MBABANE – An economist who worked for the Ministry of Finance and the South African National Treasury has released an academic paper on pension models.
The research paper by Thembinkosi Dlamini, now Executive Director of the Coordinating Assembly of Non-Governmental Organisations (CANGO) is, however, sceptical of the conversion of the Eswatini National Provident Fund (ENPF) into a national pension fund.
The paper, intended for a Master of Science in Agricultural Extension, is titled ‘The case for pension reform in Eswatini, Noise or Music’.
Dlamini, who also worked for Oxfam Great Britain as the Governance Manager responsible for fiscal policies, domestic resources mobilisation and taxation policies, states in his research paper that the national pension fund (NPF) as a defined benefit (DB) scheme is ‘the most significant financial risk in the Bill’.
Dlamini’s paper reads: “The proposal to establish the new NPF as a Defined Benefit (DB) scheme, where the benefit formula is guaranteed by law, is the most significant financial risk in the Bill.”
He said DB schemes are primarily suited for developed economies with stable demographics, long life expectancies and deep, predictable capital markets.
However, in a developing economy like Eswatini, the executive director of CANGO, who writes in his professional and personal capacity, asserts that a DB structure is fiscally perilous.
He answers the question on why he believes it is fiscally perilous:
- Demographic volatility – Unexpected changes in mortality or life expectancy directly increase the liability of the national pension fund, a risk borne entirely by government.
- Investment risk – Unlike DC schemes where members bear investment risk, government must cover any funding gaps if returns fail to meet actuarial assumptions.
- Political risk – The guaranteed benefit is highly susceptible to political manipulation, potentially leading to unfunded promises that create future national debt burdens.
Dlamini points out that the defined benefit model is a source of ‘noise’, introducing an unnecessary and unmanageable fiscal contingent liability.
He states that the ENPF has somewhat tried to manage the potential noise of fiscal uncertainty by designing the scheme with zero or minimal exposure of government by imposing a minimum and maximum threshold of insured remuneration in terms of Section 53 (1) and (2). It plans to legislate that a member will have to make at least 120 monthly contributions (10 years) to qualify for a pension.
Pointing at the implementation risk, he mentions that the ENPF Bill attempts to enforce universal coverage by including public servants in the NPF, even if they are members of the Public Service Pensions Fund (PSPF).
He highlights probable repercussions of enforcing the universal coverage by stating that such a move may create a financial conflict that directly threatens the PSPF’s solvency.
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Eswatini lacks universal, non-contributory social grant
MBABANE – Eswatini lacks a universal, non-contributory basic social grant (Pillar 0), which international organisations advocate as the foundational safety net.
This absence forces the newly proposed contributory Pillar I (the ENPF Bill) to carry the entire weight of guaranteeing minimum social adequacy, a function it is structurally ill-equipped to perform without significant financial risk.
Thembinkosi Dlamini, the Executive Director of the Coordinating Assembly of Non-Governmental Organisations (CANGO), says several Southern African Development Community (SADC) members, including Zambia and Ghana (non-SADC), have undertaken the complex and politically fraught migration from lump-sum provident funds to annuity-based pension systems.
He notes that the key lesson from these reforms is the necessity of a gradual, phased transition and the careful management of vested rights.
Dlamini states that failures in migration processes often stemmed from three principal factors –
- Mismanaging the transfer of accumulated capital, particularly conversion rates;
- Underestimating political resistance from the established, better-off schemes;
- Imposing excessive fiscal liabilities on the State through poorly designed Defined Benefit (DB) promises.
Dlamini further observes that as SADC champions regional integration, benefit portability becomes a critical policy consideration.
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15-year buffer in national pension scheme
MBABANE – In a previous interview, Futhi Tembe, Chief Executive Officer of the Eswatini National Provident Fund (ENPF), has provided clarity on the proposed conversion of Lidlelantfongeni into a national pension scheme.
“If the ENPF is eventually converted into a national pension scheme, the first beneficiary will receive payment after 15 years,” Tembe said.
She explained that the 15-year waiting period would serve as a fundamental buffer.
“This interval is not arbitrary. The organisation would have 15 years to build up the fund before commencing benefit payments. This waiting period is central to ensuring the sustainability and security of the pension scheme,” she asserted.
Tembe stated that only emaSwati aged 45 and below would be eligible to contribute. This design, she said, would allow the fund to mature and grow in resources before facing major payment obligations.
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Lessons from financial value of lost SA pensions
MBABANE – The financial value of lost pensions in South Africa is substantial and remains a significant concern for the Financial Sector Conduct Authority (FSCA).
This is revealed in Thembinkosi Dlamini’s academic paper. He notes that as of late 2022 and early 2023, the FSCA reported that the total value of unclaimed benefits within the South African financial sector stood at approximately E88.56 billion.
He highlights the following key aspects:
Retirement funds – He reports that unclaimed retirement benefits constitute the largest share, accounting for more than half of the total value of unclaimed funds.
Number of affected individuals – Dlamini says estimates place the number of individuals with unclaimed pension benefits between 4.5 million and five million.
Historical context – He further explains that a large portion of these unclaimed benefits dates back several decades. The main reasons include poor record-keeping practices, the legacy of the migrant labour system and historical challenges such as changes in identity records and addresses during the Apartheid era.
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PSPF offers predictable, lifelong income
MBABANE – The Public Service Pensions Fund (PSPF) is a statutory Defined Benefit (DB) scheme for government employees.
Thembinkosi Dlamini says it offers a predictable and lifelong income.
In his academic paper, he notes that while this is beneficial to its members, the PSPF is politically contentious due to significant, albeit managed, unfunded liabilities, and its privileged position creates a two-tiered system of social protection that exacerbates national inequality.
The executive director says the PSPF represents the strongest existing scheme, but is now the central point of resistance to universal reform.
He observes that following 2020, the funding ratio has shown a strong recovery, rising from 68.9 per cent to 81.1 per cent in 2023, largely attributed to positive investment returns and active management strategies.
Dlamini explains that the fact that the funding level is below 100 per cent and a deficit remains indicates that, based on current actuarial assumptions and the current asset base, the fund still requires additional contributions or other measures to meet all future obligations.
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Informal employment lacks job security
MBABANE – Informal employment typically lacks job security, social benefits such as health insurance, retirement savings and formal labour protections.
Thembinkosi Dlamini, writing in his personal and professional capacity, states that the structure results in a high-aged dependency ratio, where a relatively small formal sector workforce supports a large, increasingly vulnerable elderly population.
Dlamini adds that the reliance on traditional familial support, once a robust pillar of social security, has eroded due to economic migration, urbanisation and the impact of the HIV/AIDS epidemic.
He describes the current institutional framework as a historical patchwork, not a coherent system.
Dlamini says the ENPF, established as the mandatory savings mechanism for the private sector, operates as a lump-sum Defined Contribution (DC) scheme.
*Full article in our publication
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