Governance: Supervision of Public Pension Schemes in Zambia

GOVERNANCE: SUPERVISION OF PUBLIC

PENSION SCHEMES IN ZAMBIA

A thesis submitted in partial fulfillment of the requirements for the award of the ESAMI/MsM Degree of Master of Business

Administration (MBA)

By

Conrad K Simuchile [7LS7448]

May 2007

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DECLARATION

I, Conrad Kasengele Simuchile, do solemnly declare that this piece of work has been a

pure product of my own efforts, origination and research. Even though some views may

have been drawn from other pieces of work, my conscience is very clear that enough

efforts have been made to duly acknowledge the persons and their work in all such cases.

I also declare that, to the best of my existing knowledge, this piece of work has not been

previously presented at ESAMI, MsM or indeed any other school, college or university

for a similar purpose.

Signature: ___________________________________

Name: Conrad Kasengele Simuchile

Date: _______________________________________

Supervisor’s Signature: ________________________

Name: Professor Michael Munkumba

Date: _______________________________________

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DEDICATION

There are six icons that give shape and colour to my life

My mother, the late Mainess Nachula Simuchile. A humble and kind-hearted legend whose deeds

will forever remain unmatched and whose constant challenge for me to go an extra mile in

working hard remains graphically and freshly vivid to date

My elder sister and mum’s perfect replica, an all-embracing visionary, the late Rhoda Mwila

Namuchile Sichalwe, who despite tolerating all form of mischief from me still saved me from

teenage ruin, which otherwise would have long cost me the opportunity of this study

My wife who forever remains prayerfully humble, understanding, accommodating and supportive

My three daughters, Ketwa, Mwila and Mubanga, the Namuchiles, who have rekindled the urge

and given true meaning to my compulsion to hard-work

A mellow ring of sweet voices that surround my life and provide a constant reminder of just how

much and how many I am indebted to

With pride and joy, my work is dedicated to

the six icons of my life

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ACKNOWLEDGEMENTS

There is no doubt that the road to the end of this work has been long and full of ups and

downs. In the process, I came to realize that the greatest tool that needs to be properly

managed in such a study is time, a commodity that proved very dear in my case.

Nevertheless, when God granted that I reach my destination, I looked back and realized that

there were more people to be thankful to than I could possibly have imagined. Indeed, I will

forever remain grateful and indebted to my supervisor, Professor Michael Munkumba of

ESAMI, for making all my efforts seem so easy and going out of his way to ensure that I

reached the finishing line. Without Professor Munkumba’s personalized commitment, easy-

going-but-very-serious guidance and enlightening advice, I could not have managed to

conclude my study within the given timeframe. I am also grateful to Dr Wamundila

Mbikusita-Lewanika, a near-workaholic, true nationalist and a distinguished mentor, who

continues to inspire me in so many ways than he realizes, and whom I wish could have come

into my life earlier than he did. I am equally grateful to my lively colleagues in intake seven

who made the entire study process interesting and worthy the while, Christopher Mulenga

and Chabwe Kalimbwe deserving special mention. My marked absence from home was a

price that my family endured so much and I am indebted to them for the patience. I do

recognize that am grateful to many more other people who have the right to lay a claim on

contributions they made to the advancement of this study in one way or another. But as

nature must dictate, I am not afforded the luxury of unlimited space to list all those who

supported my study. However, let me hasten to mention that I solely bear responsibility for

any errors or misrepresentations that may have inadvertently found their way into the text of

this study. So much passion was devoted to this piece of work that I am confident it has no

errors, but if there should be any, it will not be intended and should only be attributed to

misfortune.

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LIST OF ACCRONYMS AND ABREVIATIONS

CAPSA - Canadian Association of Pension Supervisory Authorities

IMF - International Monetary Fund

IOPS - International Organisation for Pension Supervisors,

INPRS - International Network of Pension Regulators and Supervisors

ISSA - International Social Security Association

HIPC - Highly Indebted Poor Country

LASF - Local Authorities Superannuation Fund

NAPSA - National Pension Scheme Authority

OECD - Organisation for Economic Co-operation and Development

PSPF - Public Service Pensions Fund

PSRA - Pension Schemes Regulation Act

PIA - Pensions and Insurance Authority

WB - World Bank

WCFCB - Workers Compensation Fund Control Board

ZESCO - Zambia Electricity Supply Corporation

ZNPF - Zambia National Provident Fund

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ABSTRACT

A pension scheme operates on the premise that it collects part of the income from its

members, invests and grows it for future drawings by the members. On the merit of this

principle, pension benefits are classified as deferred income for the members and

beneficiaries, with the pension administrator or fund manager promising to make the benefits

available immediately a claim is made in future, subject to the rules of the scheme. The

pension administrator is not only charged with the responsibility of safe-keeping, but also

multiplying the promised retirement income through prudent investment.

However, worldwide experience has shown that the investment and general management of

pension funds is not without risk. Imprudently or improperly managed, such funds can yield

negative returns or can disappear altogether. These factors, together with the non-negotiable

element of the pension promise make it critical for pension schemes to be governed in order

to ensure that members interests are safeguarded.

Because the experts in pension matters are generally agreed that pension funds are set up

with the common objective of serving as a secure source of income funds for retirement

benefits, they have consequently adopted universal governance regulations which are

designed to guide the governance of global pension schemes, through the OECD. Countries

world-wide, particularly those affiliated to OECD, are expected to manage their pension

systems within the universal pension governance regulations.

However in the Zambian case, despite affiliating to the OECD, there is foreboding

understanding that public pension schemes are particularly faced with a governance problem,

one that is clearly manifested in and stems from the manner of supervision exerted upon

these public schemes.

Using a mix of information gathering methods which included wide literature review,

unstructured interviews and questionnaires which targeted all the pension schemes and fund

managers that are supervised by Zambia’s pension regulatory authority (PIA), including the

regulator itself, this study was able to demonstrate that it is one thing to have regulations,

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guidelines, codes or even a regulatory authority in place, yet quite another to enforce

governance benchmarks on public pension schemes which are basically state-sponsored. The

study proves the overriding hypothesis that the supervision, and consequently the

governance, of public pension schemes in Zambia is seriously undermined by the fact that the

sponsor and the supervisor are one and the same.

It is therefore recommended that the structural arrangements relating to the supervision of

public pension schemes should be streamlined to make it more distant from government and

less susceptible to compromise due to the dependent interrelations involved.

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TABLE OF CONTENTS

CONTENTS………………………………………………………… PAGE

Declaration…………………………………………………………... ii

Dedication…………………………………………………………… iii

Acknowledgements………………………………………………….. iv

List of acronyms & abbreviations…………………………………… v

Abstract……………………………………………………………… vi

Table of contents…………………………………………………….. vii

Chapter One – Background

1.1 Introduction…………………………………………………… 1

1.2 Background about Zambia……….…………………………… 1

1.2.1 Background of the pension industry in Zambia…..…… 3

1.2.2 Types of pension funds in Zambia……………………. 4

1.2.3 Regulation and supervision of pension industry……… 5

1.3 Problem statement…....………………………………………. 6

1.4 Research objectives…………………………………………... 8

1.5 Hypotheses……………………………………………………. 9

1.6 Research questions……………………………………………. 9

1.7 Scope of the Study…………………………………………….. 10

1.8 Significance of the Study………………………………………. 10

1.9 Organisation of the study..……………………………………… 11

1.10 Conceptual framework…………………………………………. 12

1.10.1 Licencing……………………………………………….. 12

1.10.2 Monitoring……………………………………………. 13

1.10.3 Communication……………………………………….. 14

1.10.4 Analysis……………………………………………….. 15

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1.10.5 Intervention……………………………………………. 15

1.10.6 Correction……………………………………………… 16

1.10.7 The variables that impact on pension supervision…….. 17

Chapter Two - Literature Review:

2.1 Introduction…………………………………………………… 22

2.2 Structure of the pension industry in Zambia…………………. 22

2.3 The Concept of Corporate Governance………………………. 24

2.4 Historical Perspective of Corporate Governance…………….. 26

2.5 The Governance Framework for Pension Schemes………….. 38

2.6 Primary Elements for Supervision of Pension Schemes……… 33

Chapter Three – Research Methodology:

3.1 Introduction…………………………………………………… . 35

3.2 Research Design……………………………………………….. 35

3.3 Data capture methods..………………………………………… 36

Chapter Four - Analysis of the findings:

4.1 Introduction…………………………………………………….. 38

4.2 Analytical framework………………………………………….. 38

4.2.1 Licencing……………………………………………….. 39

4.2.2 Monitoring and communication………………………… 40

4.2.3 Analysis and intervention………………………………. 43

4.2.4 Correction………………………………………………. 44

4.2.5 Governance…………………………………………… 46

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Chapter Five - Conclusions and Recommendations:

5.1 Introduction…………………………………………………… 50

5.2 Conclusions……………………………………………………. 51

5.3 Recommendations……………………………………………… 54

5.4 Summary of conclusions and recommendations………………. 56

6.0 References……………………………………………………. 58

Appendices:

Appendix I - List of all Pension Schemes and

Fund Managers in Zambia……………………. A

Appendix II - List of licensed Fund Managers and

contact details………………………………… D

Appendix III - Questionnaire administered to

Pension Schemes and Fund Managers……….. G

Appendix IV - Questionnaire administered to PIA……………. S

Appendix V - Map of Africa and its boundaries …………….. FF

Appendix VI - Map of Zambia and its boundaries……………. GG

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1

CHAPTER ONE

1.0 BACKGROUND

1.1 Introduction

This chapter lays a foundation for our study. It gives a general background about the

country, Zambia, which provides the setting for this study. It then proceeds to give a

background of the pension industry in Zambia and the regulatory framework thereof. The

chapter also introduces the problem under study and the hypotheses that this research will

be attempting to prove.

1.2 Background about Zambia

Zambia is a 750,000-square-kilometers landlocked country in southern Africa. It is

surrounded by eight neighbouring sovereign states and lies in a tropical belt on a fairly

high plateau enjoying a temperate climate with hardly any humidity. It has, in abundance,

good agriculture soil, many lakes and rivers, vast game parks filled with lots of wild life

species and scenic beauties including the world tourism acknowledged and famous

Victoria Falls. The country has a little over 10 million inhabitants. Zambia’s main

economic activities are copper mining, agriculture and tourism. It has rejuvenating

manufacturing and energy sectors, but with a very small formal employment sector of

less than half a million people. The largest employer is the government of the Republic of

Zambia, followed by the private-sector owned and managed mining sector. Economic

growth has however been dismal with nominal Gross National Product (GNP) per capita

falling from USD 630 in 1980 to USD 450 in 1990 and USD 300 in 2000, according to

the World Bank Country Report (2002). Zambia’s per capita income is estimated at USD

230, ranking almost the lowest in the region and therefore poorly ranked on the

international scene.

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By 31 March 2005, Zambia had reached the HIPC decision point which has since

triggered sizeable donor financial support, both through the reduction of the debt stock

and the injection of project finance and budget support which should help stabilize the

country’s macro-economic environment. Project support and reduced debt financing will

create scope for public investments that should help generate employment.

The medium term expenditure framework 2005-2007 targets, among other goals, GDP

growth of 5 per cent, single digit inflation, insulation to internal and external shocks,

maintenance and sustenance of external account deficit and stabilization of debt,

improving public expenditure management and increased operational efficiency in

managing domestic borrowing, leading to less hassled private sector delivery, and of

direct effect to the pensions industry, to develop a well functioning financial system.

The vision of the financial services sector is to have a stable, sound and market-based

financial system that supports the efficient mobilization and allocation of resources

necessary to achieve economic diversification, sustainable growth and poverty reduction.

A draft Financial Sector Development Plan1 has been structured among others to address

the following weakness:

i. low intermediation;

ii. poor credit culture;

iii. multiple and potentially conflicting government roles;

iv. the weak regulatory framework for non-banking financial institutions,

insurance and pension funds;

v. the undeveloped capital market;

vi. lack of long term development and housing finance; and

vii. a limited number of monetary policy instruments.

1 A draft copy of the Financial Sector Development Plan is under review, supervised by the Central Bank of Zambia.

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Stakeholders have drawn comprehensive terms of reference covering the entire sector

with benchmarks for formal commissioning of the plan, which well encompasses the

pensions and insurance industry.

1.2.1 Background of the pension industry in Zambia

The history of social security in Zambia dates back to the pre-colonial era, as early as the

1920s when employers’ liability was introduced for work injury compensation, currently

administered by the Workers Compensation Fund Control Board (WCFCB). In 1954,

LASF was established to provide pensions for employees in the local authorities. Over

the years, LASF’s coverage and mandate was extended to include what are known as

Associated Authorities. These are institutions that provide services that were originally

provided by local authorities but have over the years been hived off to become

autonomous quasi-government institutions or have been commercialized and/or

privatized. They include the national electricity utility (ZESCO Ltd) and some water

utility companies, prominent amongst them the Lusaka Water and Sewerage Company.

In the mainstream civil service, the earliest coverage for pensions was a remainder of the

colonial legacy – a pension scheme that was for the reserve of white employees only.

However, after the country’s independence in 1964, there was pressure to extend

coverage to indigenous Zambians working in the civil service, culminating in the creation

of the Civil Service (Local Conditions) Pensions Fund, currently operating as the Public

Service Pensions Fund (PSPF).

1966, the government created the Zambia National Provident Fund (ZNPF) to cover

employees outside the civil service and the local authorities. ZNPF was transformed to

the current National Pension Scheme Authority (NAPSA) in 2000. NAPSA is a basic and

compulsory scheme covering all employees in Zambia, including those under PSPF and

LASF.

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Up to independence in 1964, employment under the main economic and social activities

i.e. mining, agriculture, transport and education, provided a variety of retirement terms

embedded in the employment conditions of service. Pension provisions were largely

harmonized during nationalization of companies in the early 1970s when government

took over control of all major companies and made uniform the retirement benefits for all

employees in the parastatal sector.

Up to 1992, pension and insurance businesses was restricted to state owned enterprises as

the law did not allow competition except from the Mukuba Scheme for the mining

industry. With the liberalization of the economy, several new players emerged to set up

and offer competitive retirement benefit plans. A sizeable number of companies running

in house retirement funds have since introduced formal occupational schemes for their

employees which, by law, are required to be affiliated with multi employer trustees

regulated by the Pensions and Insurance Authority (PIA).

Recent changes in Zambia’s social security have largely been driven by a number of

studies undertaken by various experts from as far back as the early 1980s, to provide a

framework within which the social security arrangements in the country could be

rationalized and strengthened. The various studies revealed a number of unhealthy

conditions relating to social security arrangements as a whole, and highlighted significant

weaknesses in terms of design, financing and administration (Hantuba, 2005).

1.2.2 Types of Pension Funds in Zambia

There are generally two types of pension funds in Zambia - the statutory (public) pension

funds and private occupational pension funds. The statutory pension funds include the

PSPF, LASF and NAPSA. All the three schemes exist under their own respective

statutes. NAPSA is a mandatory statutory scheme under the Ministry of Labour and

Social Security, whilst PSPF and LASF fall under the Ministries of Finance and National

Planning and Local Government and Housing, respectively. The private occupational

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pension funds include all employer sponsored pension schemes, numbering 94 by the last

count of December 2004 (See Appendix I).

All the 94 schemes are required by the Zambian law to affiliate to multi-employer trusts

managed by dedicated Fund Managers, of which there are seven registered under the

Pension Scheme Regulation Act (PSRA) No. 28 of 1996 (see appendix II for list of Fund

Managers). Multi-employer trusts are the only institutions charged with the

responsibility of managing pension scheme funds, with an exception of the public

schemes, which manage the Funds on their own. Under Section 11 of PSRA, it is a

requirement that any pension scheme established under this Act in the Republic of

Zambia shall have a fund establish in a separate multi-employer trust or alternatively be

affiliated to such a trust into which all contributions, investment earnings, surpluses from

insurance and other moneys shall be paid in accordance with the relevant pension plan

rules.

All the pension funds in Zambia are designed either as final salary (defined benefit) or

money purchase (defined contribution) arrangements. A small number of these pension

funds are a hybrid type, which is a combination of both, defined benefits and defined

contributions types. However, the majority of the pension schemes are defined

contribution arrangements.

1.2.3 Regulation and supervision of the pension industry

Apart from NAPSA, which is more or less self-regulated through its own stand-alone

legal framework, but supervised by the Ministry of Labour and Social Security, all

statutory and private occupational pension funds, including all employer sponsored

pension schemes, fall under the regulatory framework of the Pension Scheme Regulation

Act, which is under the ambit of PIA.

The PIA was established in February 1997 to regulate the conduct of the pensions and

insurance industry through prudential supervision in order to protect the interests of

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pension scheme members and insurance policy holders. Before PIA was created in 1997,

the industry was virtually unregulated, meaning that being less than ten years old,

pension regulatory issues in the country are still in infancy, so to speak.

1.3 Problem statement

The two main aims of pension regulation and supervision are to protect the rights of

members and beneficiaries and to ensure the security and sustainability of pension plans.

These two basic goals form the basis for the principles of pension regulation that have

been approved by both the Organisation for Economic Co-operation and Development

(OECD)2 and the International Network of Pension Regulators and Supervisors (INPRS)

and endorsed by other international organisations such as the World Bank (WB) and the

International Monetary Fund (IMF). Pension rights and pension plans need to be

protected because they provide deferred income for the members and beneficiaries. They

constitute a promise that is intended to allow the saver to subsist without working, at a

later point in life.

At the time of accepting entry of the member, the pension administrator or fund manager

promises to make the benefits available immediately a claim is made in future, subject to

the rules of the scheme. The pension administrator is, therefore, not only charged with the

responsibility of safe-keeping, but also multiplying the promised retirement income

through prudent investment and paying it as and when required.

However, worldwide experience has shown that the investment and general management

of pension funds is not without risk. Imprudently or improperly managed, such funds can

yield negative returns or can disappear altogether. The fact that these funds are very

vulnerable, on one hand, contrasted with the fact that pension promise is non-negotiable,

2 The OECD groups 30 member countries sharing a commitment to democratic government and the market economy. Best known for its publications and its statistics, its work covers economic and social issues from macroeconomics, to trade, education, development and science and innovation. The OECD is also prominent for its role in fostering good governance in the public service and in corporate activity. It helps governments to ensure the responsiveness of key economic areas with sectoral monitoring.

7

on the other hand, makes it absolutely critical for pension schemes to be governed in a

sustainable manner.

Although there are existing differences in the operation of pension funds in countries that

belong to the OECD, it is generally accepted that these differences should not obscure the

fact that pension funds are set up with one common objective - to serve as a secure source

of income funds for retirement benefits. In this respect, governance regulations in

different countries are designed under the guidance of this overriding objective.

Reading the inspection reports of the PIA and reviewing the literature in two of Zambia’s

three public (statutory) pension schemes3, namely LASF and PSPF, one develops

immediate doubts about the practicability of these governance principles amongst the

public pension funds. Interviews with officials at the supervisory authority (PIA) itself

confirmed skepticism about the commitment to the governance of public pension

schemes. With such doubts, touching on the very foundation of a pension system, it is

reasonable to conclude that retirement funds under statutory schemes in Zambia have

very high exposure and as such, the pension promise is under threat. By implication, the

governance of public pension schemes in Zambia is questionable.

An analysis of literature (mostly unpublished) from LASF and PSPF clearly indicates that

the two organisations have, for years, not been meeting PIA regulatory and supervisory

benchmarks. It is therefore assumed that measured against the OECD pension governance

framework as articulated in the literature review, both LASF and PSPF would perform

negatively. Supposedly, therefore, the pension promise has been threatened, if not broken

altogether. Yet, both institutions have continued to operate despite lacking or failing to

meet particular elements of pension governance, which would have attracted heavy

supervisory action in the case of private schemes. This therefore begs the following broad

3 The words “Scheme” and “Fund” are used interchangeably in this document because the institutions under study, i.e. LASF and PSPF, are both pension schemes as well as fund managers of those schemes. This must not be confused with situations where an institution could have a pension scheme whose Funds are externally managed by another entity, i.e. a dedicated financial institution called Fund Manager. In such cases, the two entities are separate and different in scope. However, in the case of LASF and PSPF, the schemes manage their own funds, hence the interchangeability in the use of words. In many countries, the word “Plan” is also used in place of “scheme”. The institution referred to is one and the same

8

research question: to what extent does state involvement in the ownership of public

pension schemes in Zambia account for the variance in the effectiveness of the

supervisory authority of PIA over LASF and PSPF.

1.4 Research objectives

This study is intended to demonstrate that it is one thing to have regulations, guidelines,

codes or even a regulatory authority in place, yet quite another to enforce supervision

compliance in the case of public pension schemes which by virtue of being under the de

jure guarantee of the state are, in principle, also state-sponsored. The study is designed

with the following specific objectives in mind:

1.4.1 To establish the characteristics of and assumptions behind the principles of

pension governance;

1.4.2 To draw conclusions about the applicability of governance principles in public

pension schemes;

1.4.3 To confirm whether or not two of the Zambian public pension schemes (LASF

and PSPF) have been meeting pension governance requirements;

1.4.4 To establish the reasons why it is difficult to arrive at effective governance for

public pensions in Zambia; and

1.4.5 To establish how the supervisory effectiveness of public pension schemes is

affected by the impact of state-ownership of the schemes.

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1.5 Hypotheses

The general hypothesis in this study is that one of the critical elements of governance, the

effective supervision of public pension schemes in Zambia, has been compromised

through state ownership. The working hypotheses may therefore be itemized as follows:

1.5.1 The supervision of public pension funds is negatively affected by government

ownership of the pension funds;

1.5.2 The regulatory and supervisory framework has an influence on the supervisory

effectiveness of public pension schemes;

1.5.3 The more autonomous the supervisory authority is, the more effective is its

supervision of pension funds;

1.5.4 The structure of the pension regulatory and supervisory framework has an impact

on the autonomy of the supervisory authority;

1.5.5 The level of governance in the general public administration has moderating

influence on all factors that affect pension supervision.

1.6 Research questions

Drawing strength from the above hypotheses, the study will seek to answer the following

main research question: To what extent does state involvement in the ownership of public

pension schemes in Zambia account for the variance in the effectiveness of the

supervisory authority of PIA over LASF and PSPF? The following are the subsidiary

questions:

1.6.1 Is the Zambian pension supervisory authority adequately armed with authority to

supervise public pension schemes, such as LASF and PSPF, effectively?

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1.6.2 What limitations does PIA have in relation to the supervision of public pension

schemes?

1.6.3 Does the fact that LASF and PSPF are state-owned make it difficult for PIA to

enforce compliance on the two schemes?

1.7 Scope of the study

The focus of this study is on the supervision of LASF and PSPF, both of which are

government guaranteed pension schemes established under their own respective statutes.

The two institutions are chosen specifically because they are public schemes whose

conduct and governance practices have raised eyebrows on many occasions in the past,

provoking wide public criticism. The two have also been notorious for failing to honour

the “pension promise” to their beneficiaries raising fears of un-sustainability, poor

governance and other related controversies.

However, in order to make meaningful comparisons, the study will be extended to the

seven private Fund Managers4 as well as PIA which is the supervisory authority. The idea

is to delve into the actual practices of supervision of the pension schemes from the point

of view of all the supervisees and compare with what the supervisor states as the actual

practices from their point of view.

1.8 Significance of the study

This study is significant to the understanding of pension supervision, particularly as it

relates to the quest for effective pension governance. The research findings are expected

to provide guidance to policy makers by providing a basis on which they can draw

experiences and lessons to be used in future. The study is also expected to contribute to

4 All the private pension schemes in Zambia are affiliated to any one of the seven Fund Managers or multi-employer trusts, by definition.

11

the existing body of knowledge, especially having noted that the subject of governance in

pension schemes appears not to have benefited so much of research. It is therefore hoped

that this study will form some basis on which further research on the subject matter can

be undertaken in future.

1.9 Organisation of the study

The rest of the study is organised in four chapters.

Chapter two reviews the literature and other related issues expounded by many scholars

on governance in general and as it specifically applies to pension plans. The first part of

the chapter elaborates how the pension industry in Zambia is organised and the

framework under which it conducts business. The second part of the chapter examines the

various literature on governance before undertaking a detailed review aimed at

developing a theoretical framework that brings out the specific elements that are taken

into account in the supervision of pension plans, which will then be used to establish the

scale for measuring the intensity, scope and dimensions of pension supervision in

Zambia. The chapter also reviews related case studies and other experiences.

Chapter three explains the process followed in the study, including the design and

methods that the research employed.

Chapter four analyses the captured data and lays a framework for drawing inferences on

factors that have a bearing on the effective supervision of pension schemes.

Chapter five draws conclusions from the analysis of the findings. The chapter also makes

recommendations on how pension supervision in the Zambian public sector can be

improved.

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1.10 Conceptual framework

In considering the factors that influence the variations in supervisory effectiveness, it is

necessary to organize and classify the elements so as to set a framework for clearly

discerning the various variables involved and the inter-linkages at play. As earlier

highlighted in preceding paragraphs of the literature review, the activities of pension

supervisors can be considered in six primary categories, i.e. licensing, monitoring,

analysis, intervention, correction and communication. This framework will briefly

describe each of the six elements of pension supervision and proceed to discuss the

potential variables there from and suggest how they impact on supervision. A point to

note is that although this framework is public-sector based, it has been adapted from the

private pension framework propounded by Hinz and Mataoanu (2005) in their study of

the international practice and country context of pension supervision. A step-by-step

theoretical framing of the six elements, in the public-domain context, follows hereunder.

1.10.1 Licensing

Licensing activities restrict and control entry to the pension market through procedural

requirements and criteria. These are commonly applied to pension funds or the entities

that are permitted to sponsor or operate them. They can also be extended to individuals

who perform important functions in the pension system, for example trustees, or to firms

or individuals that are qualified to provide services, for example, to actuaries who valuate

the status of benefit plans. The modalities in which this function is exercised differ

widely across different systems, but in essence, they all make use of a set of

predetermined criteria to establish an entry barrier or select a limited number of entrants.

Licensing is differentiated among pension systems by its restrictiveness, depth, and

periodicity. Some systems have virtually no entry barriers while others have very

complex and strict standards applied by the supervisor.

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1.10.2. Monitoring

Monitoring activities collect information to enable the supervisor to track the status and

actions of the pension funds within its jurisdiction. Monitoring commonly takes the form

of required submissions of information on a regular basis or periodic reports to the

supervisor. It also includes a range of other reporting requirements or more active forms

of information collection. The common attribute is the provision of information that will

either provide the basis for judgments or actions by the supervisor or through its

provision or disclosure make the activities of the pension funds more transparent.

Potential recipients and users of monitoring include supervisors as well as the members

of funds.

Monitoring activities can be defined in terms of the scope and content of the information

that is collected as well as the mode of collection. Common types of information

collected include financial statements, schedules of transactions, information on

individuals responsible for important aspects of fund operations (trustees, administrators,

Boards of Directors), actuarial analyses and information on the sponsors of pension

funds. Monitoring is often a passive activity on the part of the supervisor in which

information is required to be submitted by the relevant institutions or individuals. It may

also be a pro-active function in which the supervisor periodically goes on site to collect

specific or supplementary information. Supervisors may also monitor the media for

information, have regular exchanges of information or consultations with other

supervisors, and have regular programs of meetings with pension funds to collect

information. An important form of monitoring is establishing venues for individuals or

fund members to communicate with the supervisor and to request scrutiny of a particular

fund or activity. A distinctive type of this approach is the so called “whistleblower”

requirements of some systems, which assign responsibility to certain individuals or

parties to report knowledge of improprieties to the supervisor. Some monitoring systems

also use independent third parties such as auditors or credit rating agencies to produce or

verify information.

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Monitoring varies in terms of the type, scope, and depth of the information that

supervisors seek to utilize, as well as the parties who provide the information and the

periodicity of the collection of information.

1.10.3 Communication

Supervisors engage in a full range of activities to communicate with pension funds. These

are essentially a complement to monitoring activities, except in this case the flow of

information is from the supervisor to the funds. This can make it difficult to clearly

separate the two in many instances. Supervisors may communicate with the funds

through the provision of regular reports on the industry, by announcing their priorities

and compliance strategy, or by publicizing compliance actions. They may also engage in

interactive communication by placing inspectors on site and engaging in daily

communication, by meeting regularly with the funds to discuss issues of mutual interest

or through more formal processes in which changes in the activities of the funds are

suggested and issues resolved through negotiation. Supervisors may also undertake

programs of outreach, education, and training to enhance the knowledge of the legal

requirements or operation of pension systems. Supervisors often seek to communicate

with a range of parties including fund managers, service providers, members, and the

public.

Communication activities of supervisors have a wide range of goals and objectives. Some

communication programs may have the purpose of informing pension funds about the

intent and nature of the supervisor’s activities to maximize the capacity for cooperation

and make the interactions with fund more efficient. Others are intended to advance the

understanding of the regulatory structure as well as rights and responsibilities of funds

and their members to facilitate compliance with the rules or to advance the exercise of

individual rights of action by members. Communication may also be intended to leverage

resources and establish a climate of deterrence among funds by publicizing the

enforcement actions of the supervisor.

15

Basic types of communication by supervisors are disclosure, outreach and educational

activities and training. Communication is differentiated among pension systems by the

scope and purpose of the activities. Supervisory systems that impose strong controls and

have little reliance on external or market processes are very directive in their

communication with funds regarding compliance issues, and they are likely to engage in

few activities designed to facilitate compliance or enhance deterrence. Systems with more

procedurally oriented standards or a greater reliance on external processes will engage in

a more interactive communication process. They will typically have far more extensive

outreach and education programs that support negotiated settlement of compliance issues

and rely on deterrence and third party actions to support direct compliance activities.

1.10.4 Analysis

The manner and extent to which supervisors analyze and evaluate the information they

receive from pension funds is usually closely linked to the system’s legal and regulatory

approach. Legal frameworks that are based on quantitative standards lead supervisors to

extensive measurement efforts that compare funds’ financial status and activities to

normative standards. Measurement of supervisory effectiveness using the analysis

element is usually evaluated on the basis of the purpose, frequency, and intensity of the

activity.

1.13.5 Intervention

All supervisory programs are continually faced with decisions about whether and how to

intervene in the operation of pension funds. It is often difficult to separate intervention

from some of the key aspects of the communication with the funds. Interventions may

take the form of explicit requirements for the fund to either undertake, or desist from

engaging in, certain activities that carry the force of law and must be complied with

immediately. In other systems interventions may be in the form of findings that are

presented to the funds for a response. The process of intervening in these circumstances

is likely to be in the form of negotiations in which issues are resolved, or a process of

16

litigation through the civil courts, where the ultimate resolution is reached through a

judicial process. A key issue that defines the nature of interventions is the force of

authority given to the supervisor and the nature of the process through which

interventions occur. In some countries, the supervisor simply has the authority to

intervene when a finding is made that a fund is, or may be, approaching non-compliance.

Fund managers may in some cases be provided with very little if any recourse to

negotiate or appeal. In other countries, the supervisor has little capacity to unilaterally

impose sanctions and instead intervenes through a far less directive process of

consultation, notification and perhaps negotiation. The most basic and important feature

of the notification of compliance actions is the manner in which individual funds are

notified by the supervisor when they are deemed to be out of compliance with legal

requirements. This can range from regularly scheduled interaction that may occur as

often as daily in some countries, to formal notices. In some cases there are simply

directives from the supervisor to the fund to make changes. The manner of this sort of

intervention and the nature of the process that follows, whether it is completely directive

or a form of negotiated settlement, is perhaps the aspect of the supervisor’s activities that

most defines the nature and style of supervision. Another key variation is the involvement

of third parties in interventions. Some systems require that all actions be taken through

the courts. Others establish a formal process of appeal to a specially constituted group.

Interventions by supervisors are therefore differentiated partially by the degree to which

they are pro-active or occur only after conclusive evidence of non-compliance is

established. They are also distinguished by the extent to which they are directive and

represent the unilateral exercise of authority to which there is little or no appeal, or

conversely are a process of negotiation and adjudication.

1.10.6 Correction

As  is  the  case  with  any  form  of  compliance  enforcement,  one  of  the  most  important  

elements  of  pension  supervision  is  the  capacity  of  the  supervisor  to  take  corrective  

actions.   Three   basic   types   of   corrective   actions   can   be   delimitated:   punitive,  

17

remedial  and  compensatory.  Supervisory  programs  may  engage  in  all  three  types  or  

may  be  limited  exclusively  in  their  authority  to  only  one.    

Punitive  actions  are  designed  to  impose  penalties  on  the  funds  for  actions  deemed  

to  be  adverse  to  the  interests  of  members.  They  are  distinguished  by  both  form  and  

intent.   Penalties   are   usually   fines   that   are   paid   to   the   supervisory   and   may   be  

retained   by   the   authority   or   become   part   of   public   revenues.   Their   intent   is   to  

establish  deterrence  and  punish  behavior  outside  of  the  standards.    

Remedial   actions   are   those   taken   by   a   supervisory   authority   to   remedy   the  

consequences   of   failure   to   comply   with   the   law.   These   are   essentially   a   way   to  

reverse   the   outcome   of   the   non-­‐compliance.   Remedial   sanctions   may   simply   be  

requiring  the  fund  to  return  to  a  prior  status  or  to  cease  in  certain  actions.  In  some  

cases   this  may   involve   financial   sanctions   that   are   limited   to   any   direct   result   of  

negligence  or  malfeasance  by  responsible  parties.  

Compensatory   corrective   actions   go   beyond   the   remedial   outcomes   and   seek   to  

compensate  aggrieved  parties   for  both   the  direct  and   indirect  effects  of  violations.  

These  types  of  actions  have  a  strong  deterrent   intent  but  also  have  the  purpose  of  

ensuring   that   harm   is   minimized.   Corrective   activities   of   supervisory   are  

distinguished  by  the  degree  to  which  they  are  solely  focused  on  remedial  outcomes,  

correcting   problems   as   they   occur   or   whether   they   extend   into   the   arena   of  

compensation   and   punitive   provisions   that   attempt   to   establish   a   more   self  

enforcing  regime  of  deterrence.

The primary intent of these corrective actions is to rectify any direct negative outcomes

and prevent a recurrence. In our study of supervisory effectiveness, this element is critical

considering that it can singularly give us an impression on a supervisory body’s

capacities and limitations in terms of authority.

18

There is no doubt, generally, that given an appropriate environment, an intense

application of the six elements of pension supervision would uphold effectiveness. In

developed countries, studies have been undertaken to confirm this hypothesis,

particularly in the case of private pension schemes. Although there is no empirical

evidence to show for it (which is partly reason for this study), arguments have been

advanced to claim that infact the supervision of private pension schemes in Zambian has

been very effective, to such an extent that justification has been established to advocate

for the complete privatization of the social security system in the country (Hantuba,

2005).

1.10.7 The variables that impact on pension supervision

The theoretical argument advanced by this study is that there are four variables that

influence effectiveness of the supervising authority on public pension schemes in

Zambia, three of which are independent while the fourth one is a moderating variable.

The following are the independent variables which impact on effective supervision of

public pension schemes:

1.10.7.1 Government ownership and/or sponsorship of the Fund – the fact that

public pension schemes are sponsored by the state makes it practically

difficult for the supervising authority, which is also a government

institution to effectively police these schemes. In the case of PSPF, it is

even worse because the superintending Ministry for the scheme also

superintends over PIA, i.e. the Minister of Finance is in charge of both the

Pension Fund and the supervisory authority. Issues of oversight are

extremely difficult under such circumstances. The influence of this

dilemma may not be obvious, but it certainly is implied. Even though

neither side would want to admit it, certain actions or lack of certain

actions infact signify the dilemma that PIA is faced with.

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1.10.7.2 Regulatory and supervisory framework – Effective supervision of

pension funds must be provided for in the legal framework which

establishes the scheme. The regulatory framework must focus on legal

compliance, financial control, actuarial examination and supervision of

managers. The legal framework must also clearly provide for the setting

up of appropriate supervisory bodies, properly staffed and funded, in order

to conduct relevant off and on site supervision. Supervisory bodies should

also be endowed with appropriate regulatory and supervisory powers over

individual plans. Otherwise, supervision of pension plans is not effective if

the legal framework is vague on what is expected of the Fund, on one

hand, and the supervising authority, on the other.

1.10.7.3 Autonomy of the supervisory authority – An autonomous model for the

supervisory authority creates a clear separation of the sponsor and

fiduciary roles in the governance of the pension scheme. It is clear that in

the Zambian case, the autonomy has been compromised by the design of

not only the regulatory framework, but also the reporting structure.

One moderating variable, though, is the general level of governance in the country. The

study hypothesizes that with the entrenchment of good governance in the fabric of a

nation’s public administration, it is possible that such an environment would positively

moderate the impact of the above independent variables on pension supervision, the

opposite also being true. In other words, with good governance practices in the country, it

is highly likely that pension supervision would be more effective because an enabling

framework and environment for checks and balances will already have been established.

On the contrary, unbridled bad governance in a nation’s public domain will tend to

permeate society and the corporate world to such an extent that policing governance vices

becomes problematic if they are inherent in the public administration of a country.

Below is a graphic presentation of the theoretical framework as expounded in the

preceding paragraphs.

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Figure 1.1 conceptual framework

The orange boxes depict the independent variables which have an impact on the

effectiveness of pension supervision (blue box). The thick black arrows indicate the flow

of influence, which is moderated by the general governance obtaining in the national

fabric, symbolized by the yellow box. Each of the independent variables can bear some

influence on effective supervision, subject to the national public administration

governance atmosphere.

However, depending on the regulatory and supervisory framework, the autonomy of the

supervisory authority may be affected positively or negatively, a situation which will in

turn tend to bear some impact on the supervision effectiveness.

Government ownership/sponsorship

Regulatory and supervisory framework

Autonomy of supervisory authority

Effective supervision

National public administration

(Level of governance)

Dependent variable Moderating variable Independent variables

21

The dotted back arrows, on the other hand, indicate the moderating influence that the

governance variable (yellow box) can impose on the independent variables. The

implication here is that depending on the general political atmosphere and sensitivity to

governance issues, each of the three independent variables may be affected differently,

leading to a completely different effect on pension supervision. For example, governance

levels may dictate how the pension system in the country is structured. A governance-

sensitive environment will obviously call for a system that evokes stringent checks and

balances in the pension administration. This will also determine the ownership structures

of pension systems obtaining in a particular country. Similarly, the regulatory and

supervisory framework will depend on the political structure and governance framework

in place.

Lastly, the autonomy of a scheme will obviously borrow influence from the prevailing

atmosphere in the nation in terms of governance and the sensitivity that is attached to it.

22

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

Chapter three explores the various studies and writings that are available on the subject

matter. The exploration begins with a focus on the organisation and structure of the

pension industry in Zambia. It then reviews the concept of corporate governance in

general and describes the global governance framework for pension schemes as adopted

and recommended by OECD. The chapter goes further to identify and analyse the

specific elements that are critical in the governance framework of a pension system. Also

identified in this chapter are the various variables that impact on the supervisory

effectiveness of the pension system in Zambia, which infact forms the most critical

component of this study.

2.2 Structure of the pension industry in Zambia

The various forms of literature that have attempted to catalogue and describe the

organization of financial and non-financial institutions in Zambia clearly agree that the

pensions industry exhibits characteristics of a typical three-pillar profile which comprises

the compulsory, occupational or optional and self formalized schemes. The literature also

converge on the understanding that all of the pension schemes in Zambia are focused on

covering formal employees and none is covering the unemployed or those in the informal

sector, at the moment.

One of the most apt analysis and description of this industry is authored by Muna

Hantuba (2005) who describes the first pillar as a compulsory savings pillar that provides

benefits only to contributors and, in general, provides the most benefits to those who

contribute most. Hantuba asserts that this pillar is mandatory and pre-funded in a fashion

similar to a payroll tax, with penalties for non-compliance. It is popularly known as

23

NAPSA and is managed by a statutory body supervised by a semi-independent board.

NAPSA is a social security pension scheme for both private sector and parastatal

employees, implemented in February 2000. The scheme operates on a defined benefit

basis. Membership is compulsory for all regularly employed persons, except for a few

exceptions, at the present time. It is designed to provide a basic pension only. NAPSA

has accumulated assets of at least ZMK4 1.2 trillion (USD 262 million) as at December

2004 for an estimated 350,000 members from 12,500 contributing employers. The other

notable statutory scheme under this pillar is the Workers and Pneumonoconosis

Compensation Funds that address disability benefits i.e. injury protection to all private

and public sector employees except the police and armed forces.

Pillar two, according to Hantuba, is basically tied up to the respective employers and is

mostly funded or underwritten. It comprises private and occupational schemes, which are

expected to augment the basic minimum pension under NAPSA. The pensions registry

(PIA, 2004) reflects that there are over 290 private or occupational pension schemes

currently operating in Zambia, covered by at least seven dedicated fund managers.

Official figures indicate that the total assets under management are estimated at ZMK

772 billion (USD 169 million) as at December 2004 for an estimated 52,577 members as

at June 2004.

In addition, the two public pension schemes PSPF and LASF, which are self managed,

fall under this pillar.

PSPF covers retirement benefits for civil servants and other qualifying quasi-government

entities. The PSPF is a funded defined benefit scheme established by Act No. 35 of 1996

Cap 260 of the Laws of Zambia. The scheme has a membership base of at least 107,241

active members and 54,000 pensioners and beneficiaries. It is run by a Board, whose

functions are to control and administer the scheme in accordance with sound business

practices and in the best interest of the members of the scheme subject to the provisions

of the Act. The scheme is currently under severe financial stress, having a projected

24

actuarial deficit of ZMK 3.87 trillion as at December 2004 against an estimated asset of

ZMK 437 billion.

LASF covers benefits for an estimated 22,907 local government employees and has

assets of approximately ZMK 47 billion as at December 2004. It is also believed to be in

serious deficit, although that cannot be confirmed due to lack of actuarial valuation,

which the scheme has not been subjected to in a long while.

The third pillar is a formal voluntary savings pillar available to anyone who wants to

supplement the retirement income provided by the first two pillars. The law allows

operations of personal retirement schemes such as life policies. There is insignificant

activity with regard to this pillar as it is mainly sold as an endowment product which is

still unpopular, given the experience of failed instruments by providers before

liberalization of the market in the early 1990s. This pillar also caters for individual

retirement plans for professionals and generally high net worth citizens.

The social security legislation under Income Tax Act of 1966 was recently strengthened

by the enactment of laws to oversee the operations of the market. The PIA was

established in 1998 and the social security activities are now regulated by the Pensions

and Insurance Act and the Pension Scheme Regulation Act of 1996, the Income Tax Act

1966 as amended and the Ministry of Labor and Social Security. The investment

activities are also regulated by other financial services regulations such as the Banking

and Financial Services Act and the Securities and Exchange Commission Act. These

statutes are what basically constitute the legal and governance framework within which

the pension industry operates.

2.3 The concept of corporate governance

According to the European Union’s white paper on governance, the term "governance" is

a very versatile one. It is used in connection with several contemporary social sciences,

especially economics and political science. It originates from the need of economics (as

25

regards corporate governance) and political science (as regards State governance) for an

all-embracing concept capable of conveying diverse meanings not covered by the

traditional term "government". Referring to the exercise of power overall, the term

"governance", in both corporate and State contexts, embraces action by executive bodies,

assemblies (e.g. national parliaments) and judicial bodies (e.g. national courts and

tribunals).

The term "governance" corresponds to the so-called post-modern form of economic and

political organisations. According to the political scientist Roderick Rhodes, the concept

of governance is currently used in contemporary social sciences with at least six different

meanings: the minimal State, corporate governance, new public management, good

governance, social-cybernetic systems and self-organised networks.

The context of this paper, however, would be more interested in the meaning of

"Corporate governance” which is described more aptly by J. Wolfensohn, president of the

World Bank, as the principle of promoting corporate fairness, transparency and

accountability5. Even though it may not be representative of a universal definition, this

loose description of corporate governance highlights three key elements that have given

credence to the study of this subject matter, which are fairness, transparency and

accountability. The concept of corporate governance is defined in several ways because it

potentially covers the entire gamut of activities having direct or indirect influence on the

financial health of the corporate entities. As a result, different people have come up with

different definitions, which basically reflect their special interests in the field.

It is quite useful to recall the earliest definition of Corporate Governance by the

Economist and Noble laureate Milton Friedman. According to him, Corporate

Governance is to conduct the business in accordance with owner or shareholders’ desires,

which generally will be to make as much money as possible, while conforming to the

basic rules of the society embodied in law and local customs. This definition is based on

the economic concept of market value maximization that underpins shareholder

5 As quoted by an article in the Financial Times (UK), June 21, 1999

26

capitalism. Apparently, in the present day context, Friedman’s definition is narrower in

scope. Over a period of time the definition of Corporate Governance has been widened. It

now encompasses the interests of not only the shareholders but also many stakeholders

and particularly the way those interests are protected.

The Cadbury Report6 of the UK, which is one of the most globally cited reports and

authorities on corporate governance, defines corporate governance as the system by

which companies are directed and controlled. Boards of directors are responsible for the

governance of their companies. The shareholders’ role in governance is to appoint the

directors and the auditors and to satisfy themselves that an appropriate governance

structure is in place. The responsibilities of the board include setting the company’s

strategic aims, providing the leadership to put them into effect, supervising the

management of the business and reporting to shareholders on their stewardship. The

board’s actions are subject to the laws and regulations and the shareholders in general

meetings.

The Report further states that within that overall framework, the specific financial aspects

of corporate governance are the way in which boards set financial policy and oversee its

implementation, including the use of financial controls and the process whereby they

report on the activities and progress of the company to the shareholders. The role of the

auditors is to provide the shareholders with an external and objective check on the

directors’ financial statements which form the basis of that reporting system. Although

the reports of the directors are addressed to the shareholders, they are important to a

wider audience, not least to employees whose interests boards have a statutory duty to

take into account.

2.4 Historical perspective of corporate governance

The Watergate Scandal in the United States is believed to have provided the original

impetus to the need for corporate governance. As a result of subsequent investigations,

6 Chaired by Sir Adrian Cadbury, the Report was set up by the London Stock Exchange in May 1991 to draft a code of practices to assist corporations in U.K. in defining and applying internal controls to limit their exposure to financial loss

27

United States regulatory and legislative bodies were able to highlight control failures that

had allowed several major corporations to make illegal political contributions and to

bribe government officials. This led to the development of the Foreign and Corrupt

Practices Act of 1977 in USA that contained specific provisions regarding the

establishment, maintenance and review of systems of internal control.

This was followed in 1979 by the Securities and Exchange Commission of USA’s

proposals for mandatory reporting on internal financial controls. In 1985, following a

series of high profile business failures in the USA, the most notable one of which being

the Savings and Loan collapse, the Treadway Commission was formed. Its primary role

was to identify the main causes of misrepresentation in financial reports and to

recommend ways of reducing incidence thereof. The Treadway report published in 1987

highlighted the need for a proper control environment, independent audit committees and

an objective Internal Audit function. It called for published reports on the effectiveness of

internal control. It also requested the sponsoring organizations to develop an integrated

set of internal control criteria to enable companies to improve their controls.

Accordingly, the Committee of Sponsoring Organisations was born. The report produced

by it in 1992 stipulated a control framework, which has been endorsed and refined in the

four subsequent UK reports: Cadbury, Rutteman, Hampel and Turnbull.

While developments in the United States stimulated debate in the UK, a spate of scandals

and collapses in that country in the late 1980s and early 1990's led shareholders and

banks to worry about their investments. These also led the Government in UK to

recognize that the then existing legislation and self-regulation were not working.

Companies such as Polly Peck, British & Commonwealth, BCCI, and Robert Maxwell’s

Mirror Group News International in UK were all victims of the boom-to-bust decade of

the 1980s. Several companies, which saw explosive growth in earnings, ended the decade

in a memorably disastrous manner. Such spectacular corporate failures arose primarily

out of poorly managed business practices.

28

It was in an attempt to prevent the recurrence of such business failures that the Cadbury

Committee, under the chairmanship of Sir Adrian Cadbury, was set up by the London

Stock Exchange in May 1991. The committee, consisting of representatives drawn from

the top levels of British industry, was given the task of drafting a code of practices to

assist corporations in U.K. in defining and applying internal controls to limit their

exposure to financial loss, from whatever cause.

2.5 The governance framework for pension schemes

The literature available from the world’s social security realm, including documents from

the International Social Security Association (ISSA), Canadian Association of Pension

Supervisory Authorities (CAPSA), International Monetary Fund (IMF), World Bank and

OECD, do converge on the premise that pension funds function on the basis of agency

relationships between members and beneficiaries, on the one hand, and the

persons/entities involved in the administration of or financing of the scheme, such as the

scheme sponsor and scheme administrator, on the other. The governance of these

schemes consists of all the relationships between the different entities and persons

involved in the functioning of the pension scheme. Governance also provides the

structure through which the objectives of the pension scheme are set, and the means of

attaining those objectives and monitoring performance. It is the mirror image of the

corporate governance of a public limited company, which consists of the set of

relationships between the company’s management, board, shareholders and other

stakeholders (OECD, 2002).

Although there are existing differences in the operation of pension funds in OECD

countries, it has been accepted that these differences should not obscure the fact that

pension funds are set up with one common objective of serving as a secure source of

income funds for retirement benefits. In this respect, it is universally agreed that

regulations on pension governance need to be framed under this overriding objective

(Sunday Times of Zambia, 2005).

29

OECD (2002) postulates that the central figure in the pension fund governance is the

governing body, the board of trustees – i.e. the person, group of persons, or legal entity

responsible for the management and safeguarding of the pension fund. The governing

body is subject to various forms of external oversight. At one level, the governing body

may be monitored by special committees set up specially for this purpose (e.g. a

supervisory board or oversight committee, whose members may be elected by scheme

members or beneficiaries). At another level, regulations require independent

professionals such as actuaries, auditors and custodians to monitor and report on the

compliance of the governing body with relevant legislation. Finally, the governing body

is subject to the supervision of relevant authorities. The regularity and detail of the

oversight exerted by the supervisory authorities will vary depending on the complexity of

the pension system and the specific role of actuaries, auditors and custodians (OECD,

2002).

OECD recommends two dimensions to the framework for the development of

governance guidelines or regulations, regardless of the country to country variations in

the practical implementation. These dimensions take the form of the governance

structure, on one hand, and the governance mechanisms on the other.

The governance structure should ensure an appropriate division of operational and

oversight responsibilities, and the accountability and suitability of those with such

responsibilities. Elements under governance structure include issues of mandate as well

as legal and regulatory provisions. Specifically, OECD (2002) recommends the following

elements to appear in the governance structure of a pension Fund if effective supervision

is to be attained:

2.5.1 Identification of responsibilities – there should be a clear identification and

assignment of operational and oversight responsibilities in the governance of a

pension fund;

30

2.5.2 Governing body – every pension fund must have a governing body or

administrator vested with the power to administer the pension fund and who is

ultimately responsible for ensuring the adherence to the terms of arrangement

and the protection of the interests of scheme members and beneficiaries. The

responsibilities of the governing body should be consistent with the overriding

objective of a pension fund which is to serve as a secure source of retirement

income;

2.5.3 Expert advice - where it lacks sufficient expertise to make fully informed

decisions and fulfill its responsibilities, the governing body could be required

to seek expert advice or appoint professionals to carry out certain functions;

2.5.4 Auditor – an independent auditor of the pension entity, the governing body

and the scheme sponsor should be appointed by the appropriate body or

authority to carry out a periodic audit consistent with the needs of the

arrangement. What is also critical here is where that auditor reports and what

mechanisms are in place to take remedial action in cases where the pension

fund is found wanting;

2.5.5 Actuary – an actuary should be appointed by the governing body for all

defined benefit plans financed via pension funds. As soon as the actuary

realises, on performing his or her professional or legal duties, that the fund

does not or is unlikely to comply with the appropriate statutory requirements

and depending on the general supervisory framework, he or she shall inform

the governing body and - if the governing body does not take any appropriate

remedial action - the supervisory authority without delay;

2.5.6 Custodian – Custody of the pension fund assets may be carried out by the

pension entity, the financial institution that manages the pension fund, or by

an independent custodian. If an independent custodian is appointed by the

governing body to hold the pension fund assets and to ensure their

31

safekeeping, the pension fund assets should be legally separated from those of

the custodian. The custodian should not be able to absolve itself of its

responsibility by entrusting to a third party all or some of the assets in its

safekeeping;

2.5.7 Accountability – The governing body should be accountable to the pension

plan members and beneficiaries and the competent authorities. The governing

body may also be accountable to the plan sponsor to an extent commensurate

with its responsibility as benefit provider. In order to guarantee the

accountability of the governing body, it should be legally liable for its actions;

2.5.8 Suitability – The governing body should be subject to minimum suitability

standards in order to ensure a high level of integrity and professionalism in the

administration of the pension fund.

On the other hand, governance mechanisms are critical, according to the OECD model.

Pension funds should have appropriate control, communication, and incentive

mechanisms that encourage good decision making, proper and timely execution,

transparency, and regular review and assessment. Elements specified by OECD under

governance mechanisms are as follows:

2.5.9 Internal controls – There should be appropriate controls in place to ensure that

all persons and entities with operational and oversight responsibilities act in

accordance with the objectives set out in the pension entity's by-laws, statutes,

contract, or trust instrument, or in documents associated with any of these, and

that they comply with the law. Such controls should cover all basic

organisational and administrative procedures; depending upon the scale and

complexity of the plan, these controls will include performance assessment,

compensation mechanisms, information systems and processes, and risk

management procedures;

32

2.5.10 Reporting – Reporting channels between all the persons and entities involved

in the administration of the pension fund should be established in order to

ensure the effective and timely transmission of relevant and accurate

information;

2.5.11 Disclosure – The governing body should disclose relevant information to all

parties involved (notably pension plan members and beneficiaries, supervisory

authorities, etc.) in a clear, accurate, and timely fashion;

2.5.12 Redress – Pension plan members and beneficiaries should be granted access to

statutory redress mechanisms through at least the regulatory/supervisory

authority or the courts that assure prompt redress.

Clearly, the guidelines recommended by OECD provide a considerably plausible route

for acceptable governance practices and safeguarding pension interests. However, the

problem with discussing any form of governance is that no matter how attractive the

model might appear, the reality is that actual implementation usually falls below the

desired quality. Various critiques of pension governance models argue that a model that

is devoid of inherent bottlenecks is yet to be developed. Despite the comprehensiveness

of the OECD model, it has also been criticized for its lack of depth in practicality.

According to Golinowska and Kurowski (2000), the appropriateness and effectiveness of

specific risk and governance solutions in a pension system largely depends on factors that

characterise a given country’s situation: its level of economic development, the

population’s affluence, traditions of business culture and co-operation, etc. The safe and

effective operation of pension funds in a given country requires a proper set of tools that

do not necessarily have to be universal, but whose deviation from the general rules

should not be so numerous as to change the basic mechanism of the instruments’

functioning. And if these deviations do occur, they should be rationally justified. When

constructing these instruments, the legislator faces many dilemmas. These may result

from the contradiction between the goals of the system’s new institutions and the tasks of

33

the instruments used to safeguard against risks. What is critical though is to ensure that

the dilemmas are given detailed consideration at the point of constructing the

instruments.

2.6 Primary elements of supervision

Evidently though, not much study has been devoted to the examination of the

practicalities of pension governance models worldwide, particularly as relates to the

element of supervision. Currently, global institutions such as the IOPS, World Bank,

OECD etc are actively engaged in the pursuit of extended exploration and understanding

of the successes and failures of pension regulatory and supervisory structures. Although

there is a growing body of work on the theory and economics of pension systems, this

tends to be focused on the financial implications and consequences of these

arrangements, rather than on understanding their operation and oversight. Very little

consideration has been given to the way schemes are supervised and to the factors that

determine relationships between the design of pension systems, the environment in which

they operate and the manner in which supervision is most effectively undertaken.

The body of literature that is well cited in the area of effective pension supervision

includes studies by Mataoanu (2004) and Hinz and Mataoanu (2005), who stress that

maintaining effective pension regulatory and supervisory structures that secure the

interests of the participants and beneficiaries is crucial for systemic stability and

economic growth. Mataoanu’s (2004) study focuses on the supervision of privately

managed, defined contribution pension systems and attempts to clarify key factors that

determine the setting and operational activity of pension supervisory structures. Hinz and

Mataoanu, on the other hand, propose an approach to classifying and measuring the

primary elements of pension supervision.

Like in much other literature relating to the subject matter of pension supervision, the

starting point of both analyses is the OECD’s model on pension governance. Examined to

greater detail, the OECD’s framework brings out six basic and functional elements of

34

supervision, namely monitoring, licencing, communication, measurement, intervention

and correction (OECD, 2004), which are expounded in the theoretical framework that

follows.

35

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This chapter outlines the methods used to carry out the study. This includes the research

design, sample design, and the sampling techniques. It also explains the data collection

methods and the sources, research instruments used, the design of the questionnaire, and

a brief on the analysis of the results.

3.2 Research Design

In order to build a thorough contextual understanding of the issues at play, the point of

departure for this study was the review of the literature on governance in general and

pension systems worldwide, before narrowing down the scope to the principles of

pension governance. The study also carried out both primary and secondary research in

two of the three statutory pension schemes in Zambia to assess the applicability of the

principles of pension governance in the country. In order to draw meaningful

comparisons and have a basis on which to accurately prove the hypotheses advanced, the

study also extended similar inquiry to the private pension schemes in the country. A

working theoretical framework provided a basis on which the study could evaluate PIA’s

effectiveness on the supervision of LASF and PSPF in comparison with the supervision

exerted on private schemes.

The researcher used both structured questionnaires and interviews with a view to

measuring the scope and intensity of the applicability of the supervision elements in the

two categories of pension plans. As a supervisory authority, PIA was also requested to

respond to a questionnaire, which was structured slightly differently from the other

questionnaires in that its purpose was to determine the institution’s supervisory grip on

the pension Funds. Inferences and conclusions were then drawn from the responses

received.

36

3.3 Data capture methods applied

The study employed two sets of questionnaires, personal interviews, direct observations

and literature review in the process of collecting relevant data.

3.3.1 Questionnaire survey

To collect data from the pension schemes, a structured questionnaire was presented to the

targeted institutions. The questionnaire sought to elicit information that would be used to

determine whether or not the elements identified as constituting benchmarks in pension

supervision were applicable in the Zambian case and to what extent.

3.3.2 Sample and Sample Size

A total of 9 questionnaires were administered and in the case of all of them, responses

were received back and processed. Considering that the sample used was relatively small,

no computer statistical software was used in the analysis of data instead, manual

processing was done. The small size of the sample did not warrant leaving out or

selecting institutions to target. Instead, all the institutions under study were presented

with the questionnaire and they all responded appropriately.

3.3.3 Personal Interviews

Interviews were conducted with identified stakeholder institutions and individuals.

Personal interviews were conducted with individuals from PIA as the supervisory

authority, LASF and PSPF as the two target public pension funds and Madison and

Africa Life as two of the private pension schemes. Attempts were made to interview

individuals from the other private schemes, but without success as it was learnt that their

institutions were not as liberal in information dissemination. However, the information

received from the individuals who were interviewed was sufficient for the purpose of this

37

study, particularly when tallied with the information collected through structured

questionnaires and some of the available literature.

3.3.4 Literature Review

This study carried out extensive review of available literature on governance and pension

systems in general as well as pensions in Zambia in particular. The World Wide Web

(www) search engines also provided a wide pool of information on the topic at hand. All

the sources of information have been acknowledged and listed in the bibliography at the

end of this report.

3.4.5 Observations

As an employee of one of the target institutions, the researcher also utilized direct

observation as a means for data collection. This method assisted in the collection of

qualitative information, which could not be captured through the structured

questionnaires. The researcher studied the various regulatory instruments that LASF was

expected to adhere to and compared that against the practical situation on the ground in

order to evaluate the data observed. Available records such as periodical institutional

reports (e.g. quarterly reports, annual reports etc) were extensively ustilised in this case to

evaluate this data.

38

CHAPTER FOUR

4.0 ANALYSIS OF THE FINDINGS

4.1 Introduction

This chapter analyses the data collected using the various data capturing methods and

draws inferences from which conclusions can be confidently reached.

4.2 Analytical framework

As already elaborated in the literature review, as well as in the theoretical framework, the

variations in the activities of pension supervision and its effectiveness or lack of it can

best be explained and understood by analyzing the six primary elements that are used in

pension supervision (i.e. licensing, monitoring, analysis, intervention, correction and

communication). However, scholars have pointed out, and this point has been practically

appreciated, that some of the elements tend to be extremely closely related and difficult

to distinguish in form. Therefore, for purposes of this study alone, the six elements have

been grouped into four categories, based on the closeness of the functions they play in

pension supervision, as follows:

i. Licensing

ii. Monitoring and communications

iii. Analysis and intervention

iv. Correction

Using the above categories, the research questions (questionnaires are attached as

Appendix III and IV) were designed in such a manner as to draw out and assess the depth

and intensity of the supervisory parameters between the supervisory authority and the

pension schemes or fund managers. From the responses, it is possible to determine the

39

level of depth or intensity of supervision as amplified in the following analysis that

follows for each category.

4.2.1 Licensing

Licensing is differentiated among pension systems by its restrictiveness, depth, and

periodicity. Some systems have virtually no entry barriers while others have very

complex and strict standards applied by the supervisor. Part B of the questionnaire

(Appendix II), sought to measure those standards and parameters in the context of the

Zambian pension industry.

The findings clearly indicate that in the Zambian case, except for NAPSA, which is not

regulated by PIA, all pension schemes, private or public, are required to register with the

regulator. Registering with PIA implies that the institution’s activities would be

monitored and, by extension, regulated by the registrar or regulator. Clearly, NAPSA is

not legally obliged to register. Neither is it regulated by the registrar. Of all the pension

schemes, NAPSA is the only exception and the reasons advanced are that it is a

mandatory and basic pension scheme which must be directly supervised by the central

government.

It has also been confirmed that all the pension schemes are required to obtain licences

from PIA for them to operate in Zambia, but NAPSA is once again exempted. The

exemption in this case, however, is also extended to LASF and PSPF, which are also

established by respective statutes. Implicitly, the licencing procedure strictly applies to

private pension schemes only.

The operating licences that private pension schemes are issued with are valid and

renewable every three years. The supervising authority makes licence renewal decisions

on the basis of procedural compliance and these procedures are clearly set. In other

words, the licences have compliance conditions attached to them and all pension schemes

40

(and fund managers in this case) are very careful not to abrogate those conditions for fear

of not having the licences renewed.

What we are seeing here is a set of elaborate registration and licensing conditions that

compel private pension schemes and fund managers to comply with the requirements of

the regulator or face deregistration.

However, the picture is completely different in the case of public pension schemes, which

although registered with PIA, are not licensed as established by the findings. Both LASF

and PSPF responded to the questionnaire that they are not licenced by PIA, although they

are supervised by PIA. Implicitly, LASF and PSPF have a perpetual life and are not

concerned with the likely prospect of denial of operating licences, which are not

necessary in their cases. Registration, it can be concluded, is equally a mere formality

which has no bearing on the tenure of life of public pension schemes.

The study, therefore finds that, where as in the case of private schemes, licensing is used

as a very effective function for ensuring that schemes operate in accordance with the

regulations and conditions set by PIA, the function does not apply to public pension

schemes. In other words, PIA is completely constrained in exercising supervisory power

over public schemes in as far as licensing is concerned because the licencing requirement

for public schemes is not mandatory, much as it has proved an effective tool in the case

of private schemes.

4.2.2 Monitoring and communication

Monitoring and communication are both used as functions for exchange of information

between the supervisor and the schemes. The two functions complement each other in

that where as monitoring basically channels information from the pension scheme to the

supervising authority, the flow of information in the case of communication is the other

way round, that is from the supervisor to the pension scheme. Through this two way

channel, the supervisor knows what the supervisee is doing and the supervisee also

41

knows what the supervisor expects of them. The bottom line is that both monitoring and

communication provide a platform for effective supervision.

Part C of both types of questionnaires (i.e. questionnaire for supervisees and supervisor)

was specifically designed to establish the type of information that the schemes usually

submit to PIA and the periodicity in which it is submitted. Once the type of information

that PIA collects from the pension schemes is established, one can clearly discern and

follow the monitoring process. The section also sought to determine how PIA

communicates with the pension schemes and the frequency in which it does so.

The findings established that all the nine respondents (100%) answered in the affirmative

that they are closely followed up by the supervisory authority in terms of the monitoring

function. This confirmed that in the case of both private and public schemes, PIA is very

effective in following the pension schemes’ activities using the monitoring system.

The schemes are required to submit a whole range of information to PIA and it is this

information that PIA uses to track the activities of the schemes. In addition, PIA also

monitors the schemes through the media as well as the use of “whistleblowers” at times7.

The media and whistleblowers perform a watchdog role, as it were, and enable PIA to

have access to information which would normally not be immediately available. 100% of

the respondents stated that they were closely monitored by PIA.

On the other hand, PIA uses several channels to communicate its compliance conditions

and rules to all the schemes. These channels include outreach activities, disclosure

platforms and training programmes. All the respondents (100%) indicated that they were

aware of the compliance conditions and the rules that apply to pension schemes. The

respondents cited outreach activities such as workshops and seminars the main methods

that PIA uses to communicate the rules and conditions. The other method that PIA

employs is that of directives through letters. However, the researcher was also able to

7 Information obtained from whistleblowers automatically triggers PIA investigations into the activities of the concerned scheme

42

establish, through interviews with officers at PIA, that financial constraints have limited

the frequency in which the outreach communication function is applied in Zambia

because these activities are costly to undertake. What determines the intensity with which

PIA wants to reach out to the pension schemes is the frequency of communication and

the number of methods used to communicate the conditions and the rules. It would

therefore be reasonable to conclude here that the intensity of communication between

PIA and the pension schemes tends to be diluted due to limited resources, even though

the message still gets across through letters.

According to the findings though, the regulator’s rules and requirements are very clear to

every pension scheme. There was no respondent that indicated that they were not fully

aware of what was expected of them in terms of the pension rules and conditions for

operating.

However, it was also established that whereas the private schemes are able to meet all the

requirements, the public schemes do not always provide all the required information

despite being fully conversant of what the regulator demands. All the six respondents

from the private pension schemes indicated that none of them had ever failed to comply

with any of the rules or conditions set by PIA and that none of them would dare not to

because that would definitely compromise the issuance or renewal of the operating

licence. In other words, the licencing aspect works as a very effective deterrent to non-

compliance.

On the other hand both LASF and PSPF indicated that there are times that they have

failed to submit some of the information required by PIA and although they are aware

that the consequences could be fatal, they have never suffered any such consequences.

Through interviews with LASF, PSPF and PIA, the study has established that both public

pension funds have consistently failed to submit actuarial reports for at least eight years

(ten years in the case of LASF and eight in the case of PSPF), contrary to PIA

requirements that all pension schemes submit actuarial reports once every two years for

the first four years and then every five years thereafter.

43

The two schemes have also been unable to furnish PIA with audited accounts, contrary to

PSRA. According to the findings contained in the 2004 PIA Inspection Report, the last

time LASF submitted audited accounts to PIA was in 1997, more than six years earlier.

Yet audited reports are supposed to be submitted annually.

The 2004 PIA Inspection Report also confirmed that in some cases, the two schemes

have been failing to submit quarterly returns, which would normally provide PIA with a

detailed track of the schemes’ activities on a quarterly basis. At the time of this research,

PIA indicated that LASF had not submitted quarterly reports for the last one and half

years, which accounts for over six quarters. Without quarterly returns, PIA is not in a

position to detect shortcomings in the operation of the scheme in the short to medium

terms.

Actuarial reports, annual reports and quarterly reports are all very cardinal in the

supervision of any pension scheme because they provide a platform for the regulator to

distinguish the sustainability and viability of a scheme in the short to long term.

In summary, using the monitoring and communication functions, PIA is able to

effectively supervise the private schemes and use the information for purposes of

implementing the licensing function equally effectively. However, in the case of the

public sector, although PIA is able to apply the monitoring and communication functions,

whether the information so gathered is effectively utilized for supervision purpose is a

matter that invites serious doubts, after all, one would conclude from the above findings

that it makes no difference whether the requirements are met or not.

4.2.3 Analysis and intervention

Measurement of supervisory effectiveness using the analysis element is usually evaluated

on the basis of the purpose, frequency, and intensity of the activity. From the information

that supervisors obtain through monitoring and communication functions, they are able to

44

undertake extensive measurement efforts that analyze and compare funds’ financial status

and activities to normative standards. On the other hand, a key issue that defines the

nature of interventions is the force of authority given to the supervisor and the nature of

the process through which interventions occur. Interventions by supervisors will tend to

be differentiated partially by the degree to which they are pro-active or occur only after

conclusive evidence of non-compliance is established.

The question this study addressed itself to was what PIA does once a scheme fails to

provide that critical information which is supposed to enable it make meaningful

analysis. Secondly, the study also explored what the supervisor does once it has been

established, from the analyses, that the pension fund is headed towards failure or

collapse, or indeed once any undesirable trend is detected.

The study attempted to address these questions through Part D of both questionnaires.

It emerged, from the inquiry, that no one disputes that both private and public schemes

that are supervised by PIA are legally obliged to furnish the authority with well-defined

documents which help in the analysis of their activities and that the legal instruments for

such purposes are adequate. All the respondents (100%) confirmed that they were aware

of the legal demand for them to furnish the supervisor with relevant documents.

The study also revealed that although all private schemes are compelled to submit the

relevant information at all times, by manner of the licencing requirements, the public

schemes are not pressured as much and have at times abrogated the requirement without

any penalty being meted against them, taking into account the fact that the licence is

unconditional, more or less. Lastly, the inquiry confirmed that those public schemes are

less likely to comply in many circumstances because it has occurred in the past the

despite abrogating the requirements, no penalties have been suffered.

Whereas a private scheme would face immediate closure, non-renewal of license,

removal of management or prosecution in the courts of law, both public schemes

45

indicated that the worst that could happen was for the Fund to be reprimanded and, if no

change is effected, reported to higher authorities. Higher authorities in this case are the

politicians, the ministers. Interviews with individuals at PIA revealed that there was an

unwritten rule that you can only deal with public pension schemes up to some extent,

beyond which you handover the matter to the Minister. Although it has never occurred

before that the registrar himself has been sanctioned for meting punishment on an erring

public pension scheme, the three interviewees at LASF, PSPF and PIA confirmed that

there is a foreboding belief and fear that penalising the public pension schemes would be

tantamount to challenging the government. It therefore makes sense to pass the ball to the

Minister, as it were.

On paper, the law, as illustrated above, covers both types of schemes but the practicality

of enforcing that law on public schemes is what makes the difference. There is no

evidence to suggest that the penalties of the law have ever been applied on public

pensions despite the trends showing that the public schemes have fallen short of such

legal requirements in the past. Part B of the questionnaire required the respondents to

indicate if renewal of a licence for their operations had ever been turned down and all the

respondents (100%) answered that it had never happened. Yet, the verbal interviews with

the two public schemes as well as PIA indicated that there are times when LASF and

PSPF fail to comply with some legal requirements such as submission of quarterly and

annual reports, audited accounts and actuarial valuation reports.

4.2.4 Correction

As   has   been   pointed   out   in   the   earlier   paragraphs,   one   of   the   most   important  

elements  of  pension  supervision  is  the  capacity  of  the  supervisor  to  take  corrective  

actions.  It  has  also  been  established  that  the  three  basic  types  of  corrective  actions  

that   can   be   employed   are   punitive,   remedial   and   compensatory.   Supervisory  

programs   may   engage   in   all   three   types   or   may   be   limited   exclusively   in   their  

authority  to  only  one.  

46

Part E of the structured research questionnaires was designed to elicit some of the factors

that could explain the practical difficulties faced by PIA in enforcing corrective actions

on defaulting public schemes.

The following emerged from this inquiry:

a) All the respondents from the public sector (100%) said the supervisory authority

has got no say in the appointment of the boards of the schemes and can, therefore,

not remove a board under any circumstances;

b) Both PIA and PSPF indicated that in the case of PSPF, its board’s appointing

authority is the same for PIA. In which case, not much influence can be obtained

from higher authorities if PSPF was to be reported for any wrong-doing;

c) PIA responded to the questionnaire that they can reprimand the public schemes

and even report the findings to the relevant authorities (Minister of Local

Government for LASF and Minister of Finance for PSPF), but they cannot go

beyond recommending further action to the respective Ministers. This

presupposition that Ministers will act as per PIA’s recommendation naturally puts

a cap to the supervisory effectiveness of PIA. The practical reality is that at that

point of submitting a recommendation to the Minister, PIA actually surrenders

authority to the Minister.

4.2.5 Governance

Part F of the two questionnaires was designed to bring out the perceptions that

people hold with regard to governance in the administration of public affairs in

Zambia generally and try to match that with the general trends in pension

governance during the respective eras of the three republics that the country has

passed through. With an understanding that the level of governance tends to be

influenced by the type of leadership in place in a given period, the questionnaire

47

Chart 1: Governance between 1964 and 1991

88%

12%

good bad

Chart 2: Governance between 1991 and 2001

11%

89%

good bad

sought to compare the three styles of leadership that prevailed in Zambia between

1964 and 2006.

The information collected from the inquiry indicates that during the first republic

(1964 to 1991) when Dr Kenneth Kaunda was president of the republic of Zambia

(Era 1), good governance was prevalent in Zambia to a greater extent. Only two

out of the nine (12%) respondents were of the view that governance was poor or

bad during that period, whilst seven respondents (88%) thought that governance

was good.

The picture that the responses painted in the case of the era that followed, i.e.

1991 to 2001 when Dr Fredrick Chiluba was ruling (Era 2), was almost the exact

opposite. Eight respondents (89%) said governance was very poor/bad and only

one respondent (11%) said it was good.

48

Chart 3: Governance between 2001 and 2006

60%

40%

good bad

There were mixed views in the case of the third era, between 2001 and 2006, the

regime that followed Dr Chiluba’s (Era 3), with some respondents (40%) stating

that governance was poor/bad and others (60%) indicating that it was good.

12

88 89

11

40

60

0

20

40

60

80

100

Era 1 Era 2 Era 3

Chart 4: Comparative rating of governance levels

Bad governance Good governance

In terms of the perceptions on the level of supervision, all the respondents (100%)

said they perceived PIA as being stricter in the third era (which recorded better

governance) than during the second era when governance was poorer. (Era 1 is

not considered in this case because there was no PIA in the first era, neither were

there private pension schemes then). As explained in the conceptual framework,

the assumption is that with the entrenchment of good governance in the fabric of a

49

nation’s public administration, such an environment would positively moderate

the impact of all the variables on pension supervision. The impact is either

positive or negative, depending on the whether the governance in the nation’s

public administration is bad or good.. This hypothesis is proved by the viewpoints

and perceptions reflected in the finding that PIA was viewed as being stricter in

the third era (which recorded better governance) than during the second era when

governance was poorer.

50

CHAPTER FIVE

5.0 CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This study was aimed at determining the supervisory effectiveness of PIA on

public pension schemes in Zambia and, by extension, to establish if the members’

interests were secure. The study, therefore, attempted to address concerns on

governance principles as they relate to supervision of public pension schemes in

Zambia by systematically exploring the general hypothesis that one of the critical

elements of governance has been compromised through state ownership. Suffice,

at this stage, to revisit and itemize the working hypotheses discussed earlier as

follows:

5.1.1 The supervision of public pension funds is negatively affected by

government ownership of the pension funds;

5.1.2 The regulatory and supervisory framework has an influence on the

supervisory effectiveness of public pension schemes;

5.1.3 The more autonomous the supervisory authority is, the more effective is

its supervision of pension funds;

5.1.4 The structure of the pension regulatory and supervisory framework has an

impact on the autonomy of the supervisory authority;

5.1.5 The level of governance in the general public administration has

moderating influence on all factors that affect pension supervision.

51

It will be recalled that to help prove the hypotheses three research questions were

developed and these are:

5.1.6 Is the Zambian pension supervisory authority adequately armed with

authority to supervise public pension schemes, such as LASF and PSPF,

effectively?

5.1.7 What limitations does PIA have in relation to the supervision of public

pension schemes?

5.1.8 Does the fact that LASF and PSPF are state-owned make it difficult for

PIA to enforce compliance on the two schemes?

5.2 Conclusions:

The data gathered through this research process was extensively analysed in

Chapter 4 and this chapter will now draw conclusions by answering the above

three research questions, and make recommendations accordingly.

5.2.1 Is the Zambian pension supervisory authority adequately armed with

authority to supervise public pension schemes, such as LASF and

PSPF, effectively?

Going by the analysis at Chapter 4, the answer to this question is negative.

The supervisory authority in Zambia has limited authority over public

pension schemes and, therefore cannot be said to be adequately armed to

supervise these institutions. What has emerged from the study is that

although it has the authority to monitor, scrutinise and even conduct site

inspections on public pension schemes, PIA’s mandate over the schemes

is limited to merely observing and pointing out shortcomings of pension

schemes but cannot enforce any form of remedial action. PIA can merely

52

report its observations and recommend to the Minister responsible for that

particular scheme what action to be taken. Beyond that, PIA has no

mandate to act, which means its supervisory scope is limited.

5.2.2 What limitations does PIA have in relation to the supervision of

public pension schemes?

The most important element of supervision is the ability to mete punitive

measures against an erring pension scheme so as to pre-empty further

abuse of the regulatory requirements. However, this is clearly lacking in

the case of PIA. First of all, the perpetual licence that is granted to the

public pension schemes automatically means that they enjoy unlimited

freedom without fear of reprisals of licence withdrawal in cases where

they fail to abide by the rules or regulations. If anything, one might say the

licence is unconditional. Furthermore, the fact that PIA has to recommend

to the Minister any form of remedial action means that the public pension

schemes are actually ring-fenced against the supervisor’s direct control.

The supervisor, PIA, has no control over the pension schemes, except

through the Minister. Thirdly, PIA’s inability to be part of the appointing

process of the Boards of Trustees that superintend over the pension

management also limits its influence in the management of the schemes.

Getting the scheme to have appropriately suitable Trustees or Board

members would be a natural way of pre-emptying and minimizing

possible mistakes in the management of the schemes. However, this is not

the case and unfortunately, as this research has established, PIA has no

authority to stop anybody being appointed to sit on the Board of a pension

scheme even where PIA is aware that the person being appointed does not

qualify in one way or another.

53

5.2.3 Does the fact that LASF and PSPF are state-owned make it difficult

for PIA to enforce compliance on the two schemes?

The fact that LASF and PSPF are state-owned is what makes the whole

difference between the private Schemes’ ability to stay clean and the

public schemes’ inability to do so. This study has demonstrated this big

difference. Private schemes are faced with one simple, but stern condition:

comply and behave or close down. Failure to meet any of the laid down

procedures, rules or regulations could cost the private scheme an operating

licence or a lot of money in penalties. Public schemes on the other hand

have an unconditional licence and can fail to comply, and even break the

law, but they will not be penalised in any way. It is therefore correct to

state that this can only be so because they are state-owned. PIA is only

unable to enforce compliance because the schemes are state-owned and

shielded from the supervisor’s direct control.

The broad perceptions from a wide section of Zambian employees, is that scheme

members’ requirements of a social security scheme include the following:

a) The availability of regular and up-to-date, individual membership statements;

b) Prompt pay-outs, as and when they fall due;

c) Regular accounting records and meetings. This, they argue, gives them the

comfort that the scheme is being properly managed;

d) Corporate governance issues in the management of public funds, including the

compliance and prudential management of funds in accordance with the national

pension rules and regulations.

54

This study has scrutinized the performance of public pension schemes, in particular

LASF and PSPF, and safely arrived at the following conclusions:

5.2.5 Private pension schemes in Zambia have been performing in accordance with

members’ expectations and regulatory legislation. Many of the managed

occupational schemes have performed well and statistics of operating indicators

available for the period 1 April 1993 to 31 March 2005 attest this. The reasons for

this could mainly be attributed to the effective supervision from PIA.

5.2.6 Public pension schemes in Zambia have not been performing to expected

standards as far as governance is concerned. Both LASF and PSPF have been

failing to meet many of the PIA requirements. Not only that, but it is very evident

that all the above indicators are negative in the case of public schemes. Payouts

are irregular and unpredictable. Individual membership statements are not

available. Generally, corporate governance in the management of public funds is

lacking. Clearly, therefore, the public pension system is malfunctioned and

governance of these public schemes is highly questionable.

5.2.7 The involvement of government in the pension administration is a serious

weakness, at least in the Zambian case. Government presence in the supervisory

structure compromises and defeats the very foundation of the governance of

public pension schemes.

5.3 Recommendations

Based on the findings, analysis and conclusions thereof, it is hereby recommended that

the structural arrangements relating to the supervision of public pension schemes should

be streamlined to make it more transparent and distant from the government and,

therefore, less susceptible to compromise due to the various reasons articulated in this

study. Three critical issues need to be singled out and addressed in this regard.

55

5.3.1 Conditions for effective regulation and supervision

An adequate regulatory framework for both public and private pensions should be

enforced in a comprehensive, dynamic and flexible way in order to ensure the

protection of pensions scheme members and beneficiaries, the soundness of

pensions schemes and funds and the stability of the economy as a whole. It is

critical that legal provisions clearly and objectively state the responsibilities of the

pension supervisor. These legal provisions grant the pension supervisor

operational independence from both political authorities and commercial

interference in the exercise of its functions and powers. The legal provisions grant

the pension supervisor adequate powers, legal protection, and proper resources

and staff, and the capacity to perform its functions and exercise its powers. The

legal provisions require that the pension supervisor adopts clear, transparent, and

consistent regulatory and supervisory processes. Where appropriate, the rules and

procedures of the supervisor are published and updated regularly. These legal

provisions allow the pension supervisor to consult, as appropriate, with the

pensions sector when determining its approach to supervision and regulation.

5.3.2 Definition of scheme/sponsor relations

An institutional and functional system of adequate legal, accounting, technical,

financial, and managerial criteria should apply to pension funds and plans, jointly

or separately, but without excessive administrative burden. As is the case with

privately organized schemes, public pension funds must be legally separated from

the sponsor or at least such separation must be irrevocably guaranteed through

appropriate mechanisms.

5.3.3 Supervision

Effective supervision of pension funds must be set-up and focus on legal

compliance, financial control, actuarial examination and supervision of managers.

56

Granted, PIA is an appropriate supervisory body. However, the institution is

weakened by its form and structure. PIA needs to develop an appropriate structure

devoid of government dependence and supervision. The institution must also be

properly staffed and funded and be in a position to conduct off and on site

supervision, at least in the case of all operating pension schemes and in particular

when problems are reported. As a supervisory body PIA should be endowed with

appropriate regulatory and supervisory powers over all individual schemes. These

include powers to impose administrative sanctions and/or to seek orders from

courts or tribunals as well as power to initiate or to refer matters for criminal

prosecution.

5.3.4 Appointment of Trustees

The pension supervisor must have the authority to execute a fit-and-proper test of

the members of the governing body of pension funds in order to assess whether

the persons are qualified for the task. The supervisor must have the authority to

disqualify members of the governing body on the basis of a fit-and-proper test.

The pension supervisor must also be authorized to require a change in the

organizational or governance structure of a pension entity if it is deemed

necessary to ensure their proper functioning and to request the replacement of

members of the governing body that are not carrying out their duties in

accordance with the legal provisions.

.

5.4 Summary of conclusions and recommendations

The study has shown that pension supervision of public schemes in Zambia is

weak, particularly due to the government involvement in the ownership and

management of the pension system. These weaknesses can, however, be easily

reversed if a mechanism which deliberately distances the government from the

pension system was to be adopted and implemented. The study has made specific

mention of the areas that need attention and recommended what exactly ought to

57

be done if the current governance weaknesses in public pension schemes were to

be eliminated. It must be acknowledged that the recommendations highlighted

above are not a new invention. These are recommendations that are infact

contained in the OECD Recommendations on Core Principles for Pension

Supervision, which if fully applied in the Zambian case would reverse the current

shortcomings of pension supervision as exposed in this study.

58

6.0 REFERENCES

1. Golinowska Stanisawa and Kurowski Piotr (2000), Rational Pension Supervision,

Case Report No. 36, Centre for Social and Economic Research, Warsaw.

2. Hantuba, M (2005), A case for privatisation of Social Security in Zambia, Paper

Presented to the International Social Security Association (ISSA) Conference

Regional Conference for Africa, 9 – 12 August 2005, Lusaka

3. International Social Security Association (2003), International Social Review,

Volume 56, No. 2, “Social governance: Corporate governance in institutions of

social security, welfare and healthcare,” Page Bros. Ltd, Norwich

4. International Social Security Association (2003), International Social Review,

Volume 56, No. 3-4, “Governance of social security regimes: Trends in Senegal,”

Page Bros. Ltd, Norwich

5. International Social Security Association (2001), International Social Security

Series, Volume 6, “Building social security: the challenge of privatisation,”

Transaction Publishers, New Brunswick, U.S.A

6. Institute of Directors in Southern Africa (2002), The King Report on Corporate

Governance for South Africa 2002 (King II Report), Pretoria, RSA

7. Organization for Economic Co-operation and Development, Guidelines for

Pension Fund Governance, OECD Secretariat, July, 2002

8. Organization for Economic Co-operation and Development, Insurance and

Private Pensions Compendium For Emerging Economies, Working Party on

Private Pensions OECD Secretariat, 2001

9. Organization for Economic Co-operation and Development, Supervising Private

Pensions: Institutions and Methods, OECD, 2004

10. Pensions and Insurance Authority (2004), Annual Report for 2003, Lusaka

11. Quintyn, Marc G. ; Taylor, Michael W., Regulatory and Supervisory

Independence and Financial Stability, International Monetary Fund, Working

Paper No. 02/46, March 1 2001

59

12. Rhodes R (1996), “The new governance: governing without government” in

Political Studies, Vol. 44, page 652

13. Rocha Roberto, Hinz Richard, Gutierrez Joaquin, Improving the Regulation and

Supervision of Pension Funds: Are There Lessons From the Banking Sector?, The

World Bank, December, 1999

14. The Local Authorities Superannuation Fund Act, Chapter 284 of the Laws of

Zambia, Lusaka

15. The Local Authorities Superannuation Fund (2002), Performance Review Report

for 2001, Lusaka

16. The Local Authorities Superannuation Fund (2003), Performance Review Report

for 2002, Lusaka

17. The Local Authorities Superannuation Fund (2004), Performance Review Report

for 2003, Lusaka

18. The Local Authorities Superannuation Fund (2005), Performance Review Report

for 2004, Lusaka

19. The Pensions Scheme Regulation Act No.28 0f 1996, Lusaka

20. The Sunday Times of Zambia, Special Pull-out (2005), Governance for Pension

Funds, Oct – Nov. 2005, Lusaka

21. Vittas Dimitri, Regulatory Controversies of Private Pension Funds, The World

Bank, 1998,

22. World Bank (2002), Zambia Country Assistance Evaluation Report No. 25075,

November, 2002.

23. www.ideas.repec.org/p/wop/wobadc/1893.html

24. www.imf.org/external/pubs

25. www.indiainfoline.com

26. www.issa.int/documentation

27. www.mgmt.purdue.edu/centers/ciber/ publications

28. www.oecd.org/daf/insurance-pensions

29. www.piacweb.org/Publications

30. www.pia.org.zm

31. www.rider.wharton.upenn.edu

60

32. www.europa.eu.int/comm/governance

33. www.worldbank.org/html

A

APPENDIX I

LIST OF ALL PENSION SCHEMES IN ZAMBIA AND THEIR RESPECTIVE

PENSION FUND MANAGERS

Name of Pension Scheme Pension Fund Manager

1 African Explosives (Kafironda )Limited Pension Scheme African Life Financial Services Limited

2 African Life Financial Services (Z) Limited African Life Financial Services Limited

3 Afrope Zambia Limited Pension Scheme African Life Financial Services Limited

4 American Embassy Pension Scheme Madison Insurance Company Zambia Limited

5 Anglo American Corporation Pension Scheme African Life Financial Services Limited

6 AON Zambia Limited Pension Scheme Professional Insurance Corporation (Z) Limited

7 Apex Retirement Pension Scheme African Life Financial Services Limited

8 Barloworld Plascon Zambia Limited Pension Scheme African Life Financial Services Limited

9 Bell Equipment Zambia Limited Pension Scheme African Life Financial Services Limited

10 Boart Longyear Zambia Limited Pension Scheme African Life Financial Services Limited

11 BP Zambia Limited Pension Scheme African Life Financial Services Limited

12 Bric Back Defined Contribution Pension Scheme African Life Financial Services Limited

13 British High Commision Staff Pension Scheme Madison Insurance Company Zambia Limited

15 Business Logic Consultants Pension Scheme Cavmont Capital Bank Limited

16 CEC Pension Trust Scheme Cavmont Capital Bank Limited

17 Cavmont Capital Bank Limited Pension Trust Fund Cavmont Capital Bank Limited

18 Chambishi Metals Pension Scheme African Life Financial Services Limited

19 Chibuluma Mines PlcPension Scheme African Life Financial Services Limited

20 Chilanga Cement Pension Trust Scheme African Life Financial Services Limited

21 Chloride Zambia / Exide Zambia Limited Pension Scheme African Life Financial Services Limited

22 Christian Children's Fund Pension Scheme Cavmont Capital Bank Limited

23 Clark Cotton Zambia Limited Pension Scheme African Life Financial Services Limited

24 Coates Brothers Zambia Limited Pension Scheme Zambia State Insurance Corporation Limited

25 Communications Authority Pension Fund Zambia State Insurance Corporation Limited

26 Consolidated Tyre Services Pension Scheme Cavmont Capital Bank Limited

27 Copperbelt Bottling Company Limited Pension Scheme African Life Financial Services Limited

28 Copperbelt Health Education Project Pension Scheme ZIGI Independent Trustees Limited

29 Corpmed Services Ltd African Life Financial Services Limited

30 Crown Cork (Zambia ) Limited Pension Scheme African Life Financial Services Limited

B

31 Deloitte & Touche Pension Scheme African Life Financial Services Limited

32 DHL International Zambia Limited Pension Scheme African Life Financial Services Limited

33 Directory Publishers of Zambia Pension Scheme African Life Financial Services Limited

34 Drilltech Engineering Services Ltd Pension Scheme African Life Financial Services Limited

35 Dunavant Zambia Limited Pension Scheme African Life Financial Services Limited

36 Embassy of France Pension Scheme African Life Financial Services Limited

37 Farmchem Services Limited Pension Scheme Professional Insurance Corporation (Z) Limited

38 Finance Bank Pension Scheme Professional Insurance Corporation (Z) Limited

39 Gamma Pharmaceuticals Limited Pension Scheme African Life Financial Services Limited

40 Global logistics Limited Pension Scheme African Life Financial Services Limited

41 Hill & Delamain Zambia Ltd Pension Scheme African Life Financial Services Limited

42 Honda Zambia Limited Pension Scheme Madison Insurance Company Zambia Limited

43 Intermarket Discount House (Z) Limited Pension Scheme Madison Insurance Company Zambia Limited

44 International Cartons & Packaging Ltd Pension Scheme African Life Financial Services Limited

45 Investrust Merchant Bank Zambia Limited Pension Scheme African Life Financial Services Limited

46 Kaleya Small Holders Company Limited Pension Scheme Madison Insurance Company Zambia Limited

47 Kenya Airways Pension Scheme African Life Financial Services Limited

48 Konkola Copper Mines Plc African Life Financial Services Limited

49 Local Authorities Superannuation Fund

50 Lonrho Zambia Limited Retirement Benefits Trust Cavmont Capital Bank Limited

51 Luawata Conservation Limited Pension Scheme African Life Financial Services Limited

52 Lusaka Baptist Church Pension Scheme African Life Financial Services Limited

53 Lusaka Stock Exchange Pension Scheme African Life Financial Services Limited

54 Madison Insurance Company Zambia Limited Insuracne Company (Z) Ltd Pension Schem.

Madison Insurance Company Zambia Limited Insurance Company Zambia Limited

55 Manica Zambia Ltd Pension Scheme African Life Financial Services Limited

56 Metal Fabricators of Zambia Limited Pension Scheme African Life Financial Services Limited

57 Mopani Copper Mines Plc Pension Fund African Life Financial Services Limited

58 Mpongwe Development Company Limited African Life Financial Services Limited

59 Mukuba Pension Scheme

60 Multi Choice Zambia Limited Pension Scheme Professional Insurance Corporation (Z) Limited

61 Multi-Vendor Services Pension Scheme African Life Financial Services Limited

62 Mulungushi Intl. Conference Centre Pension Scheme Professional Insurance Corporation (Z) Limited

63 Mulungushi Village Complex Pension Scheme Professional Insurance Corporation (Z) Limited

64 National Heritage Conservation Comm. Pension Fund Zambia State Insurance Corporation Limited

65 Parmalat Zambia African Life Financial Services Limited

66 Premium Medical Services Ltd Staff Pension Fund Zambia State Insurance Corporation Limited

67 Pre-Secure Limited Pension Scheme African Life Financial Services Limited

68 Proffessional Networking(Z) Limited African Life Financial Services Limited

C

69 Public Service Pensions Fund

70 Ridgeway T/A Holiday Inn Garden Court Pension Scheme African Life Financial Services Limited

71 Saturnia Regna Pension Trust Limited African Life Financial Services Limited

72 Scripture Union Zambia Pension Scheme African Life Financial Services Limited

74 SKF Zambia Ltd Pension Scheme African Life Financial Services Limited

75 TAP Building Products Limited Pension Scheme Madison Insurance Company Zambia Limited

76 Tombwe Processing Company Limited African Life Financial Services Limited

77 Total Zambia Limited Pension Scheme African Life Financial Services Limited

78 Translink Freight Zambia Limited Pension Scheme African Life Financial Services Limited

79 Uunet Zambia Pension Scheme African Life Financial Services Limited

80 W & C Computers Limited Pension Scheme Professional Insurance Corporation (Z) Limited

81 Workcom Pension Registered Trustees Intermarket Securities Limited

82 York Farm Limited Pension Scheme African Life Financial Services Limited

83 ZAL Elevators Pension Scheme African Life Financial Services Limited

84 Zambezi Ranching Cropping Ltd Pension Scheme African Life Financial Services Limited

85 Zambezi River Authority Pension Scheme Trust Professional Insurance Corporation (Z) Limited

86 Zambia Bottlers Ltd Pension Scheme African Life Financial Services Limited

87 Zambia Centre for Accountancy Studies Pension Scheme African Life Financial Services Limited

88 Zambia Open Community Schools Pension Scheme African Life Financial Services Limited

89 Zambia Railways Pension Scheme Professional Insurance Corporation (Z) Limited

90 Zambia Seed Company Limited Pension Scheme Professional Insurance Corporation (Z) Limited

91 Zambia Sugar Plc Defined Contribution Scheme African Life Financial Services Limited

92 Zambia Union of Financial Institutions and Allied Workers Group Pension Scheme

Professional Insurance Corporation (Z) Limited

93 Zambian Breweries Plc Pension Scheme African Life Financial Services Limited

94 ZSIC Limited Staff Pension Scheme Zambia State Insurance Corporation Limited

Information supplied as at October 2004

D

APPENDIX II LIST OF LICENSED FUND MANAGERS, THEIR ADDRESSES AND CONTACT PERSONS

1. African Life Financial Services Limited,

74, Independence Avenue

PO Box 51331

Lusaka

Zambia.

Contact Person : Muna Hantuba - Chief Executive

Tel: 260-1-254841

Fax: 260-1-253112 E-mail: [email protected]

{Managing the Funds in Saturnia Regna Pension Trust Fund}

2. Cavmont Capital Insurance Corporation Limited

3rd Floor Farmers House

P O Box 38474

Lusaka

Zambia

Tel: 260-1-228929

E-mail: [email protected]

Contact Person - Mr. Shadreck Lungu (Manager Asset Management Division)

{Managing the funds in Cavmont Guarantee Trust Company

E

3. Intermarket Banking Corporation (Z) Limited

Farmers House, PO Box 35832,

Lusaka.

Tel :260-1-227227-8 / 260-1-220927-9

Email: [email protected] Website: www.intermarket.co.zm

Contact person: Mrs. Sherry Thole - Managing Director

{Managing Funds in Intermarket Securities Limited}

4. Madison Insurance Company Zambia Limited

Kaleya Road, Roma Township

PO Box 37013,

Lusaka

Tel: 260-1-295311-17 Fax: 260-1-295320

Email: [email protected]

Contact Person - Mr. Victor K Munalula General Manager - Life and Pensions

Managing Funds in Madison Pension Trust Fund

5. Professional Insurance Corporation Zambia Limited

Professional House, Heroes Place

PO Box 34264,

Lusaka.

Tel: 260-1-220128/227509/222223 Fax: 260-1-220128

Email: [email protected]

F

Contact person - Mr. Chris Kampamba (General Manager Life and Pensions)

Managing Funds in PICZ Pension Trust Company Limited

6. ZIGI Insurance Company Limited

5th Floor, Mukuba Pension House,

PO Box 37782,

Lusaka

Tel: 260-1-226835 Fax: 260-1-231564

Email: [email protected]

Contact person - Mr. Savior Harris Konie - Chief Executive

{Managing Funds in ZIGI Independent Trustees Limited}

G

APPENDIX III QUESTIONNAIRE

(For Pension Schemes and Pension Fund Managers)

Dear Respondent,

I take this opportunity to kindly request you to spare a few minutes of your time and

respond to the questions relating to some aspects of your company’s operations.

This questionnaire is designed to explore the effectiveness of pension supervision in

Zambia. The responses you shall provide are guaranteed strict confidentiality as only the

supervisor, research assistant and I will have access to the information gathered through

this process.

The information collected by this questionnaire will form part of the dissertation that will

be submitted in partial fulfilment of the award of a Master of Business Administration

(MBA).

Your support in this regard is of utmost importance and will be immeasurably

appreciated.

Conrad K Simuchile

MBA Student

ESAMI & MsM

H

QUESTIONS

Please fill in responses to the following questions as accurately as possible by ticking in

the boxes or writing in the space provided.

1. Name of institution…………………………………………………………….

2. Type (tick whichever is applicable):

� Public (Sponsored directly or indirectly and guaranteed by the

Government of the Republic of Zambia)

� Private (Entirely sponsored by institution (s) and not guaranteed by

Government)

3. Age since establishment (tick whichever is applicable):

� Less than 5 years

� 5 – 10 years

� More than 10 years

4. Indicate whether registered as Pension Scheme or Fund Manager

� Pension Scheme

� Fund Manager

PART A - INTRODUCTION

I

� Both Pension Scheme and Fund Manager

5. If Fund Manager, state the number of schemes whose funds you

manage………………………………………………………………………….

PART B - LICENSING

6. Is your institution licensed?

� Yes

� No << if no, go to question 12

7. If yes, what is the duration of your license?

� 1 year

� 2 years

� 3 years

� 4 years

� 5 years or more

� Permanent

PART B - LICENSING

J

8. Has your institution’s licence renewal application ever been turned down?

� Yes

� No << go to question 10

9. If yes, were you informed of the reasons? Please, elaborate

………………………………………………………………………………………

....................................................................................................................................

10. Are there any procedures for renewing a license?

� Yes

� No << go to question 12

11. If yes, kindly state the procedures, step by step:

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

…………………………………………………………………………………

12. Is your institution supervised by the Pensions and Insurance Authority (PIA)?

� Yes

PART C - MONITORING AND COMMUNICATION

K

� No

13. Is your institution required to submit any information to PIA?

� Yes

� No << go to question 15

14. In the table below, list the type of information and the interval in which it is

required for submission:

TICK

(ONLY IF

APPLICABLE)

ü

TYPE OF INFORMATION

(IF NOT COVERED, SPECIFY

IN THE SPACE PROVIDED

AT BOTTOM)

INTERVAL

(STATE MONTHLY,

QUARTERLY, BI-

ANNUAL, YEARLY

E.T.C.)

A Financial Statements

B Actuarial Reports

C Audit reports

D Annual Reports

E Schedules of transactions

F Member contribution schedules

G Bank statements

H Asset register

I Information on sponsors

L

J CVs for Board members

K CVs for Management

L

M

N

O

15. Does the PIA undertake other forms of supervision on your scheme?

� Yes

� No

16. If yes, specify below:

A.……………………………………………………………………………………

B.……………………………………………………………………………………

C……………………………………………………………………………………

D……………………………………………………………………………………

17. Has any member of your institution been invited to attend any of the following

programmes organized or sponsored by PIA:

TICK

(ONLY IF

APPLICABLE)

ü

PROGRAMME/ACTIVITY

INTERVALS

(STATE EVERY

YEAR,

OCCASSIONALLY,

E.T.C.)

M

A Outreach/Educational activities

e.g. workshops or seminars

B Training programmes

C Disclosure platforms e.g. Press

briefing or any kind of

publicity

18. Is there any regulation or piece of legislation that compels your institution to

provide data, information, documents statements or records to any body or

institution?

� Yes

� No

19. If yes, state names or titles of the legislation or regulation (as many as you are

aware of)

A……………………………………………………………………………………

B……………………………………………………………………………………

C……………………………………………………………………………………

D…………………………………………………………………………………..

E…………………………………………………………………………………..

F……………………………………………………………………………………

20. To which body or bodies in Zambia is your institution legally or otherwise

obliged to provide data, information, documents, statements or records (tick as

many as appropriate)?

PART D - ANALYSIS AND INTERVENTION

N

� Parliament

� Minister (specify which Minister)…………………………………

� PIA

� Media

21. Tick any box or boxes below that best describe what would happen if your

institution failed to provide the data, information, documents statements or

records so required (tick as many as would apply).

� The licence would be withdrawn

� The scheme would be fined

� The scheme would be reprimanded

� The scheme would be reported to higher authorities

� The scheme would be prosecuted in the courts of law

� Nothing would happen

� Any other consequence (please elaborate)

………………………………………………………………………………

………………………………………………………………………………

………………………………………………………………………………

O

22. Does your institution have a Board?

� Yes

� No << go to question 27

23. If yes, who appoints that Board?................................................................................

24. Can the Board be dissolved by the appointing authority?

� Yes

� No

25. Under what circumstances would the Board be dissolved? Please elaborate

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

26. Does the PIA have a say in the appointment of the Board of your institution?

� Yes

� No

27. Does the PIA have a say in the appointment of the management of your

institution?

PART E - CORRECTION

P

� Yes

� No

28. How would you rate adherence to governance principles generally during the

period between 1964 and 1990, when Dr Kenneth Kaunda was President?

� Very good

� Good

� Poor

� Very poor

29. How would you rate adherence to governance principles generally during the

period between 1991 and 2001, when Dr Fredrick J T Chiluba was President?

� Very good

� Good

� Poor

� Very poor

PART F - GOVERNANCE IN ZAMBIA

Q

30. How would you rate adherence to governance principles generally during the

period between 2001 and now, under the Presidency of Mr Levy P Mwanawasa?

� Very good

� Good

� Poor

� Very poor

31. How do you compare PIA’s strictness on compliance requirements during the

period in Question 30 and the period in Question 31?

� More strict then than now

� No difference

� Less strict then than now

________________________________________________________________________

The questionnaire ends here. I value your time and effort in completing this

questionnaire. Thank you very much for your support. Kindly give the questionnaire back

to my Research Assistant (Paul) when he calls on you or contact him on this number

097705666. You may also contact me by e-mail on [email protected]. Comments

outside this questionnaire are most welcome. Once again, thank you and may God bless

your activities in the year 2006.

R

APPENDIX IV

QUESTIONNAIRE

(For the supervisory authority of Pension Funds - PIA)

Dear Respondent, I take this opportunity to kindly request you to spare a few minutes of your time and

respond to the questions relating to some aspects of your company’s operations.

This questionnaire is designed to explore the effectiveness of pension supervision in

Zambia. The responses you shall provide are guaranteed strict confidentiality as only the

supervisor, research assistant and I will have access to the information gathered through

this process.

The information collected by this questionnaire will form part of the dissertation that will

be submitted in partial fulfilment of the award of a Master of Business Administration

(MBA).

Your support in this regard is of utmost importance and will be immeasurably

appreciated.

Conrad K Simuchile MBA Student ESAMI & MsM

S

QUESTIONS

Please fill in responses to the following questions as accurately as possible by ticking in

the boxes or writing in the space provided.

1. Name of institution…………………………………………………………….

2. Type (tick whichever is applicable):

� Department of a Ministry

� Authority

3. Year of establishment ……………………………………..

PART B - LICENSING

4. Does your institution issue licences for pension schemes?

� Yes

� No << if no, go to question 10

5. What is the duration of the licenses? (tick as many as are applicable)

� 1 year

� 2 years

PART A - INTRODUCTION

PART B - LICENSING

T

� 3 years

� 4 years

� 5 years or more

� Permanent

6. Has your institution ever turned down an application for a license?

� Yes

� No

7. Are you obliged to reveal the reasons for rejecting a licence application? Please,

elaborate

………………………………………………………………………………………

....................................................................................................................................

8. Are there any procedures for renewing a license?

� Yes

� No << go to question 10

9. If yes, kindly state the procedures, step by step:

………………………………………………………………………………………

………………………………………………………………………………………

U

………………………………………………………………………………………

………………………………………………………………………………………

…………………………………………………………………………………

10. Are all the pension schemes in Zambia supervised by the Pensions and Insurance

Authority (PIA)?

� Yes

� No

11. Are all the schemes required to submit any information to PIA?

� Yes

� No

12. If no, name the institutions that are not required to submit information to

PIA…………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

PART C - MONITORING AND COMMUNICATION

V

13. In the table below, list the type of information and the interval in which it is

required for submission:

TICK

(ONLY IF

APPLICABLE)

ü

TYPE OF INFORMATION

(IF NOT COVERED, SPECIFY

IN THE SPACE PROVIDED

AT BOTTOM)

INTERVAL

(STATE MONTHLY,

QUARTERLY, BI-

ANNUAL, YEARLY

E.T.C.)

A Financial Statements

B Actuarial Reports

C Audit reports

D Annual Reports

E Schedules of transactions

F Member contribution schedules

G Bank statements

H Asset register

I Information on sponsors

J CVs for Board members

K CVs for Management

L

M

N

O

W

14. Does the PIA undertake other forms of supervision on pension schemes?

� Yes

� No

15. If yes, specify below:

A.……………………………………………………………………………………

B.……………………………………………………………………………………

C……………………………………………………………………………………

D……………………………………………………………………………………

16. Does PIA usually hold or organize any outreach or training programmes for

pension schemes and/or their members of staff?

� Never

� Rarely

� Sometimes

� Every year

� Every other year

� Other (Elaborate)…………………………………………………..

X

17. Specify type of outreach programmes or activities and frequency:

A………………………………………………………………………..

B………………………………………………………………………..

C………………………………………………………………………..

D………………………………………………………………………..

E…………………………………………………………………………

18. Is there any regulation or piece of legislation that compels institutions to provide

data, information, documents statements or records to PIA?

� Yes

� No

19. If yes, state names or titles of the legislation or regulation (as many as are

available)

A……………………………………………………………………………………

B……………………………………………………………………………………

C……………………………………………………………………………………

D…………………………………………………………………………………..

E…………………………………………………………………………………..

F……………………………………………………………………………………

G……………………………………………………………………………………

H……………………………………………………………………………………

I……………………………………………………………………………………..

J……………………………………………………………………………………..

K……………………………………………………………………………………

PART D - ANALYSIS AND INTERVENTION

Y

20. To which body or bodies in Zambia is your institution legally or otherwise

obliged to provide data, information, documents, statements or records (tick as

many as appropriate)?

� Parliament

� Minister (specify which Minister)…………………………………

� Media

� Any other (specify)…………………………………………………

21. Tick any box or boxes below that best describe what would happen if any

institution failed to provide the data, information, documents statements or

records so required (tick as many as would apply).

� The license would be withdrawn

� The scheme would be fined

� The scheme would be reprimanded

� The scheme would be reported to higher authorities

� The scheme would be prosecuted in the courts of law

� Nothing would happen

Z

� Any other consequence (please elaborate)

………………………………………………………………………………

………………………………………………………………………………

………………………………………………………………………………

22. What types of penalties are legally at the disposal of PIA for use against

defaulting schemes? (List the

penalties)……………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

23. What instruments or methods does PIA use to monitor the activities of pension

schemes? (please list the

items)………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

24. How compliant with regulations or PIA requirements are statutory pension

schemes compared to private schemes?

� Public schemes are more compliant

� Public schemes are less compliant

AA

� There is no difference << go to Question 26

25. Explain why either public schemes or private schemes would be more compliant

than the

other………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………..

26. Are there occasions when PIA utilises the services of whistleblowers to monitor

the activities of pension schemes?

� Yes

� No

27. Does your institution have a Board?

� Yes

� No << go to question 30

28. If yes, who appoints that Board?................................................................................

29. Can the Board be dissolved by the appointing authority?

PART E - CORRECTION

BB

� Yes

� No

30. Under what circumstances would the Board be dissolved? Please elaborate

………………………………………………………………………………………

………………………………………………………………………………………

………………………………………………………………………………………

31. Does the PIA have a say in the appointment of the Boards of registered schemes?

� Yes

� No

32. Does the PIA have a say in the appointment of the management of registered

schemes?

� Yes

� No

CC

33. How would you rate adherence to governance principles generally during the

period between 1964 and 1990, when Dr Kenneth Kaunda was President?

� Very good

� Good

� Poor

� Very poor

34. How would you rate adherence to governance principles generally during the

period between 1991 and 2001, when Dr Fredrick J T Chiluba was President?

� Very good

� Good

� Poor

� Very poor

35. How would you rate adherence to governance principles generally during the

period between 2001 and now, under the Presidency of Mr Levy P Mwanawasa?

� Very good

PART F - GOVERNANCE IN ZAMBIA

DD

� Good

� Poor

� Very poor

36. How do you compare PIA’s strictness on compliance requirements during the

period in Question 30 and the period in Question 31?

� More strict then than now

� No difference

� Less strict then than now

________________________________________________________________________

The questionnaire ends here. I value your time and effort in completing this

questionnaire. Thank you very much for your support. Kindly give the questionnaire back

to my Research Assistant (Paul) when he calls on you or contact him on this number

097705666. You may also contact me by e-mail on [email protected]. Comments

outside this questionnaire are most welcome. Once again, thank you and may God bless

your activities in the year 2006.

EE

APPENDIX V MAP I: THE MAP OF AFRICA AND ITS COUNTRIES

Source: www.library.northwestern.edu/Africana/map

FF

APPENDIX VI

MAP II: THE MAP OF ZAMBIA AND ITS BOUNDARIES

Source: www.un.org/Depts/Cartograhic/map/profile/zambia.