• Market Watch

Construction industry concerned about FIMA

- 2022-07-21 00:00:00

Construction industry concerned about FIMA
Survey
The proposed law requires compulsory 75% preservation of retirement benefits for people who withdraw from their retirement funds before the prescribed early retirement age of 55 years.

The Construction Industries Federation of Namibia (CIF) recently engaged its members in order to gain feedback about their views with regard to the proposed Financial Institution and Market Act (2021).
Bärbel Kirchner, general manager of the CIF says: “Although the principle of “compulsory preservation” will be reconsidered, we are not aware that the day of implementation is now postponed and wanted to gain greater understanding about how members feel about FIMA.”
One of extensively discussed implications of FIMA is that 75% of a pension fund member's capital must be preserved until retirement, once FIMA becomes effective.
“Another issue is that all funds would have to register again with NAMFISA with extensive new and additional administrative requirements for funds to ensure compliance with the new act and the recently published standards and regulations. It may well be that some of the smaller funds might not have the resources to meet and cannot afford these requirements.
“Another change is that the penalties for failures or offenses are much more severe, which can have implications for the employer, his directors and senior executives, as contributor to the fund.
“For that reason, we felt that it remains important and relevant, especially since employers in the construction sector are mandated to enrol workers in the construction sector in a pension fund. That does not include all employees but certainly those that are part of the categories as listed in the gazetted Collective Agreement for our sector”.
As there is currently an umbrella pension fund for the workers in the construction sector, the Namibian Building Workers Pension Fund (NBWPF), CIF employer members were asked whether or not they had their workers registered with the NBWPF. Only 18% of the respondents had their employees registered with the NBWPF. Other pension funds being used are the Orion Pension Fund, the Benchmark Retirement Fund and Momentum.
Survey
Currently 54.5% of the survey respondents have between 75-100% of their employees registered with a pension fund; 18% of the respondents have between 0-25% of their employees registered; and 9% have between 25-50% registered, and a further 9% have between 50-75% registered. This is encouraging as the majority of the responding employers indeed adhere to the collective agreement for the construction sector, which makes it mandatory for employers to have their employees – that fall into the categories as listed in the collective agreement – registered with a pension fund.
All – with the exception of 27% - of the responding employers confirmed that currently employees participating in their respective funds, may withdraw all pension fund capital upon termination of pension fund membership before retirement age (60) or early retirement age (55).
63% of the respondents said that their employees are not in support of the new legislation which requires the preservation of 75% of the benefits until after retirement. It was stated that currently many employees in the construction sector only have contract employment and would often struggle to ensure continuity of employment. For that reason, they needed access to funds accumulated in their pension fund in order to have financial resources when not employed.
Some respondents were of the opinion that the new legislation had been introduced to secure financial security after retirement, as currently many were not prone to save for old age. The new legislation could lead to less future dependency on the state.
Whilst some were in support of the 75% preservation of capital, it was suggested that it should not be mandatory and that instead it should be voluntary and encouraged through incentives. Indeed, some were of the opinion that if mandatory, then it would be a violation of human rights.
Currently, under the Pension Funds Act, failure to pay contributions as legally required, is merely considered an offense, and can result in a fine of not more than N$200, upon conviction. Under FIMA, the employers’ obligations and liability for fines increase drastically. Employers will be held liable for all unpaid contributions and related prescribed interest, which accrues daily. For non -payment of contributions, a convicted employer can even be fined up to N$2.5 million and a prison sentence of up to five years. Considering the current economic climate, 90 % of respondents were concerned about this.
Cash flow
Employer respondents were not in favour of this, especially many were concerned about cash flow, which could be an obstacle to paying on time. This is especially of great concern as the industry is currently faced with the dilemma of non-payment of work for government that has been completed. It was suggested that the non-payment of contribution should result in far less harsher penalties, for example fines of only one per cent of the total contribution. These harsh penalties could also result in retrenchments, especially if there are no financial resources available for the employer contribution.
90% of responding employers said that the penalties were too steep. Some even considered it an abuse of power. Some felt that the proposed penalties would discourage employers to register their employees with a pension fund as the risks was too high. The implications are that one transgression – e.g. a technical glitch - could lead to financial hardship due to the penalties imposed. Businesses that were experiencing financial distress, would be better off not to provide the benefits of employer contribution to pension funds. Mandatory pension fund contributions – such as in the construction sector and proposed penalties for late payments, would mean that some employers would employ the absolute minimum or even close their businesses. Some fear that the magnitude of proposed penalties when businesses are already facing financial difficulties, could mean that businesses cease to exists with the consequences of ever lesser current and future financial security for employees.
Under FIMA, a trustee or a principal officer can be charged with criminal offense, despite many offenses being a result of unintended administrative failure. Fines and administrative penalties can vary from N$500 000 or 12 months imprisonment up to N$10 million- or ten-years imprisonment. All responding employers felt that the fines and penalties were too high, to the extent that one felt that all principal officers and trustees should be advised to resign. The penalties were also considered to be out of proportion when compared with other offenses, and indeed criminal offenses. However, some felt that the proposed penalties should be applied to repetitive offenders.