SOURCE: The Herald

THE Insurance and Pension Commission (IPEC) says the number of people willing to give up part of their pensions in order to receive a lump sum payment has significantly increased as a result of failure by retrenched members to secure sustainable regular income. In a note to its members, IPEC said ‘…As such, the requests by “desperate” members to commute their pensions have inevitably led to the need to review the current regulations on commutations. This is to enhance value realised by exiting fund members through broadening the criteria used for approval of commutations. At the same time this will ensure the protection of the interests of remaining pension fund members…’ The revision will also reduce the turnaround time in the processing of applications for commutation. Applicants who qualify for commutation under the proposed regulations should have been retrenched or retired three years prior to the date of application.

The demand for commutation has been necessitated by an increase in members of member of pension funds being laid off. In addition, the aftermath of the last year’s court ruling and failure by retrenched members to secure sustainable regular income has accelerated the requests for commutation. Last year the Supreme Court ruled that employers can terminate contracts on three-months notice. The law was changed soon afterwards by Parliament but in the gap some employers took advantage of the ruling and laid off redundant workforce. Many laid off workers have been unable to secure new jobs. The economy has also been unable to generate new jobs due to low levels of investments and unfavorable FDI conditions dogging the country.

IPEC is proposing that if a member’s total pension does not exceed $600 per annum, the trustees may commute the whole or part of the pension for a lump sum, provided such commutation does not result in the pension fund failing to pay regular monthly pensions due to illiquidity. And if the total pension exceeds $600 per annum, the trustees may commute for a full lump sum portion, not exceeding one third of the pension. It is also proposed that trustees of pension funds should have the power to authorise commutation of all pension balances below the $600 thresh hold per annum provided the affected member is agreeable and the fund can afford.

Where the pension is above $600, but after the one third commutation has been deducted the amount falls below $600 per annum, trustees should still authorise full commutation. In cases where a member’s monthly pension is below the prescribed minimum amount of $600 per annum, or as may be amended from time to time, the board of trustees shall consider the application and if satisfied, may proceed to approve it.

As a guiding principle, pension funds will allow full or partial commutation provided they are financially sound to sustain the commutations and withdrawals without adversely affecting the interest of the remaining members, the liquidity requirements of the fund and the spread of fund assets across different asset classes on an on-going basis. The preferred applicants would be those seeking funds for educations, mortgage and medical. However, the funds may approve applications for other reasons, including foreign payments.

The upper limit a pension fund can approve is $10 000 for medical, $20 000 for education and $50 000 for mortgage and property development. IPEC said the criteria set out in this document shall not apply to those who opt for voluntary retrenchment. Applications in respect of foreign payment shall be referred to the IPEC for approval without any exception. And to avoid unnecessary externalisation of funds, the applicant must justify such payments where similar services are available locally, the IPEC said.

Analysts say while IPEC has outlined specific reasons that should be considered for commutations, the majority of retrenched workers were seeking a money to start-up businesses. “Given that there are no jobs in the formal sector, and that the benefits of the retrenched workers are too little to sustain livelihoods, we now have a situation where the affected workers need some kind of capital to start a business that can generate revenue on a regular basis,” economist said Mr Dave Chihwa said.