PENSION FUNDS AND FINANCIAL LITERACY IN ZAMBIA
LUSAKA, ZAMBIA – Though financial inclusion in Zambia has demonstrated steady growth over the last few years, moving from 59 percent in 2015 to 69 percent in 2020, there are still significant gaps in the country’s rate of financial literacy.
According to FinScope 2020, Zambia’s rate of financial literacy stands at about 23.6% and is skewed towards the urban population at 31.9% while rural households stand at only 16.2%.
World-renowned Financial Wellness Facilitator and Emmy Award-winner Terry Turner notes that personal finance is a vital part of not only managing your day-to-day financial needs but also planning your financial future.
“The sooner you get a grip on personal finance, the better your long-term financial prospects will be for things like investing or planning for retirement,” he explained in his May 18, 2022, paper on personal finance.
“By understanding the elements of personal finance, you can better understand opportunities to improve your finances. This understanding can help you budget for current needs while planning for long-term financial goals,” he added.
A 2021 report by the Zambian Financial Sector Deepening Limited (FSD Zambia) showed that behavioral change derived from financial education programming conducted by the organisation and its partners had been almost immediate in all communities that participated in the study.
This suggests that not only is there a genuine thirst for financial knowledge in the country, but there also exists a real potential for positive change in terms of the public’s outlook on different investment options available to them.
The National Financial Inclusion Strategy (NFIS) of 2017-2022 sought to improve financial inclusion in Zambia from 59% to 80% by 2022. As 2022 hits the halfway mark, it would appear the NFIS’ key target will not be met.
Time for a new approach
For all the effort and strategies aimed at improving financial literacy, there is one facet of personal finance that is frequently overlooked: Pensions and/or retirement funds.
The lack of adequate education on post retirement financial security leaves many at the mercy of the social cash transfer initiative or payments from the national pension scheme which may not be enough to afford them a reasonable standard of living at the end of their career.
Saturnia Regna Pension Fund Board of Trustees chairman Collins Hamusonde noted that people generally had a poor culture of saving towards retirement because they did not view pensions as long-term investment options.
“When talking about investments, your average Zambian will not consider a pension scheme as a viable investment option when in reality it is one of the most important items you can have on your investment portfolio as it directly affects your financial security at the end of your career,” he explained.
“Consequently, we have seen a lot of people shying away from investing in pension schemes in preference for more traditional forms of investments. While there is nothing wrong with this in and of itself, this strategy can have dire consequences down the road in the event the yields from the main investments do not turnout as they had hoped.”
“A good pension fund is the financial key to a comfortable retirement in old age, and so more people – both employed and self-employed – need to start setting aside a little of their income now to plan ahead for their future.”
He added that: “The best part about pension funds is that they are a secure investment option because they have a lock and key system that helps people manage and secure their finances. They provide you with a platform where you can keep your money in a disciplined way, with difficulties in accessing it until the right time.”
Mr Hamusonde further noted that there was a serious need for increased public sensitisation on the importance of retirement funds to not only help improve the rate of financial literacy but also give people the tools needed to better plan for a financially independent future when they can no longer draw a salary.
Incorporating Non-traditional investments
Local entrepreneur Lazarous Mbuyanda, who runs a butchery and a pre-school in Lusaka’s Chilenje area, noted that one of the biggest advantages private pension funds had over other investment options was that they acted as a buffer against unforeseen tragedies like a sudden loss of income
“Pension schemes play a major role in catering for unforeseen eventualities. Let’s say something happened to me today, that money I invested in the scheme would continue sustaining my family long after I am gone. Even if I was to lose my job, I know that I would be able to get by using money from my pension scheme and my businesses,” he explained.
“I am confident about the future because I have planned for it adequately through the pension scheme I joined in the early years of my career. The best part is I am earning interest on my savings and when the time comes, I will receive my money tax-free.”
Mr Mbuyanda, who is a member of the Saturnia Regna Pension Fund, the country’s largest private pension scheme, added that it was vital for people to have a diversified investment portfolio as this helped minimise their risks.
“When I resigned from formal employment, I left my pension savings with Saturnia to continue investing it for me. The funds were growing handsomely for me. However, there was a time when my businesses ran into financial difficulties. I was able to revive them by withdrawing part of my investment from Saturnia and pumping it into the butchery, and school’s operations,” he narrated.
“Private pension schemes work well when applied in tandem with the National Pension Scheme and other investments because this means that a downturn in one will not affect my financial future. If you have a diversified investment portfolio, you will be able to raise a lot of money because you do not rely on one source of income for your financial security. Suppose my butchery did not make enough in a month, I’d still rely on my school to give me something, and if that too failed, I still have my pension fund to fall back on,” he said.
The young entrepreneur noted that the government and sector players needed to do more to educate people on the different ways they could invest in their financial security post retirement.
He added that the lack of information on pension fund options was hindering people’s ability to properly plan for their future because they remained unaware of the existence of such platforms.
The Saturnia Regna Pension Fund earned its member a twenty-three point seven percent (23.7%) gross investment return last year, helping it retain its position as the nation’s largest private pension fund.
Net assets stood at K2.961 billion at the end of the year, with an extra nine new employers joining the fund during the year, bringing the total sponsorship to 200 members encompassing a combined 36,130 employees.
The fund also posted a twenty point four percent (20.4%) appreciable return for the year ended December 31, 2021 – one of the largest bonus declarations in recent years.
Though it may seem like a long way off, universal financial inclusion in Zambia is possible if stakeholders play their part to bring non-traditional investment options like pension funds to the fore.
About Saturnia Regna Pension Fund
The Saturnia Regna Pension Fund is Zambia’s largest private pension fund, providing pension plans to employees in 195 corporates covering more than 36,100 employees as well as individual pension plans.
The fund manages K3.0 billion of net assets including shares in most of the companies listed on the Lusaka Securities Exchange (LuSE) and investments in Zambian Government securities.
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