Consumer Rights in Private Occupational Pensions

By Nosikwana Nasilele, Inspector, Pensions - Prudential Supervision

What is a pension?

A pension is a long-term financial product where an individual puts away a portion of income during their work life for purposes of receiving a regular stream of income in their retirement years or in the case of invalidity, or benefits to beneficiaries in the unfortunate circumstance of death before retirement.

Zambia runs a three-tier social security system with the first tier being the National Pension Scheme. The second tier comprises private occupational pension schemes that are voluntarily set up by employers on behalf of their employees while the third tier includes private personal pension saving arrangements that are away from an individual’s employment and can be accessed from financial institutions such as long-term insurance companies. Individuals who were employed in the civil service prior to the year 2000 contribute either to the Public Service Pension Fund and Local Authority Superannuation Fund.

In private occupational pension schemes, savings are made in the form of monthly employer and/or employee contributions, which are invested in various financial instruments for purposes of growing the fund through investment income. These schemes have boards of trustees that are charged with the responsibility of governance on behalf of the members. Trustees may decide to either employ staff or outsource the management and administration of the scheme to a service provider.

The Pensions and Insurance Authority (PIA) is the regulator and supervisor of private occupational pension schemes and pension service providers in Zambia. One of its core mandate is the protection of the interests of members and sponsors of private occupational pension schemes as provided for in Section 5 (1)(d) of the Pension Scheme Regulation Act, 1996 (As amended by Act No. 27 of 2005).

This article seeks to shed light on the rights and obligations of private occupational pension scheme members. ?It also highlights how the PIA carries out its mandate of ensuring that pension scheme members are protected.

Rights of Pension Scheme Members

As primary consumers of the pension financial product and related services, pension scheme members have the following rights:

1.?????? Right to receive information. Members are entitled to receive pertinent information relating to the scheme such as scheme rules, audited financial statements, member annual benefit statements and notices of member addresses and annual general meetings.

2.?????? Right of representation and participation in scheme governance. Members are entitled to representation on the board through member-elected trustees. In terms of participation, members have the right to attend annual general meeting and elect member representatives of the board of trustees.

3.?????? Right not to have benefits varied to their detriment. A member’s pension benefit shall not be altered to their disadvantage. Further, a member has the right to consent to any variation to the contribution rates by the employer.

4.?????? Right to choose. Members have the right to nominate beneficiaries of their pension benefits in the event of death while still an active member or pensioner. Further, members should be availed options from which to choose an annuity provider and preferred type of annuity product upon retirement.

5.?????? Right to portable benefits. A member can opt to receive full payment or transfer of their accrued benefits from one registered scheme to another at the time of leaving the service of an employer. Pension benefits are protected against attachment or assignment for any purpose.

6.?????? Right to receive a pension. A member has the right to receive their accrued pension benefits upon retirement, death or invalidity, and commutation thereof within the threshold allowed by the Pension Scheme Regulation Act, at the time of retirement.

7.?????? Right to be heard. A member has the right to lodge admissible complaints against the scheme and its service providers, and receive adequate redress thereof.

8.?????? Right to consumer education. Trustees are required to organize member sensitization sessions and retirement planning seminars where members can be educated on their rights, obligations, calculation of benefits, financial management and how to cope with financial, psychological and health challenges encountered in retirement. Consumer education enables informed decision-making and prudent use of the pensions product by members.

9.?????? Right to data protection. Trustees and service providers are required to ensure the privacy, security and protection against authorized use of members’ personal information.

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Responsibilities of Pension Scheme Members

Like consumers of other products and services, scheme members also have obligations required of them. The following are some of these responsibilities:

1.?????? Duty to obtain an understanding of the scheme. Having obtained a copy of the governance documents and financial statements of the scheme, a scheme member should make every effort to understand the provisions therein and seek guidance from trustees or the appointed service providers on matters requiring clarity or when there is a dispute.

2.?????? Duty to participate in scheme governance. A scheme member is required to make every effort to attend member sensitization sessions and annual general meetings where they can have an opportunity to interrogate the affairs of the scheme and elect trustees to the board. Under a multi-employer pension scheme, members are required to elect representatives to attend annual general meetings and make submissions on their behalf.

3.?????? Duty to report. A member is required to promptly inform trustees or the fund administrator of any anomaly observed on their annual benefit statements for resolution. This will ensure timely resolution and avert disputes in future.

4.?????? Duty to proper conduct. A member should conduct oneself with propriety and respect when engaging with trustees and service providers so as not to interfere with the orderly running of the scheme.

5.?????? Duty to provide accurate information. A member should ensure that they provide accurate and complete details of themselves and that of their beneficiaries to the scheme administration.

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The Role of the Authority in Member Protection

The Pensions and Insurance Authority undertakes prudential and market conduct supervision of regulated entities (pension schemes and licensed service providers) to ensure that they operate prudently, maintain adequate financial resources, and fulfil their contractual obligations to pension scheme members. The following are some of the means by which this is undertaken:

1.???????? Rigorous registration and licensing processes. The Authority undertakes thorough procedures in the issuance of registration and license certificates to entities in the private pensions industry. Individuals charged with the management and governance of the entities are required to be fit and proper.

2.???????? Minimum capital requirements. Pension service providers are required to meet minimum capital requirements at all times to ensure that they remain resilient in the event of any shock.

3.???????? Issuance of guidelines to industry. The Authority has issued guidelines on Key Facts Statements, Treating Customers Fairly and Complaints Handling. The guidelines outline minimum requirements for schemes and service providers to ensure that current and prospective consumers of pension products and services receive fair treatment by closing the information asymmetry gap, putting in place dispute resolution mechanisms and communicating the complaints management process to members.

4.???????? Handling complaints. The Authority receives and handles complaints relating to the business practice of pension schemes and service providers where a member of the scheme or the public remains unsatisfied after the complaints management process has been exhausted at scheme or service provider level.

5.???????? Carrying out inspections. Routine and targeted onsite inspections, and off-site monitoring of pension schemes and service providers are conducted by the Authority to ensure that the entities are financially sound and compliant with regulations.

6.???????? Conducting consumer awareness and capacity building activities: The Authority conducts consumer awareness activities that promote financial literacy and retirement planning among scheme members and the public. Furthermore, capacity building initiatives are undertaken for Trustees and service providers to improve industry stability through strengthened governance of regulated entities.

Conclusion

The awareness of one’s rights as a pension scheme member is a critical aspect of consumer protection. A member who is aware of their rights is better equipped to seek redress when they experience a breach of those rights and thereby enabling better outcomes from their participation in the pension scheme. The other important facet is the existence of a rigorous regulatory and supervision regime that ensures financial stability and proper conduct by industry participants. In this regard, consumer education, prudential and market conduct supervision are tools employed by the Authority in ensuring protection of the interests of pension scheme members.?