For the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the question of what a pension fund is and what it does is crystal clear. “A pension fund provides for financial stability after you stop working, by providing a stream of income and helping you have the standard of living you had before you stopped working,” explains Phineas Sesinyi, acting Retirement Funds director at NBFIRA.

“The pension fund is supposed to help prevent old age poverty.” Old age poverty is generally an under-reported crisis in the country. At the last count, 358,000 people were members of pension funds, representing about 40% of the country’s workforce. The balance outside the pension funds has no recourse to the safety nets pensions provide after retirement.

However, many Batswana spend their most productive years outside formal employment and pension funds and fall into poverty when they reach their sunset years.

For those fortunate enough to gain formal employment and retirement fund membership, the pandemic in 2020 choked incomes and led them to question the NBFIRA’s classic definition of a pension fund and its use. According to a Statistics Botswana study, an estimated 67,132 people lost jobs or businesses due to the COVID-19 pandemic, a figure that represents about one in every 13 people within the country’s labour force aged over 18 years.

Many of these people began questioning what their savings and accumulated pension benefits were for if they could not access them for the various emergencies the pandemic inflicted on their personal finances.

Before recent changes to the Retirement Funds Act, members of pension funds had strict limits on accessing their benefits prior to retirement. In Parliament, as COVID-19 raged on, legislators grilled Finance Minister Peggy Serame, on why pension fund members weren’t being allowed to more easily access their savings.

“The starting point Honourable Minister is to understand the extent of the problem,” Selebi-Phikwe West MP, Dithapelo Keorapetse said in a heated debate.

“Are you adequately appraised on the extent of the problem?

“Does the minister have an idea of the number of people who experienced financial hardship directly and indirectly due to the coronavirus pandemic who struggled to make mortgage payments and sought payment relief from banks since COVID-19 engulfed us?”

The Finance ministry’s response was through amendments to the Retirement Fund Act which since last October allowed deferred pension fund members to encash greater amounts of their savings for loans, mortgages and medical expenses. The new law also provides enhanced withdrawals at retirement, raising the commutable or cash payout of the pension at retirement from one-third to 50% of accrued savings.

The early withdrawals, however, are restricted to deferred members, which means a member who no longer contributes to a fund, but still has their benefits preserved with the pension fund. This category covers the thousands who lost their jobs during the pandemic and as a result, could no longer actively contribute to their pension funds. These are the same people who, while they had accrued benefits, could not easily access them to help when they encountered financial distress.

As rising inflation, interest rates and the fallout from the pandemic have continued squeezing incomes, the other categories of pension fund members have been increasingly pushing for greater ‘lump sum’ access to their savings.

The other categories are the active members or those still contributing as well as pensioners, or those who have reached retirement age and are drawing their monthly pensions.

Since late last year, the Finance Ministry and NBFIRA have been studying the requests and again, the central question is around what the pension fund is and what it is for.

NBFIRA, as the regulator, wants to keep the focus on protecting the future financial well-being of today’s workers and Sesinyi says there are several emerging threats to the current generation’s future.

“You will not work forever and government is very interested in protecting that pot (of savings) to avoid old age poverty,” he says.

“The traditional family support that we used to have has eroded in our society and it’s government that ultimately has to take care of you.”

Botswana, as a middle-income country with ambitions of becoming high-income, has an additional challenge called the ‘longevity risk’. Through greater investments in public healthcare and quality of living, more Batswana are living longer.

“Life expectancy has increased and more people will reach old age.

“Those people cannot work productively and they won’t have a pension, so you can just imagine that crisis,” Sesinyi says.

For the members of pension funds, the strain on personal incomes makes the accrued savings too tempting to resist. Last year, inflation reached 14-year peaks and even though it has declined, it continues to trend at 10-year highs. Interest rates, meanwhile, were raised by 151 basis points last year, a situation some described as the Bank of Botswana helping banks to dip into consumers’ pockets and grab money.

For many a ‘little loan’ from their pension nest eggs, especially as this is interest-free, would provide much-needed breathing space as the economy recovers.

Debswana Pension Fund (DPF), the country’s largest private sector pension fund with P10.1 billion in assets, recently found just how hungry people are for their nest eggs.

“In December we had 21 members retiring and 18 commuted the full 50% of their pensions,” CEO, Gosego January told the Botswana Pensions Society’s annual meeting last week.

“The regulations say up to 50% not that it should be 50%.

“However, because it’s money and it’s available, we all want to take it.”

The fear for pension funds and regulators is that in fully commuting the 50% they are entitled to, retiring pension fund members have less to survive on into their old age. In fact, many cash out as much as they can without a solid plan of what to do with the funds.

“The culture of wanting to take all your pension at once is something that we have to look at very seriously,” Sesinyi said at the Pensions Society.

“I have had many walk-ins who say my pension is now too small to survive on and I ask why they decided that they want the whole 50% and not a smaller percentage. “The new law does not mean that you have to take that whole 50%.”

As the NBFIRA’s consultant studies whether and if so, how to expand other pension members’ access to their savings, the regulator is noting high interest in the matter. Similarly, the NBFIRA has noted a “lot of applications” from deferred members to pension funds, under the relaxed withdrawal rules. Pension funds are stepping up their pre-retirement counselling and general education campaigns for members to help them make more informed decisions, as the laws change.

NBFIRA, meanwhile, says its ongoing studies will be holistic, looking at the demands of pension fund members and the stability and health of the entire pension ecosystem. “The study will look at the impact of any changes now and the impact in the future,” Sesinyi says.

“It’s quite broad and we cannot pre-empt the findings, but it will be out soon with its results and recommendations.

“The study is not looking at a particular category of pension fund members, but the whole pension system now and going into the future.”

The question of what a pension fund is and what it is used for is likely to once again come up for legislative review.