic surplus from South Africa.

Malawi implemented the new Pensions Act of 2010 which, among other things, made pensions mandatory to all employees to build national savings. The fund has grown from  K59.5 billion in 2010 to 700 billion in 2019. With an estimated value of One billion dollars, the Malawi pension is only 17 per cent of GDP and we have allowed ourselves the leisure of sharing our puny savings with the rest of the world.

Apparently, our pension fund is run by people who haven’t the slighted idea as to what to invest in Malawi. How else can only explain the fact that these people have yet to find one decent example of transformative investment in Malawi?

It is quite sad  that the Governor of the Reserve Bank who has been talking  much sense lately about pensions in Malawi has allowed this to happen under his watch. .