The revelation by The Times of Eswatini sister publication, Eswatini News, that the Eswatini Public Service Pensions Fund (PSPF) is in a financial deficit; holding liabilities of E42 billion against only E37 billion in assets, will send shockwaves across the nation. For years, many assumed that the PSPF, one of the largest institutional investors in the country, was financially stable and even thriving. However, the recent disclosure by Chief Executive Officer, Masotja Vilakazi, has exposed a reality that pension contributors and beneficiaries cannot ignore: The fund is running at a E5 billion shortfall; raising serious concerns about its long-term sustainability.
Auditor General, Timothy Matsabula, raised the alarm
Interestingly, this problem is not new. In 2022, the Auditor General, Timothy Matsabula, reported that the fund already faced a deficit of E10.1 billion, at a time when assets were only E27.4 billion. His warning highlighted that, while government contributions were being made and investments were generating returns, the gap between obligations and available resources was widening. We can only assume that structural challenges highlighted three years earlier were not adequately addressed, as the deficit was reduced from the initial E10.1 billion to where it is now. The question remains: How did we get to E42 billion?
Benefits promised: Unsustainable
There are several possible interlinked reasons for the PSPF deficit. First, the benefits promised to civil servants over the years may have been set at levels that are now unsustainable, compared to the contributions collected. This is a common problem in pension systems across the world, particularly those operating on a defined benefit basis, where payouts are guaranteed irrespective of investment performance.
Secondly, demographic changes are exerting pressure on the system. People are living longer and, this means that pension benefits are paid out for more years than originally projected, when the fund was established. The longer retirees live, the greater the liabilities the fund must shoulder.
This mismatch must be corrected, either, by gradually increasing contribution rates or by reviewing benefit structures. Although, such measures are politically sensitive, they are necessary if the fund is to survive. Raising the retirement age, in line with increasing life expectancy, is also a policy option worth considering. This would reduce the number of years over which benefits are paid and, thereby, ease pressure on the system.
Investment performance is a critical factor
While the PSPF manages a sizeable portfolio, the overall growth of its assets might not have kept pace with the growth of its liabilities. E37 billion assets seem impressive from a humble beginning of initial capital of E286 million only in 1993. Reallocations and concentration of investments in low-yielding sectors or economic slowdowns in the country may have reduced returns.
Pension funds rely heavily on compound investment growth and any stagnation in returns quickly becomes a E42 billion liability problem. Added to this are issues of governance and oversight. Examples from other countries would suggest that accountability structures have not been strong enough to anticipate risks and implement timely corrective measures.
Weak oversight creates room for inefficiency, delays in reforms and even poor investment decisions. In the long run, if nothing is done, the deficit will grow; creating a burden for future generations of workers and taxpayers, who will be forced to plug the funding hole.
PSPF under-funding will lead to pension systems collapsing
Eswatini risks going down the same path as other African nations that failed to protect their pension funds. In Malawi and Zimbabwe, mismanagement and underfunding eventually led to pension systems collapsing, leaving thousands of retirees destitute.
The ripple effects of such crises extend beyond individual pensioners. A pension fund of this size plays a key role in the broader economy; holding shares, bonds, and properties. If its stability is undermined, the financial system as a whole could face destabilisation.
Parliament has a constitutional role
Parliament must also ensure that it does not make laws that further harm the fund. The Eswatini National Provident Fund Bill could be the death of PSPF, as contributions are reduced to accommodate the Provident Fund.
The solutions require both immediate and long-term measures. Strengthening governance and oversight is an urgent first step. Parliament has a constitutional role to ensure accountability and it must demand transparency and regular reporting from the PSPF. Independent audits and actuarial valuations are necessary, as transparency restores trust and provides a basis for reform.
Investment strategy reform
Investment strategy reform is equally important. The PSPF must diversify its portfolio beyond local markets to access higher-yielding opportunities globally, taking advantage of foreign currency returns.
The local investment strategy might be good politically, but maybe it needs to be balanced. Heavy reliance on government bonds (if they have to buy them) or underperforming domestic sectors is not sustainable in the long term. By professionalising fund management and adopting international best practices, the PSPF can improve returns while minimising risk. This would require hiring experienced fund managers with clear performance targets and insulating the fund from political interference.
In parallel, the PSPF should consider innovative financing mechanisms such as pension bonds or partnerships in energy infrastructure projects that generate steady returns. Given the size of the deficit, a multi-pronged approach is the only viable way forward.
In the longer term, the country must reflect on the structure of its pension system. We have very few old people as opposed to the Western world.
The defined benefit model (Fixed on salary), while attractive for employees, exposes the fund to risks when economic or demographic realities shift. A gradual transition to a defined contribution or hybrid model may be necessary. In such systems, benefits are directly tied to contributions and investment performance, thereby limiting long-term liabilities. Such reforms, though difficult, would ensure that Eswatini does not face a repeat of this problem in the future.
In conclusion
In conclusion, the PSPF’s E5 billion deficit revelation is a surprise to us laypeople. It signals not only financial strain, but also deep structural challenges that have been building for years. Ignoring the problem risks creating a future crisis where pensioners cannot be paid, the economy suffers and public trust in institutions collapses. However, with decisive leadership, transparent reforms and strong oversight, the PSPF can be steered back onto a sustainable path. The reality is that the management of PSPF has faced an E10.1 billion deficit in 2022 and has cut it in half within three years and increased the assets sustainably. The livelihoods of thousands of emaSwati, who have worked their entire lives in the service of the nation, depend on this management.
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