Post on 24-Jan-2022
CAVENDISH UNIVERSITY ZAMBIA
A CRITICAL EVALUATION OF GOVERNANCE SUPERVISION ON PUBLIC PENSIONSCHEMES IN ZAMBIA: A CASE STUDY OF NATIONAL PENSION SCHEMEAUTHORITY.
Faculty of Business
By
Kasonde kaira
(004 - 413)
A Proposal been submitted to the Faculty of BIT of the Cavendish University Zambia in partial
fulfillment of the requirements for the award of the Degree of Bachelors in Banking and Finance
(BBF).
Cavendish University Zambia
P.O Box 34625
LUSAKA
SEPTEMBER 2020
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DECLARATION
I, kasonde kaira, do solemnly declare that this piece of work has been a pure product of my own
efforts, origination and research. Even though some views may have been drawn from other
pieces of work, my conscience is very clear that enough efforts have been made to duly
acknowledge the persons and their work in all such cases. I also declare that, to the best of my
existing knowledge, this piece of work has not been previously presented at Cavendish
University Zambia for the award of bachelor’s degree in banking and finance or indeed any
other school, college or university for a similar purpose. All sections of text and results which
have been obtained from other sources have been referenced. I noted and still note that cheating
and plagiarism constitute a breach of the University`s Academic Regulations.
.......................................................... ..........................................
STUDENT (Kasonde Kaira) DATE
........................................................... ............................................
SUPERVISOR (Mrs. Pricilla Lesa) DATE
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ACKNOWLEDGEMENTS
Almighty God
First and foremost, I would like to thank the lord God for the life and wisdom he has
unconditionally disposed unto me.
Supervisor
My special thanks and gratitude are also extended to my supervisor Mrs. Pricilla lesa for her
guidance, invaluable comments and unreserved intellectual assistance in undertaking this study. I
will forever remain grateful and indebted to my supervisor for making all my efforts seem so
easy and going out of her way to ensure that I reached the finishing line
Faculty and Research Staff
I am also grateful to faculty members in particular Mr. lee mahlango, Mr. Cifwala clement
Hikachila, Mr. Serenje, Mr. Beda Mwale, Mr. kawina and Mrs Elizabeth Zyambo for the endless
effort rendered in helping me to be a successful graduate and as they were true nationalists and
distinguished mentors and lecturers, who continued to inspire and encourage me in so many
ways than they realized,.
Family and Friends
I am very much thankful to my parents Mr. Stephen Kaira and Mrs.Grace Kasonde Kaira humble
and kind-hearted legends whose deeds will forever remain unmatched and whose constant
challenge for me to go an extra mile in working hard remains graphically and freshly vivid to
date. Including the Kaira’s family as a whole and my colleages for the full support rendered in
completion of this project.
Thank you sincerely!
Kasonde Kaira
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DEDICATION
This research report is dedicated to all my friends, my family, and other members of the
extended family who supported me both spiritually and financially and made it possible for me
to undertake a Bachelor’s Degree in Banking and Finance at Cavendish University Zambia.
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LIST OF ACCRONYMS AND ABREVIATIONS
CAPSA - Canadian Association of Pension Supervisory Authorities
IMF - International Monetary Fund
IOPS - International Organisation for Pension Supervisors,
INPRS - International Network of Pension Regulators and
Supervisors ISSA - International Social Security Association
HIPC - Highly Indebted Poor Country
LASF - Local Authorities Superannuation Fund
NAPSA - National Pension Scheme Authority
OECD - Organisation for Economic Co-operation and Development
PSPF - Public Service Pensions Fund
PSRA - Pension Schemes Regulation Act
PIA - Pensions and Insurance Authority
WB - World Bank
WCFCB - Workers Compensation Fund Control Board
ZESCO - Zambia Electricity Supply Corporation
ZNPF - Zambia National Provident Fund
ABSTRACT
A pension scheme operates on the premise that it collects part of the income from its members,
invests and grows it for future drawings by the members. On the merit of this principle, pension
benefits are classified as deferred income for the members and beneficiaries, with the pension
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administrator or fund manager promising to make the benefits available immediately a claim is
made in future, subject to the rules of the scheme. The pension administrator is not only charged
with the responsibility of safe-keeping, but also multiplying the promised retirement income
through prudent investment.
However, worldwide experience has shown that the investment and general management of
pension funds is not without risk. Imprudently or improperly managed, such funds can yield
negative returns or can disappear altogether. These factors, together with the non-negotiable
element of the pension promise make it critical for pension schemes to be governed in order to
ensure that members interests are safeguarded.
Because the experts in pension matters are generally agreed that pension funds are set up with the
common objective of serving as a secure source of income funds for retirement benefits, they
have consequently adopted universal governance regulations which are designed to guide the
governance of global pension schemes, through the OECD. Countries world-wide, particularly
those affiliated to OECD, are expected to manage their pension systems within the universal
pension governance regulations.
However in the Zambian case, despite affiliating to the OECD, there is foreboding understanding
that public pension schemes are particularly faced with a governance problem, one that is clearly
manifested in and stems from the manner of supervision exerted upon these public schemes.
Using a mix of information gathering methods which included wide literature review,
unstructured interviews and questionnaires which targeted the pension scheme, Retirees and fund
managers that are supervised by Zambia’s pension regulatory authority (PIA). This study was
able to demonstrate that it is one thing to have regulations, guidelines, codes or even a regulatory
authority in place, yet quite another to enforce governance benchmarks on public pension
schemes which are basically state-sponsored. The study proves the overriding hypothesis that the
supervision, and consequently the governance, of public pension schemes in Zambia is seriously
undermined by the fact that the sponsor and the supervisor are one and the same.
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It is therefore recommended that the structural arrangements relating to the supervision of public
pension schemes should be streamlined to make it more distant from government and less
susceptible to compromise due to the dependent interrelations involved.
Table of ContentsACKNOWLEDGEMENTS.........................................................................................................................3
LIST OF ACCRONYMS AND ABREVIATIONS.............................................................................5
ABSTRACT................................................................................................................................................6
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1.0 BACKGROUND......................................................................................................................10
1.1 Introduction...........................................................................................................................10
1.2 Background about Zambia.....................................................................................................10
1.3 Problem statement.................................................................................................................15
1.4 Research objectives................................................................................................................17
1.5 Hypotheses.............................................................................................................................17
1.6 Research questions.................................................................................................................18
1.7 Scope of the study..................................................................................................................19
1.8 Significance of the study........................................................................................................19
1.9 Organization of the study.......................................................................................................20
2.0 LITERATURE REVIEW.......................................................................................................20
2.1 Introduction...........................................................................................................................20
2.2 Structure of the pension industry in Zambia..........................................................................21
2.3 The concept of corporate governance....................................................................................23
2.4 Historical perspective of corporate governance.....................................................................25
2.5 The governance framework for pension schemes..................................................................26
2.6 Primary elements of supervision............................................................................................30
2.7 Theoretical framework...........................................................................................................31
RESEARCH METHODOLOGY AND DESIGN..................................................................................40
3.0 Introduction...............................................................................................................................40
3.1 Research Paradigm....................................................................................................................41
3.2 Research design.........................................................................................................................42
3.2.1 Study Area.........................................................................................................................43
3.2.2 Types of measurement.......................................................................................................43
3.2.3 MEASUREMENT OF VARIABLES WILL TAKE DIFFERENT SCALES AS FOLLOWS.........43
Interval scale.............................................................................................................................................44
Ratio scale.................................................................................................................................................44
3.3 SAMPLE SIZE.........................................................................................................................44
3.4 Sampling Plan and Procedure...................................................................................................45
3.5 TYPES AND SOURCES OF DATA...............................................................................................45
3.5.1 Primary Data......................................................................................................................45
3.5.2 Secondary Data.................................................................................................................46
3.6 DATA COLLECTION METHODS AND APPROACHES............................................................46
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3.6.1 questionnaire.................................................................................................................................47
reliability and validity............................................................................................................................47
ethical consideration..............................................................................................................................48
3.7 LIMITATIONS OF THE STUDY...................................................................................................49
3.8 CONCLUSION...............................................................................................................................50
4.0 PRESENTATION OF THE FINDINGS................................................................................50
4.1 Introduction...........................................................................................................................51
4.2 Analytical framework............................................................................................................51
5.0 ANALYSIS OF FINDINGS..........................................................................................................63
Figure 5.2 Total Pension Contributions (K’ Millions).......................................................................68
Figure 5.3 Self-Administered Pension Schemes’ Share of Industry Net Assets.................................68
6.0 CONCLUSIONS AND RECOMMENDATIONS.................................................................69
6.1 Introduction...........................................................................................................................69
6.3 Recommendations..................................................................................................................74
6.4 Summary of conclusions and recommendations....................................................................76
6.0 REFERENCES........................................................................................................................77
APPENDIX I........................................................................................................................................79
QUESTIONNAIRE.........................................................................................................................79
APPENDIX II......................................................................................................................................91
QUESTIONNAIRE.........................................................................................................................91
CHAPTER ONE
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1.0 BACKGROUND
1.1 Introduction
This chapter lays a foundation for our study. It gives a general background about the country,
Zambia, which provides the setting for this study. It then proceeds to give a background of the
pension industry in Zambia and the regulatory framework thereof. The chapter also introduces
the problem under study and the hypotheses that this research will be attempting to prove.
1.2 Background about Zambia
Zambia is a 750,000-square-kilometers landlocked country in southern Africa. It is surrounded
by eight neighboring sovereign states and lies in a tropical belt on a fairly high plateau enjoying
a temperate climate with hardly any humidity. It has, in abundance, good agriculture soil, many
lakes and rivers, vast game parks filled with lots of wild life species and scenic beauties
including the world tourism acknowledged and famous Victoria Falls. The country has a little
over 10 million inhabitants. Zambia’s main economic activities are copper mining, agriculture
and tourism. It has rejuvenating manufacturing and energy sectors, but with a very small formal
employment sector of less than half a million people. The largest employer is the government of
the Republic of Zambia, followed by the private-sector owned and managed mining sector.
Economic growth has however been dismal with nominal Gross National Product (GNP) per
capita falling from USD 630 in 1980 to USD 450 in 1990 and USD 300 in 2000, according to
the World Bank Country Report (2002). Zambia’s per capita income is estimated at USD 230,ranking almost the lowest in the region and therefore poorly ranked on the international scene.
By 31 March 2005, Zambia had reached the HIPC decision point which has since triggered
sizeable donor financial support, both through the reduction of the debt stock and the injection of
project finance and budget support which should help stabilize the country’s macro-economic
environment. Project support and reduced debt financing will create scope for public
investments that should help generate employment.
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The medium term expenditure framework 2005-2007 targets, among other goals, GDP growth of
5 per cent, single digit inflation, insulation to internal and external shocks, maintenance and
sustenance of external account deficit and stabilization of debt, improving public expenditure
management and increased operational efficiency in managing domestic borrowing, leading to
less hassled private sector delivery, and of direct effect to the pensions industry, to develop a
well-functioning financial system.
The vision of the financial services sector is to have a stable, sound and market-based financial
system that supports the efficient mobilization and allocation of resources necessary to achieve
economic diversification, sustainable growth and poverty reduction. A draft Financial Sector
Development Plan1 has been structured among others to address the following weakness:
i. low intermediation;
ii. poor credit culture;
iii. multiple and potentially conflicting government roles;
iv. the weak regulatory framework for non-banking financial institutions, insurance and
pension funds;
v. the undeveloped capital market;
vi. lack of long term development and housing finance; and
vii. a limited number of monetary policy instruments.
Stakeholders have drawn comprehensive terms of reference covering the entire sector with
benchmarks for formal commissioning of the plan, which well encompasses the pensions and
insurance industry.
1.2.1 Background of the pension industry in Zambia
The history of social security in Zambia dates back to the pre-colonial era, as early as the 1920s
when employers’ liability was introduced for work injury compensation, currently administered
by the Workers Compensation Fund Control Board (WCFCB). In 1954, LASF was established
to provide pensions for employees in the local authorities. Over the years, LASF’s coverage and
1 A draft copy of the Financial Sector Development Plan is under review, supervised by the Central Bank ofZambia.
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mandate was extended to include what are known as Associated Authorities. These are
institutions that provide services that were originally provided by local authorities but have over
the years been hived off to become autonomous quasi-government institutions or have been
commercialized and/or privatized. They include the national electricity utility (ZESCO Ltd) and
some water utility companies, prominent amongst them the Lusaka Water and Sewerage
Company.
In the mainstream civil service, the earliest coverage for pensions was a remainder of the
colonial legacy – a pension scheme that was for the reserve of white employees only. However,
after the country’s independence in 1964, there was pressure to extend coverage to indigenous
Zambians working in the civil service, culminating in the creation of the Civil Service (Local
Conditions) Pensions Fund, currently operating as the Public Service Pensions Fund (PSPF).
1966, the government created the Zambia National Provident Fund (ZNPF) to cover employees
outside the civil service and the local authorities. ZNPF was transformed to the current National
Pension Scheme Authority (NAPSA) in 2000. NAPSA is a basic and compulsory scheme
covering all employees in Zambia, including those under PSPF and LASF.
Up to independence in 1964, employment under the main economic and social activities i.e.
mining, agriculture, transport and education, provided a variety of retirement terms embedded in
the employment conditions of service. Pension provisions were largely harmonized during
nationalization of companies in the early 1970s when government took over control of all major
companies and made uniform the retirement benefits for all employees in the parastatal sector.
Up to 1992, pension and insurance businesses was restricted to state owned enterprises as the
law did not allow competition except from the Mukuba Scheme for the mining industry. With
the liberalization of the economy, several new players emerged to set up and offer competitive
retirement benefit plans. A sizeable number of companies running in house retirement funds
have since introduced formal occupational schemes for their employees which, by law, are
required to be affiliated with multi-employer trustees regulated by the Pensions and Insurance
Authority (PIA).
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Recent changes in Zambia’s social security have largely been driven by a number of studies
undertaken by various experts from as far back as the early 1980s, to provide a framework
within which the social security arrangements in the country could be rationalized and
strengthened. The various studies revealed a number of unhealthy conditions relating to social
security arrangements as a whole, and highlighted significant weaknesses in terms of design,
financing and administration (Hantuba, 2005).
1.2.2 Pension Funds in Zambia
There are generally two types of pension funds in Zambia - the statutory (public) pension funds
and private occupational pension funds. The statutory pension funds include the PSPF, LASF
and NAPSA. All the three schemes exist under their own respective statutes. NAPSA is a
mandatory statutory scheme under the Ministry of Labour and Social Security, whilst PSPF and
LASF fall under the Ministries of Finance and National Planning and Local Government and
Housing, respectively. All in all there are currently 240 registered pension schemes in Zambia
(Martin Libinga, registrar and CEO of Zambia PIA).
All the 240 schemes are required by the Zambian law to affiliate to multi-employer trusts
managed by dedicated Fund Managers, of which there are some registered under the Pension
Scheme Regulation Act (PSRA) No. 28 of 1996. Multi-employer trusts are the only institutions
charged with the responsibility of managing pension scheme funds, with an exception of the
public schemes, which manage the Funds on their own. Under Section 11 of PSRA, it is a
requirement that any pension scheme established under this Act in the Republic of Zambia shall
have a fund establish in a separate multi-employer trust or alternatively be affiliated to such a
trust into which all contributions, investment earnings, surpluses from insurance and other
moneys shall be paid in accordance with the relevant pension plan rules.
All the pension funds in Zambia are designed either as final salary (defined benefit) or money
purchase (defined contribution) arrangements. A small number of these pension funds are a
hybrid type, which is a combination of both, defined benefits and defined contributions types.
However, the majority of the pension schemes are defined contribution arrangements.
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1.2.3 Regulation and supervision of the pension industry
Apart from NAPSA, which is more or less self-regulated through its own stand-alone legal
framework, but supervised by the Ministry of Labour and Social Security, all statutory and
private occupational pension funds, including all employer sponsored pension schemes, fall
under the regulatory framework of the Pension Scheme Regulation Act, which is under the ambit
of PIA.
The PIA was established in February 1997 to regulate the conduct of the pensions and insurance
industry through prudential supervision in order to protect the interests of pension scheme
members and insurance policy holders. Before PIA was created in 1997, the industry was
virtually unregulated, meaning that being less than ten years old, pension regulatory issues in the
country are still in infancy, so to speak.
1.3 Problem statement
The two main aims of pension regulation and supervision are to protect the rights of members
and beneficiaries and to ensure the security and sustainability of pension plans. These two basic
goals form the basis for the principles of pension regulation that have been approved by both the
Organization for Economic Co-operation and Development (OECD)2 and the International
Network of Pension Regulators and Supervisors (INPRS) and endorsed by other international
organizations such as the World Bank (WB) and the International Monetary Fund (IMF).
Pension rights and pension plans need to be protected because they provide deferred income for
the members and beneficiaries. They constitute a promise that is intended to allow the saver to
subsist without working, at a later point in life.
2 The OECD groups 30 member countries sharing a commitment to democratic government and the market economy. Bestknown for its publications and its statistics, its work covers economic and social issues from macroeconomics, to trade,education, development and science and innovation. The OECD is also prominent for its role in fostering good governance in thepublic service and in corporate activity. It helps governments to ensure the responsiveness of key economic areas with sectoralmonitoring.
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At the time of accepting entry of the member, the pension administrator or fund manager
promises to make the benefits available immediately a claim is made in future, subject to the
rules of the scheme. The pension administrator is, therefore, not only charged with the
responsibility of safe-keeping, but also multiplying the promised retirement income through
prudent investment and paying it as and when required.
However, worldwide experience has shown that the investment and general management of
pension funds is not without risk. Imprudently or improperly managed, such funds can yield
negative returns or can disappear altogether. The fact that these funds are very vulnerable, on
one hand, contrasted with the fact that pension promise is non-negotiable, on the other hand,
makes it absolutely critical for pension schemes to be governed in a sustainable manner.
Although there are existing differences in the operation of pension funds in countries that belong
to the OECD, it is generally accepted that these differences should not obscure the fact that
pension funds are set up with one common objective - to serve as a secure source of income
funds for retirement benefits. In this respect, governance regulations in different countries are
designed under the guidance of this overriding objective.
Reading the inspection reports of the PIA and reviewing the literature in three of Zambia’s three
public (statutory) pension schemes3, namely LASF, PSPF and NAPSA, one develops immediate
doubts about the practicability of these governance principles amongst the public pension funds.
Interviews with officials at the supervisory authority (PIA) itself confirmed skepticism about the
commitment to the governance of public pension schemes. With such doubts, touching on the
very foundation of a pension system, it is reasonable to conclude that retirement funds under
statutory schemes in Zambia have very high exposure and as such, the pension promise is under
threat. By implication, the governance of public pension schemes in Zambia is questionable.
3 The words “Scheme” and “Fund” are used interchangeably in this document because the institutions under study, i.e. LASF, PSPF and NAPSA, are pension schemes as well as fund managers of those schemes. This must not be confused with situations where an institution could have a pension scheme whose Funds are externally managed by another entity, i.e. a dedicated financial institution called Fund Manager. In such cases, the three entities are separate and different in scope. However, in the case of LASF, PSPF and NAPSA, the schemes manage their own funds, hence the interchangeability in the use of words. In many countries, the word “Plan” is also used in place of “scheme”. The institution referred to is one and the same
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An analysis of literature (mostly unpublished) from LASF and PSPF clearly indicates that the
two organizations have, for years, not been meeting PIA regulatory and supervisory benchmarks.
It is therefore assumed that measured against the OECD pension governance framework as
articulated in the literature review, both LASF and PSPF would perform negatively. Supposedly,
therefore, the pension promise has been threatened, if not broken altogether. Yet, both
institutions have continued to operate despite lacking or failing to meet particular elements of
pension governance, which would have attracted heavy supervisory action in the case of private
schemes. This therefore begs the following broad research question: to what extent does state
involvement in the ownership of public pension schemes in Zambia account for the variance in
the effectiveness of the supervisory authority of PIA over LASF and PSPF.
1.4 Research objectives
This study is intended to demonstrate that it is one thing to have regulations, guidelines, codes or
even a regulatory authority in place, yet quite another to enforce supervision compliance in the
case of public pension schemes which by virtue of being under the de jure guarantee of the state
are, in principle, also state-sponsored.
General objective
To asses measures taken into place in governance supervision on one of Zambia’s public
pension scheme NAPSA
Specific objectives
1.4.1 To establish the characteristics behind the principles of pension governance;
1.4.2 To draw conclusions about the applicability of governance principles in public pension
schemes;
1.4.3 To confirm whether or not Zambia’s public pension scheme (NAPSA) has been meeting
pension governance requirements;
1.4.4 To establish the reasons why it is difficult to arrive at effective governance for public
pensions in Zambia; and
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1.4.5 To establish how the supervisory effectiveness of public pension schemes is affected by the
impact of state-ownership of the schemes.
1.5 Hypotheses
The general hypothesis in this study is that one of the critical elements of governance, the
effective supervision of public pension schemes in Zambia, has been compromised through state
ownership. The working hypotheses may therefore be itemized as follows:
1.5.1 The supervision of public pension funds is negatively affected by government ownership
of the pension funds;
1.5.2 The regulatory and supervisory framework has an influence on the supervisory
effectiveness of public pension schemes;
1.5.3 The more autonomous the supervisory authority is, the more effective is its supervision of
pension funds;
1.5.4 The structure of the pension regulatory and supervisory framework has an impact on the
autonomy of the supervisory authority;
1.5.5 The level of governance in the general public administration has moderating influence on
all factors that affect pension supervision.
1.6 Research questions
Drawing strength from the above hypotheses, the study will seek to answer the following main
research question: To what extent does state involvement in the ownership of public pension
schemes in Zambia account for the variance in the effectiveness of the supervisory authority of
PIA over LASF, PSPF and NAPSA? The following are the subsidiary questions:
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1.6.1 Is the Zambian pension supervisory authority adequately armed with authority to supervise
public pension schemes, such as LASF, PSPF and NAPSA, effectively?
1.6.2 What limitations does PIA have in relation to the supervision of public pension schemes?
1.6.3 Does the fact that LASF, PSPF and NAPSA are state-owned make it difficult for PIA to
enforce compliance on the two schemes?
1.7 Scope of the study
The focus of this study is on the supervision of NAPSA in relation to the supervisory regulations
of LASF and PSPF, of which these are government guaranteed pension schemes established
under their own respective statutes. NAPSA being an institution chosen specifically because it is
one of the public schemes whose conduct and governance practices have raised eyebrows on
many occasions in the past, provoking wide public criticism. Of which it tends to have an aspect
of notoriousness for failing to honour the “pension promise” to their beneficiaries raising fears
of un-sustainability, poor governance and other related controversies.
However, in order to make meaningful comparisons, the study will be extended to some private
Fund Managers4 as well as PIA which is the supervisory authority. The idea is to delve into the
actual practices of supervision of the pension schemes from the point of view of all the
supervisees and compare with what the supervisor states as the actual practices from their point
of view.
1.8 Significance of the study
This study is significant to the understanding of pension supervision, particularly as it relates to
the quest for effective pension governance. The research findings are expected to provide
guidance to policy makers by providing a basis on which they can draw experiences and lessons
to be used in future. The study is also expected to contribute to the existing body of knowledge,
4 All the private pension schemes in Zambia are affiliated to any one of the Fund Managers or multi-employer trusts, by definition.
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especially having noted that the subject of governance in pension schemes appears not to have
benefited so much of research. It is therefore hoped that this study will form some basis on
which further research on the subject matter can be undertaken in future.
1.9 Organization of the study
The rest of the study is organized in four chapters. Chapter two reviews the literature and otherrelated issues expounded by many scholars on governance in general and as it specificallyapplies to pension plans. The first part of the chapter elaborates how the pension industry inZambia is organized and the framework under which it conducts business. The second part ofthe chapter examines the various literature on governance before undertaking a detailed reviewaimed at developing a theoretical framework that brings out the specific elements that are takeninto account in the supervision of pension plans, which will then be used to establish the scalefor measuring the intensity, scope and dimensions of pension supervision in Zambia. Thechapter also reviews related case studies and other experiences;
Chapter three explains the process followed in the study, including the design and
methods that the research employed.
Chapter four analyses the captured data and lays a framework for drawing inferences on
factors that have a bearing on the effective supervision of pension schemes.
Chapter five draws conclusions from the analysis of the findings. The chapter also makes
recommendations on how pension supervision in the Zambian public sector can be
improved.
CHAPTER TWO
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2.0 LITERATURE REVIEW
2.1 Introduction
Chapter three explores the various studies and writings that are available on the subject matter.
The exploration begins with a focus on the organization and structure of the pension industry in
Zambia. It then reviews the concept of corporate governance in general and describes the global
governance framework for pension schemes as adopted and recommended by OECD. The
chapter goes further to identify and analyze the specific elements that are critical in the
governance framework of a pension system. Also identified in this chapter are the various
variables that impact on the supervisory effectiveness of the pension system in Zambia, which
infact forms the most critical component of this study.
2.2 Structure of the pension industry in Zambia
The various forms of literature that have attempted to catalogue and describe the organization of
financial and non-financial institutions in Zambia clearly agree that the pensions industry
exhibits characteristics of a typical three-pillar profile which comprises the compulsory,
occupational or optional and self-formalized schemes. The literature also converge on the
understanding that all of the pension schemes in Zambia are focused on covering formal
employees and none is covering the unemployed or those in the informal sector, at the moment.
One of the most apt analysis and description of this industry is authored by Muna Hantuba
(2005) who describes the first pillar as a compulsory savings pillar that provides benefits only to
contributors and, in general, provides the most benefits to those who contribute most. Hantuba
asserts that this pillar is mandatory and pre-funded in a fashion similar to a payroll tax, with
penalties for non-compliance. It is popularly known as NAPSA and is managed by a statutory
body supervised by a semi-independent board. NAPSA is a social security pension scheme for
both private sector and parastatal employees, implemented in February 2000. The scheme
operates on a defined benefit basis. Membership is compulsory for all regularly employed
persons, except for a few exceptions, at the present time. It is designed to provide a basic
pension only. NAPSA has accumulated assets of at least ZMK4 1.2 trillion (USD 262 million)
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as at December 2004 for an estimated 350,000 members from 12,500 contributing employers.
The other notable statutory scheme under this pillar is the Workers and Pneumonoconosis
Compensation Funds that address disability benefits i.e. injury protection to all private and
public sector employees except the police and armed forces.
Pillar two, according to Hantuba, is basically tied up to the respective employers and is mostly
funded or underwritten. It comprises private and occupational schemes, which are expected to
augment the basic minimum pension under NAPSA. The pensions registry (PIA, 2004) reflects
that there are over 240 private or occupational pension schemes currently operating in Zambia,
covered by at least seven dedicated fund managers. Official figures indicate that the total assets
under management are estimated at ZMK 772 billion (USD 169 million) as at December 2004
for an estimated 52,577 members as at June 2004.
In addition, the two public pension schemes PSPF and LASF, which are self-managed, fall under
this pillar.
PSPF covers retirement benefits for civil servants and other qualifying quasi-government
entities. The PSPF is a funded defined benefit scheme established by Act No. 35 of 1996 Cap
260 of the Laws of Zambia. The scheme has a membership base of at least 107,241 active
members and 54,000 pensioners and beneficiaries. It is run by a Board, whose functions are to
control and administer the scheme in accordance with sound business practices and in the best
interest of the members of the scheme subject to the provisions of the Act. The scheme is
currently under severe financial stress, having a projected actuarial deficit of ZMK 3.87 trillion
as at December 2004 against an estimated asset of ZMK 437 billion.
LASF covers benefits for an estimated 22,907 local government employees and has assets of
approximately ZMK 47 billion as at December 2004. It is also believed to be in serious deficit,
although that cannot be confirmed due to lack of actuarial valuation, which the scheme has not
been subjected to in a long while.
The third pillar is a formal voluntary savings pillar available to anyone who wants to supplement
the retirement income provided by the first two pillars. The law allows operations of personal
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retirement schemes such as life policies. There is insignificant activity with regard to this pillar
as it is mainly sold as an endowment product which is still unpopular, given the experience of
failed instruments by providers before liberalization of the market in the early 1990s. This pillar
also caters for individual retirement plans for professionals and generally high net worth
citizens.
The social security legislation under Income Tax Act of 1966 was recently strengthened by the
enactment of laws to oversee the operations of the market. The PIA was established in 1998 and
the social security activities are now regulated by the Pensions and Insurance Act and the
Pension Scheme Regulation Act of 1996, the Income Tax Act 1966 as amended and the Ministry
of Labor and Social Security. The investment activities are also regulated by other financial
services regulations such as the Banking and Financial Services Act and the Securities and
Exchange Commission Act. These statutes are what basically constitute the legal and
governance framework within which the pension industry operates.
2.3 The concept of corporate governance
According to the European Union’s white paper on governance, the term "governance" is a very
versatile one. It is used in connection with several contemporary social sciences, especially
economics and political science. It originates from the need of economics (as regards corporate
governance) and political science (as regards State governance) for an all-embracing concept
capable of conveying diverse meanings not covered by the traditional term "government".
Referring to the exercise of power overall, the term "governance", in both corporate and State
contexts, embraces action by executive bodies, assemblies (e.g. national parliaments) and
judicial bodies (e.g. national courts and tribunals).
The term "governance" corresponds to the so-called post-modern form of economic and political
organizations. According to the political scientist Roderick Rhodes, the concept of governance is
currently used in contemporary social sciences with at least six different meanings: the minimal
State, corporate governance, new public management, good governance, social-cybernetic
systems and self-organized networks.
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The context of this paper, however, would be more interested in the meaning of "Corporate
governance” which is described more aptly by J. Wolfensohn, president of the World Bank, as
the principle of promoting corporate fairness, transparency and accountability5. Even though it
may not be representative of a universal definition, this loose description of corporate
governance highlights three key elements that have given credence to the study of this subject
matter, which are fairness, transparency and accountability. The concept of corporate
governance is defined in several ways because it potentially covers the entire gamut of activities
having direct or indirect influence on the financial health of the corporate entities. As a result,
different people have come up with different definitions, which basically reflect their special
interests in the field.
It is quite useful to recall the earliest definition of Corporate Governance by the Economist and
Noble laureate Milton Friedman. According to him, Corporate Governance is to conduct the
business in accordance with owner or shareholders’ desires, which generally will be to make as
much money as possible, while conforming to the basic rules of the society embodied in law and
local customs. This definition is based on the economic concept of market value maximization
that underpins shareholder capitalism. Apparently, in the present day context, Friedman’s
definition is narrower in scope. Over a period of time the definition of Corporate Governance
has been widened. It now encompasses the interests of not only the shareholders but also many
stakeholders and particularly the way those interests are protected.
The Cadbury Report6 of the UK, which is one of the most globally cited reports and authorities
on corporate governance, defines corporate governance as the system by which companies are
directed and controlled. Boards of directors are responsible for the governance of their
companies. The shareholders’ role in governance is to appoint the directors and the auditors and
to satisfy themselves that an appropriate governance structure is in place. The responsibilities of
the board include setting the company’s strategic aims, providing the leadership to put them into
effect, supervising the management of the business and reporting to shareholders on their
5 As quoted by an article in the Financial Times (UK), June 21, 1999 6 Chaired by Sir Adrian Cadbury, the Report was set up by the London Stock Exchange in May 1991 to draft a code of practices to assist corporations in U.K. in defining and applying internal controls to limit their exposure to financial loss
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stewardship. The board’s actions are subject to the laws and regulations and the shareholders in
general meetings.
The Report further states that within that overall framework, the specific financial aspects of
corporate governance are the way in which boards set financial policy and oversee its
implementation, including the use of financial controls and the process whereby they report on
the activities and progress of the company to the shareholders. The role of the auditors is to
provide the shareholders with an external and objective check on the directors’ financial
statements which form the basis of that reporting system. Although the reports of the directors
are addressed to the shareholders, they are important to a wider audience, not least to employees
whose interests boards have a statutory duty to take into account.
2.4 Historical perspective of corporate governance
The Watergate Scandal in the United States is believed to have provided the original impetus to
the need for corporate governance. As a result of subsequent investigations, United States
regulatory and legislative bodies were able to highlight control failures that had allowed several
major corporations to make illegal political contributions and to bribe government officials. This
led to the development of the Foreign and Corrupt Practices Act of 1977 in USA that contained
specific provisions regarding the establishment, maintenance and review of systems of internal
control.
This was followed in 1979 by the Securities and Exchange Commission of USA’s proposals for
mandatory reporting on internal financial controls. In 1985, following a series of high profile
business failures in the USA, the most notable one of which being the Savings and Loan
collapse, the Treadway Commission was formed. Its primary role was to identify the main
causes of misrepresentation in financial reports and to recommend ways of reducing incidence
thereof. The Treadway report published in 1987 highlighted the need for a proper control
environment, independent audit committees and an objective Internal Audit function. It called
for published reports on the effectiveness of internal control. It also requested the sponsoring
organizations to develop an integrated set of internal control criteria to enable companies to
improve their controls.
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Accordingly, the Committee of Sponsoring Organizations was born. The report produced by it in
1992 stipulated a control framework, which has been endorsed and refined in the four
subsequent UK reports: Cadbury, Rutteman, Hampel and Turnbull.
While developments in the United States stimulated debate in the UK, a spate of scandals and
collapses in that country in the late 1980s and early 1990's led shareholders and banks to worry
about their investments. These also led the Government in UK to recognize that the then existing
legislation and self-regulation were not working.
Companies such as Polly Peck, British & Commonwealth, BCCI, and Robert Maxwell’s Mirror
Group News International in UK were all victims of the boom-to-bust decade of the 1980s.
Several companies, which saw explosive growth in earnings, ended the decade in a memorably
disastrous manner. Such spectacular corporate failures arose primarily out of poorly managed
business practices.
It was in an attempt to prevent the recurrence of such business failures that the Cadbury
Committee, under the chairmanship of Sir Adrian Cadbury, was set up by the London Stock
Exchange in May 1991. The committee, consisting of representatives drawn from the top levels
of British industry, was given the task of drafting a code of practices to assist corporations in
U.K. in defining and applying internal controls to limit their exposure to financial loss, from
whatever cause.
2.5 The governance framework for pension schemes
The literature available from the world’s social security realm, including documents from the
International Social Security Association (ISSA), Canadian Association of Pension Supervisory
Authorities (CAPSA), International Monetary Fund (IMF), World Bank and OECD, do
converge on the premise that pension funds function on the basis of agency relationships
between members and beneficiaries, on the one hand, and the persons/entities involved in the
administration of or financing of the scheme, such as the scheme sponsor and scheme
administrator, on the other. The governance of these schemes consists of all the relationships
between the different entities and persons involved in the functioning of the pension scheme.
Governance also provides the structure through which the objectives of the pension scheme are
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set, and the means of attaining those objectives and monitoring performance. It is the mirror
image of the corporate governance of a public limited company, which consists of the set of
relationships between the company’s management, board, shareholders and other stakeholders
(OECD, 2002).
Although there are existing differences in the operation of pension funds in OECD countries, it
has been accepted that these differences should not obscure the fact that pension funds are set up
with one common objective of serving as a secure source of income funds for retirement
benefits. In this respect, it is universally agreed that regulations on pension governance need to
be framed under this overriding objective (Sunday Times of Zambia, 2005).
OECD (2002) postulates that the central figure in the pension fund governance is the governing
body, the board of trustees – i.e. the person, group of persons, or legal entity responsible for the
management and safeguarding of the pension fund. The governing body is subject to various
forms of external oversight. At one level, the governing body may be monitored by special
committees set up specifically for this purpose (e.g. a supervisory board or oversight committee,
whose members may be elected by scheme members or beneficiaries). At another level,
regulations require independent professionals such as actuaries, auditors and custodians to
monitor and report on the compliance of the governing body with relevant legislation. Finally,
the governing body is subject to the supervision of relevant authorities. The regularity and detail
of the oversight exerted by the supervisory authorities will vary depending on the complexity of
the pension system and the specific role of actuaries, auditors and custodians (OECD, 2002).
OECD recommends two dimensions to the framework for the development of governance
guidelines or regulations, regardless of the country to country variations in the practical
implementation. These dimensions take the form of the governance structure, on one hand, and
the governance mechanisms on the other.
The governance structure should ensure an appropriate division of operational and oversight
responsibilities, and the accountability and suitability of those with such responsibilities.
Elements under governance structure include issues of mandate as well as legal and regulatory
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provisions. Specifically, OECD (2002) recommends the following elements to appear in the
governance structure of a pension Fund if effective supervision is to be attained:
2.5.1 Identification of responsibilities – there should be a clear identification and assignment of
operational and oversight responsibilities in the governance of a pension fund;
2.5.2 Governing body – every pension fund must have a governing body or administrator vested
with the power to administer the pension fund and who is ultimately responsible for
ensuring the adherence to the terms of arrangement and the protection of the interests
of scheme members and beneficiaries. The responsibilities of the governing body
should be consistent with the overriding objective of a pension fund which is to serve
as a secure source of retirement income;
2.5.3 Expert advice - where it lacks sufficient expertise to make fully informed decisions and
fulfill its responsibilities, the governing body could be required to seek expert advice
or appoint professionals to carry out certain functions;
2.5.4 Auditor – an independent auditor of the pension entity, the governing body and the scheme
sponsor should be appointed by the appropriate body or authority to carry out a
periodic audit consistent with the needs of the arrangement. What is also critical here
is where that auditor reports and what mechanisms are in place to take remedial
action in cases where the pension fund is found wanting;
2.5.5 Actuary – an actuary should be appointed by the governing body for all defined benefit
plans financed via pension funds. As soon as the actuary realises, on performing his
or her professional or legal duties, that the fund does not or is unlikely to comply
with the appropriate statutory requirements and depending on the general supervisory
framework, he or she shall inform the governing body and - if the governing body
does not take any appropriate remedial action - the supervisory authority without
delay;
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2.5.6 Custodian – Custody of the pension fund assets may be carried out by the pension entity,
the financial institution that manages the pension fund, or by an independent
custodian. If an independent custodian is appointed by the governing body to hold the
pension fund assets and to ensure their safekeeping, the pension fund assets should be
legally separated from those of the custodian. The custodian should not be able to
absolve itself of its responsibility by entrusting to a third party all or some of the
assets in its safekeeping;
2.5.7 Accountability – The governing body should be accountable to the pension plan members
and beneficiaries and the competent authorities. The governing body may also be
accountable to the plan sponsor to an extent commensurate with its responsibility as
benefit provider. In order to guarantee the accountability of the governing body, it
should be legally liable for its actions;
2.5.8 Suitability – The governing body should be subject to minimum suitability standards in
order to ensure a high level of integrity and professionalism in the administration of
the pension fund.
On the other hand, governance mechanisms are critical, according to the OECD model. Pension
funds should have appropriate control, communication, and incentive mechanisms that
encourage good decision making, proper and timely execution, transparency, and regular review
and assessment. Elements specified by OECD under governance mechanisms are as follows:
2.5.9 Internal controls – There should be appropriate controls in place to ensure that all persons
and entities with operational and oversight responsibilities act in accordance with the
objectives set out in the pension entity's by-laws, statutes, contract, or trust
instrument, or in documents associated with any of these, and that they comply with
the law. Such controls should cover all basic organizational and administrative
procedures; depending upon the scale and complexity of the plan, these controls will
include performance assessment, compensation mechanisms, information systems
and processes, and risk management procedures;
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2.5.10 Reporting – Reporting channels between all the persons and entities involved in the
administration of the pension fund should be established in order to ensure the
effective and timely transmission of relevant and accurate information;
2.5.11 Disclosure – The governing body should disclose relevant information to all
Parties involved (notably pension plan members and beneficiaries, supervisory
authorities, etc.) in a clear, accurate, and timely fashion;
2.5.12 Redress – Pension plan members and beneficiaries should be granted access to statutory
redress mechanisms through at least the regulatory/supervisory authority or the courts
that assure prompt redress.
Clearly, the guidelines recommended by OECD provide a considerably plausible route for
acceptable governance practices and safeguarding pension interests. However, the problem with
discussing any form of governance is that no matter how attractive the model might appear, the
reality is that actual implementation usually falls below the desired quality. Various critiques of
pension governance models argue that a model that is devoid of inherent bottlenecks is yet to be
developed. Despite the comprehensiveness of the OECD model, it has also been criticized for its
lack of depth in practicality.
According to Golinowska and Kurowski (2000), the appropriateness and effectiveness of
specific risk and governance solutions in a pension system largely depends on factors that
characterise a given country’s situation: its level of economic development, the population’s
affluence, traditions of business culture and co-operation, etc. The safe and effective operation
of pension funds in a given country requires a proper set of tools that do not necessarily have to
be universal, but whose deviation from the general rules should not be so numerous as to change
the basic mechanism of the instruments’ functioning. And if these deviations do occur, they
should be rationally justified. When constructing these instruments, the legislator faces many
dilemmas. These may result from the contradiction between the goals of the system’s new
institutions and the tasks of the instruments used to safeguard against risks. What is critical
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though is to ensure that the dilemmas are given detailed consideration at the point of
constructing the instruments.
2.6 Primary elements of supervision
Evidently though, not much study has been devoted to the examination of the practicalities of
pension governance models worldwide, particularly as relates to the element of supervision.
Currently, global institutions such as the IOPS, World Bank, OECD etc. Are actively engaged in
the pursuit of extended exploration and understanding of the successes and failures of pension
regulatory and supervisory structures. Although there is a growing body of work on the theory
and economics of pension systems, this tends to be focused on the financial implications and
consequences of these arrangements, rather than on understanding their operation and oversight.
Very little consideration has been given to the way schemes are supervised and to the factors
that determine relationships between the design of pension systems, the environment in which
they operate and the manner in which supervision is most effectively undertaken.
The body of literature that is well cited in the area of effective pension supervision includes
studies by Mataoanu (2004) and Hinz and Mataoanu (2005), who stress that maintaining
effective pension regulatory and supervisory structures that secure the interests of the
participants and beneficiaries is crucial for systemic stability and economic growth. Mataoanu’s
(2004) study focuses on the supervision of privately managed, defined contribution pension
systems and attempts to clarify key factors that determine the setting and operational activity of
pension supervisory structures. Hinz and Mataoanu, on the other hand, propose an approach to
classifying and measuring the primary elements of pension supervision.
Like in much other literature relating to the subject matter of pension supervision, the starting
point of both analyses is the OECD’s model on pension governance. Examined to greater detail,
the OECD’s framework brings out six basic and functional elements of supervision, namely
monitoring, licensing, communication, measurement, intervention and correction (OECD, 2004),
which are expounded in the theoretical framework that follows.
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2.7 Theoretical framework
In considering the factors that influence the variations in supervisory effectiveness, it is
necessary to organize and classify the elements so as to set a framework for clearly discerning
the various variables involved and the inter-linkages at play. As earlier highlighted in preceding
paragraphs of the literature review, the activities of pension supervisors can be considered in six
primary categories, i.e. licensing, monitoring, analysis, intervention, correction and
communication. This framework will briefly describe each of the six elements of pension
supervision and proceed to discuss the potential variables there from and suggest how they
impact on supervision. A point to note is that although this framework is public-sector based, it
has been adapted from the private pension framework propounded by Hinz and Mataoanu (2005)
in their study of the international practice and country context of pension supervision. A step-by-
step theoretical framing of the six elements, in the public-domain context, follows hereunder.
2.7.1 Licensing
Licensing activities restrict and control entry to the pension market through procedural
requirements and criteria. These are commonly applied to pension funds or the entities that are
permitted to sponsor or operate them. They can also be extended to individuals who perform
important functions in the pension system, for example trustees, or to firms or individuals that
are qualified to provide services, for example, to actuaries who valuate the status of benefit
plans. The modalities in which this function is exercised differ widely across different systems,
but in essence, they all make use of a set of predetermined criteria to establish an entry barrier or
select a limited number of entrants. Licensing is differentiated among pension systems by its
restrictiveness, depth, and periodicity. Some systems have virtually no entry barriers while
others have very complex and strict standards applied by the supervisor.
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2.7.2 Monitoring
Monitoring activities collect information to enable the supervisor to track the status and actions
of the pension funds within its jurisdiction. Monitoring commonly takes the form of required
submissions of information on a regular basis or periodic reports to the supervisor. It also
includes a range of other reporting requirements or more active forms of information collection.
The common attribute is the provision of information that will either provide the basis for
judgments or actions by the supervisor or through its provision or disclosure make the activities
of the pension funds more transparent. Potential recipients and users of monitoring include
supervisors as well as the members of funds.
Monitoring activities can be defined in terms of the scope and content of the information that is
collected as well as the mode of collection. Common types of information collected include
financial statements, schedules of transactions, information on individuals responsible for
important aspects of fund operations (trustees, administrators, Boards of Directors), actuarial
analyses and information on the sponsors of pension funds. Monitoring is often a passive
activity on the part of the supervisor in which information is required to be submitted by the
relevant institutions or individuals. It may also be a pro-active function in which the supervisor
periodically goes on site to collect specific or supplementary information. Supervisors may also
monitor the media for information, have regular exchanges of information or consultations with
other supervisors, and have regular programs of meetings with pension funds to collect
information. An important form of monitoring is establishing venues for individuals or fund
members to communicate with the supervisor and to request scrutiny of a particular fund or
activity. A distinctive type of this approach is the so called “whistleblower” requirements of
some systems, which assign responsibility to certain individuals or parties to report knowledge
of improprieties to the supervisor. Some monitoring systems also use independent third parties
such as auditors or credit rating agencies to produce or verify information.
Monitoring varies in terms of the type, scope, and depth of the information that supervisors seek
to utilize, as well as the parties who provide the information and the periodicity of the collection
of information.
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2.7.3 Communication
Supervisors engage in a full range of activities to communicate with pension funds. These are
essentially a complement to monitoring activities, except in this case the flow of information is
from the supervisor to the funds. This can make it difficult to clearly separate the two in many
instances. Supervisors may communicate with the funds through the provision of regular reports
on the industry, by announcing their priorities and compliance strategy, or by publicizing
compliance actions. They may also engage in interactive communication by placing inspectors
on site and engaging in daily communication, by meeting regularly with the funds to discuss
issues of mutual interest or through more formal processes in which changes in the activities of
the funds are suggested and issues resolved through negotiation. Supervisors may also undertake
programs of outreach, education, and training to enhance the knowledge of the legal
requirements or operation of pension systems. Supervisors often seek to communicate with a
range of parties including fund managers, service providers, members, and the public.
Communication activities of supervisors have a wide range of goals and objectives. Some
communication programs may have the purpose of informing pension funds about the intent and
nature of the supervisor’s activities to maximize the capacity for cooperation and make the
interactions with fund more efficient. Others are intended to advance the understanding of the
regulatory structure as well as rights and responsibilities of funds and their members to facilitate
compliance with the rules or to advance the exercise of individual rights of action by members.
Communication may also be intended to leverage resources and establish a climate of deterrence
among funds by publicizing the enforcement actions of the supervisor.
Basic types of communication by supervisors are disclosure, outreach and educational activities
and training. Communication is differentiated among pension systems by the scope and purpose
of the activities. Supervisory systems that impose strong controls and have little reliance on
external or market processes are very directive in their communication with funds regarding
compliance issues, and they are likely to engage in few activities designed to facilitate
compliance or enhance deterrence. Systems with more procedurally oriented standards or a
greater reliance on external processes will engage in a more interactive communication process.
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They will typically have far more extensive outreach and education programs that support
negotiated settlement of compliance issues and rely on deterrence and third party actions to
support direct compliance activities.
2.7.4 Analysis
The manner and extent to which supervisors analyze and evaluate the information they receive
from pension funds is usually closely linked to the system’s legal and regulatory approach. Legal
frameworks that are based on quantitative standards lead supervisors to extensive measurement
efforts that compare funds’ financial status and activities to normative standards. Measurement
of supervisory effectiveness using the analysis element is usually evaluated on the basis of the
purpose, frequency, and intensity of the activity.
2.7.5 Intervention
All supervisory programs are continually faced with decisions about whether and how to
intervene in the operation of pension funds. It is often difficult to separate intervention from
some of the key aspects of the communication with the funds. Interventions may take the form
of explicit requirements for the fund to either undertake, or desist from engaging in, certain
activities that carry the force of law and must be complied with immediately. In other systems
interventions may be in the form of findings that are presented to the funds for a response. The
process of intervening in these circumstances is likely to be in the form of negotiations in which
issues are resolved, or a process of litigation through the civil courts, where the ultimate
resolution is reached through a judicial process. A key issue that defines the nature of
interventions is the force of authority given to the supervisor and the nature of the process
through which interventions occur. In some countries, the supervisor simply has the authority to
intervene when a finding is made that a fund is, or may be, approaching non-compliance. Fund
managers may in some cases be provided with very little if any recourse to negotiate or appeal.
In other countries, the supervisor has little capacity to unilaterally impose sanctions and instead
intervenes through a far less directive process of consultation, notification and perhaps
negotiation. The most basic and important feature of the notification of compliance actions is the
manner in which individual funds are notified by the supervisor when they are deemed to be out
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of compliance with legal requirements. This can range from regularly scheduled interaction that
may occur as often as daily in some countries, to formal notices. In some cases there are simply
directives from the supervisor to the fund to make changes. The manner of this sort of
intervention and the nature of the process that follows, whether it is completely directive or a
form of negotiated settlement, is perhaps the aspect of the supervisor’s activities that most
defines the nature and style of supervision. Another key variation is the involvement of third
parties in interventions. Some systems require that all actions be taken through the courts. Others
establish a formal process of appeal to a specially constituted group. Interventions by
supervisors are therefore differentiated partially by the degree to which they are pro-active or
occur only after conclusive evidence of non-compliance is established. They are also
distinguished by the extent to which they are directive and represent the unilateral exercise of
authority to which there is little or no appeal, or conversely are a process of negotiation and
adjudication.
2.7.6 Correction
As is the case with any form of compliance enforcement, one of the most important elements ofpension supervision is the capacity of the supervisor to take corrective actions. Three basic typesof corrective actions can be delimitate: Punitive, remedial and compensatory. Supervisoryprograms may engage in all three types or may be limited exclusively in their authority to onlyone. Punitive actions are designed to impose penalties on the funds for actions deemed to beadverse to the interest of members. They are distinguished by both form and intent. Penalties areusually fines that are paid to the supervisory and may be retained by the authority or become partof public revenues. Their intent is to establish deterrence and punish behavior outside of thestandards.
Remedial actions are those taken by a supervisory authority to remedy the consequences offailure to comply with the law. These are essentially a way to reverse the outcome of thenoncompliance. Remedial sanctions may simply be requiring the fund to return to a prior statusor to cease in certain actions. In some cases this may involve financial sanctions that are limitedto any direct result of negligence or malfeasance by responsible parties. Compensatory correctiveactions go beyond the remedial outcomes and seek to compensate aggrieved parties for both thedirect and indirect effects of violations. These types of actions have a strong deterrent intent butalso have the purpose of ensuring that harm is minimized. Corrective activities of supervisory aredistinguished by the degree to which they are solely focused on remedial outcomes, correctingproblems as they occur or whether they extend into the arena of compensation and punitiveprovisions that attempt to establish a more self-enforcing regime of deterrence.
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The primary intent of these corrective actions is to rectify any direct negative outcomes and
prevent a recurrence. In our study of supervisory effectiveness, this element is critical
considering that it can singularly give us an impression on a supervisory body’s capacities and
limitations in terms of authority.
There is no doubt, generally, that given an appropriate environment, an intense application of the
six elements of pension supervision would uphold effectiveness. In developed countries, studies
have been undertaken to confirm this hypothesis, particularly in the case of private pension
schemes. Although there is no empirical evidence to show for it (which is partly reason for this
study), arguments have been advanced to claim that infact the supervision of private pension
schemes in Zambian has been very effective, to such an extent that justification has been
established to advocate for the complete privatization of the social security system in the country
(Hantuba, 2005).
2.7.7 The variables that impact on pension supervision
The theoretical argument advanced by this study is that there are four variables that influence
effectiveness of the supervising authority on public pension schemes in Zambia, three of which
are independent while the fourth one is a moderating variable. The following are the independent
variables which impact on effective supervision of public pension schemes:
2.7.7.1 Government ownership and/or sponsorship of the Fund
The fact that public pension schemes are sponsored by the state makes it practically difficult for
the supervising authority, which is also a government institution to effectively police these
schemes. In the case of PSPF, it is even worse because the superintending Ministry for the
scheme also superintends over PIA, i.e. the Minister of Finance is in charge of both the Pension
Fund and the supervisory authority. Issues of oversight are extremely difficult under such
circumstances. The influence of this dilemma may not be obvious, but it certainly is implied.
Even though neither side would want to admit it, certain actions or lack of certain actions infact
signify the dilemma that PIA is faced with.
2.7.7.2 Regulatory and supervisory framework
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Effective supervision of pension funds must be provided for in the legal framework which
establishes the scheme. The regulatory framework must focus on legal compliance, financial
control, actuarial examination and supervision of managers. The legal framework must also
clearly provide for the setting up of appropriate supervisory bodies, properly staffed and funded,
in order to conduct relevant off and on site supervision. Supervisory bodies should also be
endowed with appropriate regulatory and supervisory powers over individual plans. Otherwise,
supervision of pension plans is not effective if the legal framework is vague on what is expected
of the Fund, on one hand, and the supervising authority, on the other.
2.7.7.3 Autonomy of the supervisory authority
An autonomous model for the supervisory authority creates a clear separation of the sponsor and
fiduciary roles in the governance of the pension scheme. It is clear that in the Zambian case, the
autonomy has been compromised by the design of not only the regulatory framework, but also
the reporting structure.
One moderating variable, though, is the general level of governance in the country. The study
hypothesizes that with the entrenchment of good governance in the fabric of a nation’s public
administration, it is possible that such an environment would positively moderate the impact of
the above independent variables on pension supervision, the opposite also being true. In other
words, with good governance practices in the country, it is highly likely that pension supervision
would be more effective because an enabling framework and environment for checks and
balances will already have been established. On the contrary, unbridled bad governance in a
nation’s public domain will tend to permeate society and the corporate world to such an extent
that policing governance vices becomes problematic if they are inherent in the public
administration of a country.
Below is a graphic presentation of the theoretical framework as expounded in the preceding
paragraphs.
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Figure 1.1 conceptual framework
Dependent variable
Moderating variable Independent variables
Source (International Social Security Association (2003), Page Bros. Ltd,
Norwich.
The orange boxes depict the independent variables which have an impact on the effectiveness of
pension supervision (blue box). The thick black arrows indicate the flow of influence, which is
moderated by the general governance obtaining in the national fabric, symbolized by the yellow
box. Each of the independent variables can bear some influence on effective supervision, subject
to the national public administration governance atmosphere.
However, depending on the regulatory and supervisory framework, the autonomy of the
supervisory authority may be affected positively or negatively, a situation which will in turn tend
to bear some impact on the supervision effectiveness.
The dotted back arrows, on the other hand, indicate the moderating influence that the governance
variable (yellow box) can impose on the independent variables. The implication here is that
depending on the general political atmosphere and sensitivity to governance issues, each of the
three independent variables may be affected differently, leading to a completely different effect
on pension supervision. For example, governance levels may dictate how the pension system in
the country is structured. A governance sensitive environment will obviously call for a system
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Government ownership/sponsorship
Regulatory and supervisory Framework
Autonomy of supervisory authority
Effective supervision
National public Adm inistration
(Level of Governance)
that evokes stringent checks and balances in the pension administration. This will also determine
the ownership structures of pension systems obtaining in a particular country. Similarly, the
regulatory and supervisory framework will depend on the political structure and governance
framework in place.
Lastly, the autonomy of a scheme will obviously borrow influence from the prevailing
atmosphere in the nation in terms of governance and the sensitivity that is attached to it.
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CHAPTER THREE
RESEARCH METHODOLOGY AND DESIGN
3.0 Introduction
This chapter presents the description of methods on how the research was carried out and the
way in which it was organized e.g. sections, research paradigms, research design, instruments,
information sources, data collection methods and approaches, samples studies, sampling
techniques and procedures, management and analysis of data.
3.1 Research Paradigm
Paradigm is a way of examining social phenomenon from which particular understanding of this
phenomenon can be gained and explanations attempted. Burred and Morgan (1979) offered a
categorization of social science paradigms which can be used in management and business
research problems. Burrel and Morgon (1979) note the purpose of three paradigms are:-
• Help researchers clarify their assumptions about their view of the nature of
science and society.
• Offer a useful way of understanding the way in which other researchers approach
their work.
• Help researchers plot their own route through their research and
Mark et al, (2007) says paradigms help to understand where it is possible to go and where they
are going.
• Functionalist paradigms
• Interpretive paradigm
• Radical humanist paradigm
• Radical structuralism paradigm
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Functionalist paradigm is located on the objectivist and regulatory dimensions. It is a regulatory
in that you will probably be more concerned with a rational explanation be more concerned with
a rational explanation of why a particular organization problem is occurring and developing a set
of recommendations set within current structure of the organizations current management. This
is the paradigm within which most business and management operate.
Interpretive paradigm is the way as humans attempt to make sense of the world around us. The
would be to understand the fundamental meanings attached to organizational life for from
emphasizing nationality it may be that the principal concern you have here is discovering
irrationalities. Concern with studying organizations communication strategy may soon turn the
understanding the ways in which the intentions of management become detailed for completely
unseen reasons, may be reasons, which are not apparent even to those involved with the strategy.
This is likely to take the realism of organization politics and the way in which power is used.
Radical humanist paradigm is located within the subjectivist and radical change dimensions. It
dollops a critical perspective on organizational life as such working within this paradigm you
would be concerned with changing the status quo or articulate ways in which humans can
transcend the spiritual bonds and fetters which tie them into existing social patterns and realize
their full potential.
Radical structuralism paradigm; here your concern would be to approach your research with a
view to achieving fundamental change based upon an analysis of such organizational
phenomenon as power relationships and pattern conflicts. It adopts and objectivist perspective
because it is concern with objective entities, unlike the radical humanist paradigm which
attempts to understand the meanings of social phenomena from the subjective of participating
social actors. The concern is interpretive paradigm in the sense that it explains the researcher to
study deeply and understand problem facing organization and to come up with solutions to
management.
3.2 Research design
According to Kothari (2000) research design is the conceptual constitutes the blueprint for the
collection, measurement and analysis of data. It is a framework for providing answers to the
research questions in best possible way such as collection organizing, analyzing and interpreting
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data. It is the arrangement of conditional for collection and analysis of data in a manner that aims
to combine relevance to the research purpose with economy in procedures. This study is about
“evaluating governance supervision on public pension schemes” in which the design will deal
with gathering data from various sources such as documentary review, questionnaire and
interview; thus useful in studying a particular unit. This study will be a case study as a research
designs which involve collecting and observing data about a particular unit in its natural setting
(Kothari 2000) it has been observed that there seems to be some laxity in the way of rendering
customer service.
The study is exploratory and longitudinal in nature and purely depends on how public pension
schemes operate in relation to governance supervision (Dale et al 1988) the research used a case
study for the following reasons:-
• Financial constraints
• Limited time (Constraint)
• Availability of respondents in the areas of research.
• Large number of beneficiaries in the public pension scheme NAPSA
3.2.1 Study Area
The study was conducted in Lusaka which is selected purposively because of the broader
information acquired that is to say Lusaka having diverse pension schemes, it brings in an easy
and complex gathering of information from the three major pension schemes that is
NAPSA,LASF and PSPF. This situation provided the researcher with an adequate number of
data.
3.2.2 Types of measurement
The researcher made various measurements on collection of data which included the existence of
the policy guiding pension schemes. Measurement is the process of assigning measurement
being a function of the rules under the number are assigned (Kothari 2004)
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3.2.3 MEASUREMENT OF VARIABLES WILL TAKE DIFFERENT SCALES AS
FOLLOWS
Nominal scale is simply a system of assigning number symbols to events in order to label them.
Nominal scales provide convenient ways of keeping track of people, objects and events. It is the
least powerful level of measurement and indicates no order or distance relationship and has no
arithmetic origin. A nominal scale simply describes difference between things by assigning them
to categories (Kothari, 2004).
Ordinal scale the ordinal scale places events in order, but there is no attempt to make the
intervals of the scale equal in terms of some rule. Park orders represent ordinal scale and are
frequently used in research relisting to qualitative phenomenon. The use of ordinal scale implies
a statement of greater than or less than (am equality statement is also acceptable without our
being able to stated how much greater or less, Kothari (2004).
Interval scale
In this case, the intervals are adjusted in terms of some rule that has established as a basis for
making the units equal. The units are equal only in so far one accept the assumptions on which
the rule is based. Interval scales have an absolute zero or the unique origin. The primary
limitation of the interval scale in lack of a true zero; it does not have the capacity to measure the
complete absence of a trout or characterizes (Kothari 2004)
Ratio scale
Ratio scales have an absolute or true zero of measurement. The term absolute zero is not as
precise as it was once believed to be. Ratio scale represents the actual amount of variable.
Measures of physical dimensions such as weight, height distance etc.
Generally all statistical techniques are usable with ratio scales multiplication and division can be
used with this scale but not with other scale (Kothari 2004).
3.3 SAMPLE SIZE
Sample size refers to the number of items to be selected from universe to constitute a sample,
(Kothari, 2004) researchers consider drawing respondents from the population who meet the test
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of representation to minimize sampling and bias. To accomplish this task efficiently and
effectively the researcher’s target population was 300. However the researcher managed to
acquire 35 respondents that is management officials 10 and employees 15 were randomly
selected to form sample size for the study (tromp 2003) and 10 retirees for virtual of attaining
how benefits have been efficiently and effectively distributed.
3.4 Sampling Plan and Procedure
This is a process of obtaining information about the entire population by examining only a part
of it. In most of the research work and surveys, the usually approach happens to be to make
generalizations or to draw inferences based on samples that are taken (Kothari 2004).
It involves the decision to the type of sample and techniques to be used in selecting the items for
samples (Kothari 2004). Since it is difficult for the researcher to collect data from population
from every pension scheme , the researcher will take a sample, from few units of operation
which will act as representative samples of the entire populations.
Probability sampling method will be used where every individual has an equal chance of being
selected. Under this technique random sampling will be applied to pick up respondents from the
public pension scheme.
3.5 TYPES AND SOURCES OF DATA
Data are facts, figures and other elemental materials post and present serving as basis for study
and analysis (Krinshnaswan 1993). The researcher will use various types of data depending on
their availability and accessibility. Both primary and secondary data will be used.
3.5.1Primary Data
Primary data are those data which are collected afresh and for the first time; thus happen to be
original. It is information gathered directly from respondents. It involves creating new data.
Primary data may be gathered through questionnaire, interviews observation and experimental
studies (Kothari, 2004). Such data were provided by the subjects in the sample through the
scheduled interactions by using the well prepared tools. The tools were employed to obtain the
primary data in this study were interview method.
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The first advantage of primary data is that, it can be collected from a number of ways like
interviews, telephone surveys, focus groups etc. secondly, it can also be collected across the
national border through e-mails and posts. Thirdly it can include a large population and wide
geographical coverage. Fourthly it is relatively cheap and no prior arrangements are required.
Moreover primary data is current and it can better give a realistic view to the researcher about
the topic under consideration. On the other hand, the major disadvantage of primary data is that
it has design problem like how to design the surveys. The questions must be simple to design
general responses. Sometimes respondents may give fake, socially acceptable and sweet answers
and try to cover up the realities. In some primary data collection methods there is no control over
the data collection. Incomplete questionnaire always give a negative impact on research
(blurtit.com/3rd Feb, 2011).
3.5.2 Secondary Data
Secondary data are information or records which have already been collected and analyzed by
someone else. When the researcher utilizes secondary data and then has to look into various
sources from where he obtained them secondary data may either be published or unpublished
data (Kothari 2004).
The following are documents which can be used in secondary data; books journals, internet.
Books are written documents found in library written by authors, concerning different topics;
this helps researcher to understand the problem which is being studied. It gives direction of the
problem and helps the researcher to compare with solutions. Journal is a document presented by
different institutions or procuring entities concerning problems which exist in the organizations
and they come up with solutions whilst internet is the site in a website which the researcher pass
through to search for information which is written by different presenters, also it give direction
of where to start.
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3.6 DATA COLLECTION METHODS AND APPROACHES
The choice of data collection instruments depend much on how best they can serve the purpose
of the study the researcher used three types of data collection methods namely, questionnaires,
literature (books journals, internet ) and interview.
3.6.1 QUESTIONNAIRE
When designing a questionnaire, the researcher should ensure that it is “valid, reliable and
unambiguous” a questionnaire is a set of questions that are asked as a basic way of getting
information on a topic of interest. Both generic and specific closed-ended and open-ended
questions were covered in the questionnaire. Specifically, the four questionnaires were
administered to serve the purpose of extracting generic and specific information concerning
the objectives of this research.
RELIABILITY AND VALIDITY
Reliability and Validity are important concepts in research as they are used for enhancing the
accuracy of the assessment and evaluation of a research work. They have different meanings
under the different types of research i.e. quantitative and qualitative research. Under
quantitative research, reliability refers to the consistency, stability and repeatability of results
i.e. the result of a researcher is considered reliable if consistent results have been obtained in
identical situations but different circumstances.
Validity is the extent to which any measuring instrument measures what it is intended to
measure. It is possible for a measurement to be reliable but invalid; however, if a
measurement is unreliable, then it cannot be valid. Under qualitative research, reliability is
referred to as when a researcher’s approach is consistent across different researchers and
different projects. Validity is when a researcher uses certain procedures to check for the
accuracy of the research findings. In order to strengthen the validity of the research data and
instruments, the researcher applied the method of triangulation. This involves the process of
collecting data through several sources: questionnaires, interviews and related literature etc.
Gathering data through one technique can be questionable, biased and weak. However,
collecting information from a variety of sources and with a variety of techniques can confirm
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findings. Therefore, if the researcher obtains the same results, he/she can become sure that the
data is valid. Certainly, through triangulation we can gain qualitative and quantitative data in
order to corroborate our findings. This study adopted three data collection methods, namely;
telephone interviews questionnaires and literature (books journals, internet).
3.6.2 TELEPHONE CALL INTERVIEWS
Interviews are defined as qualitative research technique which involves “conducting intensive
individual interviews with a small number of respondents to explore their perspectives on a
particular idea, program or situation. There are three different formats of interviews: structured,
semi structured and unstructured.
Structured interviews consist of a series of pre-determined questions that all interviewees
answer in the same order. Data analysis usually tends to be more straight forward because the
researcher can compare and contrast different answers given to the same questions.
Unstructured interviews are usually the least reliable from research viewpoint, because no
questions are prepared prior to the interview and data collection is conducted in an informal
manner. Unstructured interviews can be associated with a high level of bias and comparison of
answers given by different respondents tends to be difficult due to the differences in formulation
of questions.
Semi-structured interviews contain the components of both, structured and unstructured
interviews, interviewer prepares a set of same questions to be ansered by all interviewees. At the
same time, additional questions might be asked during interviews to clarify and/ or further
expand certain issues. Henceforth;
Interviews were conducted with usage of phone calls with regard to precaution measures that
where put in place as a result of covid-19.interviews were conducted with individuals from
NAPSA as the target public pension scheme. Attempts were made to interview individuals from
the other schemes, but without success as it was learnt that other pension schemes were not as
liberal in information dissemination and lockdown of the economy due to the pandemic(covid
19). However, the information received from the individuals who were interviewed was
sufficient for the purpose of this study, particularly when tallied with the information collected
through structured questionnaires and some of the available literature.
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Ethical Consideration
The following ten principles of ethical considerations have been compiled as a result of
analyzing the ethical guidelines of nine professional social sciences research
associations :According to Bryman and Bell76
Research participants should not be subjected to harm in any ways whatsoever.
Respect for the dignity of research participants should be prioritized.
Full consent should be obtained from the participants prior to the study.
The protection of the privacy of research participants has to be ensured.
Adequate level of confidentiality of the research data should be ensured.
Anonymity of individuals and organizations participating in the research has to be
ensured.
Any deception or exaggeration about the aims and objectives of the research must be
avoided.
Affiliations in any forms, sources of funding, as well as any possible conflicts of
interests have to be declared.
Any type of communication in relation to the research should be done with honesty and
transparency.
Any type of misleading information, as well as representation of primary data findings in
a biased way must be avoided.
All the ethical issues above were considered in this research. The researcher made an effort to
create a climate of comfort for the respondents; letting the respondent know that participation
is voluntary and informed the respondents on the researcher’s ethical duties. The respondents
were assured that their responses were treated as confidential and used only for academic
purposes in this study and before the start of any interview to all respondents to ensure that
they participate in the study voluntarily and from an informed point of view.
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3.7 LIMITATIONS OF THE STUDY
Given the type of research being conducted, the methods chosen were considered to be the
best methods possible to achieve validity and reliability. As it is for every study, the
following limitations among others, are those generic to qualitative research which were
experienced during this study:
• Some respondents required approval from relevant authorities to give
information, and did not get back to the researcher.
• Some respondents selected for the study had to be persuaded into opening up as
they were either suspicious of the use of information being gathered or they thought
that the study would work against them to provide much needed information because
they were afraid of being implicated after responding.
• Due to time factor, only a few offices were reached for source of data and
information
• And last but not the least factor is the in occurrence of covid 19 pandemic which
literally brought about the essence of the economic lockdown which equally meant
management officials were working from home, hence dissemination of information
was at its limited capacity.
3.8 CONCLUSION
This research adopted a triangulation research that is qualitative and quantitative method of
research where quantitative data was collected to make a comprehensive analysis of the
research findings and qualitative research to give analysis and detailed briefing of findings.
The research used random sampling techniques and adopted the following data collection
methods: Questionnaire, Interviews and related literature (books journals, internet). The
research further discussed ethical considerations, which is one of the most important parts of
the study, and outlined the limitations of the study.
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CHAPTER FOUR
4.0 PRESENTATION OF THE FINDINGS
4.1 Introduction
This chapter analyses the data collected using the various data capturing methods and draws inferences
from which conclusions can be confidently reached.
4.2 Analytical framework
As already elaborated in the literature review, as well as in the theoretical framework, the variations in
the activities of pension supervision and its effectiveness or lack of it can best be explained and
understood by analyzing the six primary elements that are used in pension supervision (i.e. licensing,
monitoring, analysis, intervention, correction and communication). However, scholars have pointed out,
and this point has been practically appreciated, that some of the elements tend to be extremely closely
related and difficult to distinguish in form. Therefore, for purposes of this study alone, the six elements
have been grouped into four categories, based on the closeness of the functions they play in pension
supervision, as follows:
i. Licensing
ii. Monitoring and communications
iii. Analysis and intervention
iv. Correction
Using the above categories, the research questions (questionnaires are attached as Appendix III and IV)
were designed in such a manner as to draw out and assess the depth and intensity of the supervisory
parameters between the supervisory authority and the pension schemes or fund managers. From the
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responses, it is possible to determine the level of depth or intensity of supervision as amplified in the
following analysis that follows for each category.
4.2.1 Licensing
Licensing is differentiated among pension systems by its restrictiveness, depth, and periodicity. Some
systems have virtually no entry barriers while others have very complex and strict standards applied by
the supervisor. Part B of the questionnaire (Appendix II), sought to measure those standards and
parameters in the context of the Zambian pension industry.
The findings clearly indicate that in the Zambian case, all pension schemes, private or public, are required
to register with the regulator. Registering with PIA implies that the institution’s activities would be
monitored and, by extension, regulated by the registrar or regulator. Clearly, NAPSA is not legally
obliged to register. Neither is it regulated by the registrar. Of all the pension schemes, NAPSA is the only
exception and the reasons advanced are that it is a mandatory and basic pension scheme which must be
directly supervised by the central government.
It has also been confirmed that all the pension schemes are required to obtain licenses from PIA for them
to operate in Zambia, but NAPSA is once again exempted. The exemption in this case, however, is also
extended to LASF and PSPF, which are also established by respective statutes. Implicitly, the licensing
procedure strictly applies to private pension schemes only.
The operating licenses that private pension schemes are issued with are valid and renewable every three
years. The supervising authority makes license renewal decisions on the basis of procedural compliance
and these procedures are clearly set. In other words, the licenses have compliance conditions attached to
them and all pension schemes (and fund managers in this case) are very careful not to abrogate those
conditions for fear of not having the licenses renewed.
What we are seeing here is a set of elaborate registration and licensing conditions that compel private
pension schemes and fund managers to comply with the requirements of the regulator or face
deregistration.
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However, the picture is completely different in the case of public pension schemes, which although
registered with PIA, are not licensed as established by the findings. NAPSA responded to the
questionnaire that they are not licensed by PIA, although they are supervised by PIA. Implicitly, NAPSA
has a perpetual life and are not concerned with the likely prospect of denial of operating licenses, which
are not necessary in their cases. Registration, it can be concluded, is equally a mere formality which has
no bearing on the tenure of life of public pension schemes.
The study, therefore finds that, where as in the case of private schemes, licensing is used as a very
effective function for ensuring that schemes operate in accordance with the regulations and conditions set
by PIA, the function does not apply to public pension schemes. In other words, PIA is completely
constrained in exercising supervisory power over public schemes in as far as licensing is concerned
because the licensing requirement for public schemes is not mandatory, much as it has proved an
effective tool in the case of private schemes.
4.2.2 Monitoring and communication
Monitoring and communication are both used as functions for exchange of information between the
supervisor and the schemes. The two functions complement each other in that where as monitoring
basically channels information from the pension scheme to the supervising authority, the flow of
information in the case of communication is the other way round, that is from the supervisor to the
pension scheme. Through this two way channel, the supervisor knows what the supervisee is doing and
the supervisee also knows what the supervisor expects of them. The bottom line is that both monitoring
and communication provide a platform for effective supervision.
Part C of both types of questionnaires (i.e. questionnaire for supervisees and supervisor) was specifically
designed to establish the type of information that the schemes usually submit to PIA and the periodicity
in which it is submitted. Once the type of information that PIA collects from the pension schemes is
established, one can clearly discern and follow the monitoring process. The section also sought to
determine how PIA communicates with the pension schemes and the frequency in which it does so.
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The findings established that 25 respondents answered in the affirmative that they are closely followed up
by the supervisory authority in terms of the monitoring function. This confirmed that in the case of both
private and public schemes, PIA is very effective in following the pension schemes’ activities using the
monitoring system.
The schemes are required to submit a whole range of information to PIA and it is this information that
PIA uses to track the activities of the schemes. In addition, PIA also monitors the schemes through the
media as well as the use of “whistleblowers” at times7. The media and whistleblowers perform a
watchdog role, as it were, and enable PIA to have access to information which would normally not be
immediately available. 100% of the respondents stated that they were closely monitored by PIA.
On the other hand, PIA uses several channels to communicate its compliance conditions and rules to all
the schemes. These channels include outreach activities, disclosure platforms and training programmes.
All the respondents (100%) indicated that they were aware of the compliance conditions and the rules
that apply to pension schemes. The respondents cited outreach activities such as workshops and seminars
the main methods that PIA uses to communicate the rules and conditions. The other method that PIA
employs is that of directives through letters. However, the researcher was also able to establish, through
interviews with officers at PIA, that financial constraints have limited the frequency in which the
outreach communication function is applied in Zambia because these activities are costly to undertake.
What determines the intensity with which PIA wants to reach out to the pension schemes is the frequency
of communication and the number of methods used to communicate the conditions and the rules. It would
therefore be reasonable to conclude here that the intensity of communication between PIA and the
pension schemes tends to be diluted due to limited resources, even though the message still gets across
through letters.
According to the findings though, the regulator’s rules and requirements are very clear to every pension
scheme. There was no respondent that indicated that they were not fully aware of what was expected of
them in terms of the pension rules and conditions for operating.
However, it was also established that whereas the private schemes are able to meet all the requirements,
the public schemes do not always provide all the required information despite being fully conversant of
7 Information obtained from whistleblowers automatically triggers PIA investigations into the activities of the concerned scheme
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what the regulator demands. In other words, the licensing aspect works as a very effective deterrent to
noncompliance.
On the other hand both NAPSA indicated that there are times that they have failed to submit some of the
information required by PIA and although they are aware that the consequences could be fatal, they have
never suffered any such consequences. Through interviews with NAPSA and PIA, the study has
established the public pension fund has at some point failed to submit actuarial reports , contrary to PIA
requirements that all pension schemes submit actuarial reports once every two years for the first four
years and then every five years thereafter.
The scheme has also been unable to furnish PIA with audited accounts, contrary to PSRA. According to
the findings contained in the 2004 PIA Inspection Report.
The 2004 PIA Inspection Report also confirmed that in some cases, the scheme has been failing to submit
quarterly returns, which would normally provide PIA with a detailed track of the schemes’ activities on a
quarterly basis. At the time of this research, PIA is not in a position to detect shortcomings in the
operation of the scheme in the short to medium terms.
Actuarial reports, annual reports and quarterly reports are all very cardinal in the supervision of any
pension scheme because they provide a platform for the regulator to distinguish the sustainability and
viability of a scheme in the short to long term.
In summary, using the monitoring and communication functions, PIA is able to effectively supervise the
private schemes and use the information for purposes of implementing the licensing function equally
effectively. However, in the case of the public sector, although PIA is able to apply the monitoring and
communication functions, whether the information so gathered is effectively utilized for supervision
purpose is a matter that invites serious doubts, after all, one would conclude from the above findings that
it makes no difference whether the requirements are met or not.
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4.2.3 Correction
As has been pointed out in the earlier paragraphs, one of the most important elements of pension
supervision is the capacity of the supervisor to take corrective actions. It has also been established that the
three basic types of corrective actions that can be employed are punitive, remedial and compulsory.
Supervisory programs may engage in all three types or may be limited exclusively in their authority to
only one.
Part E of the structured research questionnaires was designed to elicit some of the factors that could
explain the practical difficulties faced by PIA in enforcing corrective actions on defaulting public
schemes.
The following emerged from this inquiry:
a) All the respondents from the public sector (100%) said the supervisory authority has got
no say in the appointment of the boards of the schemes and can, therefore, not remove a board
under any circumstances;
b) Both PIA and NAPSA indicated that in the case of NAPSA, its board’s appointing
authority is the same for PIA. In which case, not much influence can be obtained from higher
authorities if NAPSA was to be reported for any wrong-doing;
c) PIA responded to the questionnaire that they can reprimand the public schemes and even
report the findings to the relevant authorities, but they cannot go beyond recommending further
action to the respective authorities. This presupposition that authorities will act as per PIA’s
recommendation naturally puts a cap to the supervisory effectiveness of PIA. The practical
reality is that at that point of submitting a recommendation to the Minister, PIA actually
surrenders authority to the Ministers in charge of overlooking the pension scheme.
4.2.4 Governance
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Part F of the two questionnaires was designed to bring out the perceptions that people hold with
regard to governance in the administration of public affairs in Zambia generally and try to match
that with the general trends in pension governance during the respective eras of the four republics
that the country has passed through. With an understanding that the level of governance tends to
be influenced by the type of leadership in place in a given period, the questionnaire sought to
compare the four styles of leadership that prevailed in Zambia between 1964 and 2006.
Figure 4.1 below the information collected from the inquiry indicates that during the first
republic (1964 to 1991) when Dr Kenneth Kaunda was president of the republic of Zambia (Era
1), good governance was prevalent in Zambia to a greater extent. Only 5 out of 30 (12%)
respondents were of the view that governance was poor or bad during that period, whilst 27
respondents (83%) thought that governance was good.
16.16%
83.84%
chat 1: governace supervision in era 1
bad good
Source: Field data 2020
Figure 4.2 The picture that the responses painted in the case of the era that followed, i.e. 1991 to
2001 when Dr Fredrick Chiluba was ruling (Era 2), was almost the exact opposite. Eight
respondents (89%) said governance was very poor/bad and one respondent (11%) said it was
good.
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11.00%
89.00%
chat 2: governance supervision in era 2
bad good
Source: Field data 2020
Figure 4.3 There were mixed views in the case of the third era, between 2001 and 2006, the
regime that followed Dr Chiluba’s (Era 3), with some respondents (40%) stating that governance
was poor/bad and others (60%) indicating that it was good.
40.00%
60.00%
chat 3: governace supervision in era 3
bad good
Source: Field data 2020
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Figure 4.4 below In the fourth era, levy Mwanawasa’s rule majority of respondents stated that
governance was good that is 86% but however 13% of the respondents had stated that governance
supervision was bad.
13.13%
86.87%
chat 4: governance supervision in era 4
bad good
Source: Filed data 2020
era 1 era 2 era 3 era 40
10
20
30
40
50
60
70
80
90
100
chat 5: comparative rating of governance levels
bad good curve
Source: Field data 2020
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Figure 4.5 In terms of the perceptions on the level of supervision, all the respondents (100%)
said they perceived PIA as being stricter in the second era (which recorded better governance)
than during the third era when governance was poorer. (Era 1 is not considered in this case
because there was no PIA in the first era, neither were there private pension schemes then). As
explained in the conceptual framework and era 4 had had adhered to to PIA strict supervision,
the assumption is that with the entrenchment of good governance in the fabric of a nation’s
public administration, such an environment would positively moderate the impact of all the
variables on pension supervision. The impact is either positive or negative, depending on the
whether the governance in the nation’s public administration is bad or good. This hypothesis is
proved by the viewpoints and perceptions reflected in the finding that PIA was viewed as being
stricter in the second era (which recorded better governance) than during the third era when
governance was poorer.
AGE FREQUENCY DISTRIBUTION OF RESPONEDNTS
AGE GROUP FREQEUNCY PERCENT20-30 4 16.031-40 10 40.041-50 6 24.051-60 2 8.061-70 3 12.0
25 100.0Source: field data 2020
Table 4.1 above, shows a summary of age distribution of respondents of which the highest percent
40% was within the age group of 31-40, and there coming forth 24% ranging from an age group of 41-
50, 16% ranging from an age group of 20-30,12% ranging from 61-70 and 8% been from age group
51-60. Age frequency distribution was collected from respondents in reference to getting different
views in regard to different IQ capacities.
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Figure 4.6 DISTRIBUTION
OF RESPONDENTS BY SEX
Figure 4.6 Distribution of Respondents by Sex: Source: Field data (2020).
DISTRIBUTION OF RESPONDENTS BY OCCUPATION
Occupation Frequency Percent Cumulative frequency
Management Officials 10 28.6 28.6
Employees 15 42.9 71.5
Retirees (Beneficiaries) 10 28.6 100.0
Total 35 100.0
Source: Field data 2020
Table 4.2 A summary of respondents by occupation of which 28.6% of total number of respondents was
management officials, 42.9% were ordinary employees and 28.6% were retirees. Distribution of
respondents by occupation was done to reflect the pattern of behaviors and level of understanding of
particular phenomenon.
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Figure 4.6 besides indicates that out of
25
Respondents,
30% were females and 70% were male.
Sex variable was considered to be
important to establish the influence of
one sex on their interest in this topic.
30.00%
70.00%
DISTRIBUTION OF RESPONDENTS BY SEX
FEMALES MALES
Table 4.3 DISTRIBUTION OF RESPONDENTS BY YEARS OF EXPERIENCE
Years Of Experience Frequency Percent Cumulative frequency0-2 2 8.0 8.03-5 4 16.0 24.06-8 4 16.0 40.08-10 5 20.0 60.011-13 3 12.0 72.014+ 7 28.0 100.0Total 25 100.0
Source: Field Data 2020
Table 4.4 DISTRIBUTION OF RESPONDENTS YEARS FROM RETIREMENT
Years Of Stay After
Retirement
Frequency Percent Cumulative percent
0-3 1 10.0 10.04-6 3 30.0 40.07-9 2 20.0 60.010+ 4 40.0 100.0
10 100.0Source: Field Data 2020
CHAPTER FIVE
5.0 ANALYSIS OF FINDINGS
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5.1 Analysis and intervention
Measurement of supervisory effectiveness using the analysis element is usually evaluated on the basis of
the purpose, frequency, and intensity of the activity. From the information that supervisors obtain through
monitoring and communication functions, they are able to undertake extensive measurement efforts that
analyze and compare funds’ financial status and activities to normative standards. On the other hand, a
key issue that defines the nature of interventions is the force of authority given to the supervisor and the
nature of the process through which interventions occur. Interventions by supervisors will tend to be
differentiated partially by the degree to which they are pro-active or occur only after conclusive evidence
of non-compliance is established.
The question this study addressed itself to was what PIA does once a scheme fails to provide that critical
information which is supposed to enable it make meaningful analysis. Secondly, the study also explored
what the supervisor does once it has been established, from the analyses, that the pension fund is headed
towards failure or collapse, or indeed once any undesirable trend is detected.
The study attempted to address these questions through Part D of both questionnaires.
It emerged, from the inquiry, that no one disputes that both private and public schemes that are
supervised by PIA are legally obliged to furnish the authority with well-defined documents which help
in the analysis of their activities and that the legal instruments for such purposes are adequate. All the
respondents (100%) confirmed that they were aware of the legal demand for them to furnish the
supervisor with relevant documents.
The study also revealed that although all private schemes are compelled to submit the relevant
information at all times, by manner of the licensing requirements, the public schemes are not pressured as
much and have at times abrogated the requirement without any penalty being meted against them, taking
into account the fact that the license is unconditional, more or less. Lastly, the inquiry confirmed that
those public schemes are less likely to comply in many circumstances because it has occurred in the past
the despite abrogating the requirements, no penalties have been suffered.
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Whereas a private scheme would face immediate closure, non-renewal of license, removal of
management or prosecution in the courts of law, both public schemes indicated that the worst that could
happen was for the Fund to be reprimanded and, if no change is effected, reported to higher authorities.
Higher authorities in this case are the politicians, the ministers. Interviews with individuals at PIA
revealed that there was an unwritten rule that you can only deal with public pension schemes up to some
extent, beyond which you handover the matter to the Minister. Although it has never occurred before that
the registrar himself has been sanctioned for meting punishment on an erring public pension scheme,
interviewees NAPSA and PIA confirmed that there is a foreboding belief and fear that penalizing the
public pension schemes would be tantamount to challenging the government. It therefore makes sense to
pass the ball to the Minister, as it were.
There is no evidence to suggest that the penalties of the law have ever been applied on public pensions
despite the trends showing that the public schemes have fallen short of such legal requirements in the
past. Part B of the questionnaire required the respondents to indicate if renewal of a license for their
operations had ever been turned down and all the respondents (100%) answered that it had never
happened. Yet, the phone call interviews with NAPSA as well as PIA indicated that there are times when
fail to comply with some legal requirements such as submission of quarterly and annual reports, audited
accounts and actuarial valuation reports.
Table 5.1 INDUSTRY COMPOSITION AND MEMBERSHIP
Membership
Category2019 2018 2 017 2016 2015 % Change
Active members 82,084 77,522 77,015 72,880 80,236 6%
Deferred members 12,715 11,052 13,488 13,127 13,462 15%
Pensioners 17,160 18,869 18,459 19,523 18,459 -9%
Total 111,959 107,443 108,962 105,530 112,157 4%
Source :PIA ANNUAL REPORT
Table 5.1 There were 242 registered pension schemes as at the end of 2019 (2018: 245). The reduction in
the number of members in the registered Pension Schemes increased to 111,959 as at 31st December,
2019, from 107,443 as at 31st December, 2018, representing an increase of 4 percent. The increase of
4,516 members was attributed to new participating employers.
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In terms of demographics, 20 percent of the total membership represented female pension scheme
members, while 80 percent represented male members. In all the age categories, there were more male
than female Pension Scheme members except under the widows/ widowers category, where 96 percent
comprised of widows as compared to 4 percent of widowers. That been said NAPSA was and is inclusive
in the 242 registered pension schemes.
Table 5.2 Demographic Membership Table – 2019
Membership Data NUMBER OF ACTIVE MEMBERS
Females Males Total
Age Categories 18,13
3
63,951 82,08
4
15-25 2,52
9
4,914 7,44
3
26-35 7,03
6
20,483 27,51
9
36-45 5,11
1
21,007 26,11
8
46-55 2,68
0
13,015 15,69
5
56-65 777 4,532 5,30
9
Age Categories NUMBER OF DEFFERED MEMBERS
2,05
4
10,661 12,71
5
15-25
26-35 364 2,166 2,53
0
36-45 408 1,638 2,04
6
46-55 374 2,376 2,75
0
56-65 908 4,481 5,38
9
NUMBER OF PENSIONERS
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2,18
2
14,978 17,16
0
Regular Pensioners 1,68
7
14,700 16,38
7
Number of Widows/
Widowers
406 19 425
Dependent/Children 89 259 348
Total 22,36
9
89,590 111,95
9Source: PIA ANNUAL REPORT
Figure 5.1 and Table 5.3 Above are a summary of membership data in the pension industry that is the
age category in reference to the categorical perception of beneficiaries that is the active members,
deferred members, regular pensioners, widows/widowers and dependent/children.
Table 5.4 below Pension Funds contribute to economic growth through the capital markets and other
economic ventures that Fund Managers invest in. Table 14 below shows the percentage of pension’s net
assets against Zambia’s Gross Domestic Product (GDP) for the past five (5) years.
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Pensions Net Assets vs Gross Domestic Product (2015-2019)89
Description
(K’ Millions)2019 2018 2017 2016 2015
Net Assets 7,962.01 7,685.50 7,003.71 5,797.86 5,664.55
GDP-Constant
prices5142,529.00 139,203.40 134,998.17 129,515.70 125,003.40
Net Assets to GDP 5.6% 5.5% 5.2% 4.5% 4.5%
Source: PIA ANNUAL REPORT
Pension Contributions
Regular pension contributions10 from Scheme Members increased by 18 percent (2018:8 percent)
from K930 million in 2018 to K1,125 million in 2019. The increase was mainly attributed to the
increase in the basis (salaries) for computing contributions and the new schemes. Other
contributions11 increased by 64 percent from K62 million in 2018 to K101 million in 2019. A total
of 67 percent of the other contributions accounted for transfer of funds from other schemes.
Unremitted contributions increased by 62 percent (2018:12 percent) from K250 million in 2018 to
K406 million in 2019. This implied that some sponsors of Pension Schemes who did not remit
pension contributions disadvantaged their members from the investment income that could have
been realized had the funds been invested. From the industry outlook, the unremitted contributions
were within the one-month period as stipulated under the Pension Scheme Regulations Act. Figure
5 below shows the trend of total contributions.
8 GDP-constant prices: Ministry of Finance as third quarter 2019.9 2019 estimate GDP at constant prices.10 Normal pension contributions relate to current period employer and member contributions.11 Other contributions relate to transfer from other funds, special deficit funding and voluntary contributions.
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Figure 5.2 Total Pension Contributions (K’ Millions)
Source: PIA ANNUAL REPORT
Figure 5.3 Self-Administered Pension Schemes’ Share of Industry Net Assets
Source: PIA ANNUAL REPORT
Figure 5.3 above shows Share Of Industry Net Assets for self-administered pension schemes of which,
the highest as per pension and insurance authorities investigations, mukuba is at its peak which 6.70%,
KPTF with 5.20% thereafter comes NAPSA at a percentage of 3.20% and LASF follows in with 2.0%.
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K ’M
illio
ns
Mukuba, 6.70%
KPTF, 5.20%
NAPSA, 3.20%
LASF, - ‐2.00%
CHAPTER SIX
6.0 CONCLUSIONS AND RECOMMENDATIONS
6.1 Introduction
This study was aimed at determining the supervisory effectiveness of PIA on public
pension schemes in Zambia and, by extension, to establish if the members’ interests were
secure. The study, therefore, attempted to address concerns on governance principles as
they relate to supervision of public pension schemes in Zambia by systematically
exploring the general hypothesis that one of the critical elements of governance has been
compromised through state ownership. Suffice, at this stage, to revisit and itemize the
working hypotheses discussed earlier as follows:
6.1.1 The supervision of public pension funds is negatively affected by government
ownership of the pension funds;
6.1.2 The regulatory and supervisory framework has an influence on the supervisory
effectiveness of public pension schemes;
6.1.3 The more autonomous the supervisory authority is, the more effective is its
supervision of pension funds;
6.1.4 The structure of the pension regulatory and supervisory framework has an impact
on the autonomy of the supervisory authority;
6.1.5 The level of governance in the general public administration has moderating
influence on all factors that affect pension supervision.
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It will be recalled that to help prove the hypotheses three research questions were
developed and these are:
6.1.6 Is the Zambian pension supervisory authority adequately armed with authority to
supervise public pension schemes, such as LASF, PSPF and NAPSA, effectively?
6.1.7 What limitations does PIA have in relation to the supervision of public pension
schemes?
6.1.8 Does the fact that LASF, PSPF and NAPSA are state-owned make it difficult for
PIA to enforce compliance on the three schemes?
6.2 Conclusions:
The data gathered through this research process was extensively analyzed in Chapter 4
and this chapter will now draw conclusions by answering the above three research
questions, and make recommendations accordingly.
6.2.1 Is the Zambian pension supervisory authority adequately armed with
authority to supervise public pension schemes, such as LASF, PSPF and
NAPSA, effectively?
Going by the analysis at Chapter 4, the answer to this question is negative. The
supervisory authority in Zambia has limited authority over public pension
schemes and, therefore cannot be said to be adequately armed to supervise these
institutions. What has emerged from the study is that although it has the authority
to monitor, scrutinize and even conduct site inspections on public pension
schemes, PIA’s mandate over the schemes is limited to merely observing and
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pointing out shortcomings of pension schemes but cannot enforce any form of
remedial action. PIA can merely report its observations and recommend to the
Minister responsible for that particular scheme what action to be taken. Beyond
that, PIA has no mandate to act, which means its supervisory scope is limited.
6.2.2 What limitations does PIA have in relation to the supervision of public pension
schemes?
The most important element of supervision is the ability to mete punitive
measures against an erring pension scheme so as to pre-empty further abuse of
the regulatory requirements. However, this is clearly lacking in the case of PIA.
First of all, the perpetual license that is granted to the public pension schemes
automatically means that they enjoy unlimited freedom without fear of reprisals
of license withdrawal in cases where they fail to abide by the rules or regulations.
If anything, one might say the license is unconditional. Furthermore, the fact that
PIA has to recommend to the Minister any form of remedial action means that the
public pension schemes are actually ring-fenced against the supervisor’s direct
control. The supervisor, PIA, has no control over the pension schemes, except
through the Minister. Thirdly, PIA’s inability to be part of the appointing process
of the Boards of Trustees that superintend over the pension management also
limits its influence in the management of the schemes. Getting the scheme to
have appropriately suitable Trustees or Board members would be a natural way
of pre-emptying and minimizing possible mistakes in the management of the
schemes. However, this is not the case and unfortunately, as this research has
established, PIA has no authority to stop anybody being appointed to sit on the
Board of a pension scheme even where PIA is aware that the person being
appointed does not qualify in one way or another.
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6.2.3 Does the fact that LASF, PSPF and NAPSA are state-owned make it difficult
for PIA to enforce compliance on the three schemes?
The fact that LASF, PSPF and NAPSA are state-owned is what makes the whole
difference between the private Schemes’ ability to stay clean and the public
schemes’ inability to do so. This study has demonstrated this big difference.
Private schemes are faced with one simple, but stern condition: comply and
behave or close down. Failure to meet any of the laid down procedures, rules or
regulations could cost the private scheme an operating license or a lot of money
in penalties. Public schemes on the other hand have an unconditional license and
can fail to comply, and even break the law, but they will not be penalized in any
way. It is therefore correct to state that this can only be so because they are state-
owned. PIA is only unable to enforce compliance because the schemes are state-
owned and shielded from the supervisor’s direct control.
The broad perceptions from a wide section of Zambian employees, is that scheme members’
requirements of a social security scheme include the following:
a) The availability of regular and up-to-date, individual membership statements;
b) Prompt pay-outs, as and when they fall due;
c) Regular accounting records and meetings. This, they argue, gives them the
comfort that the scheme is being properly managed;
d) Corporate governance issues in the management of public funds, including the
compliance and prudential management of funds in accordance with the national pension
rules and regulations.
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This study has scrutinized the performance of public pension schemes, in particular NAPSA, and
safely arrived at the following conclusions:
6.2.5 Private pension schemes in Zambia have been performing in accordance with members’
expectations and regulatory legislation. Many of the managed occupational schemes have
performed well and statistics of operating indicators available for the period 1 April 1993
to 31 March 2015 attest this. The reasons for this could mainly be attributed to the
effective supervision from PIA.
6.2.6 Public pension schemes in Zambia have not been performing to expected standards as far
as governance is concerned. LASF, PSPF and NAPSA have been failing to meet many of
the PIA requirements. Not only that, but it is very evident that all the above indicators are
negative in the case of public schemes. Payouts are irregular and unpredictable.
Individual membership statements are not available. Generally, corporate governance in
the management of public funds is lacking. Clearly, therefore, the public pension system
is malfunctioned and governance of these public schemes is highly questionable.
6.2.7 The involvement of government in the pension administration is a serious weakness, at
least in the Zambian case. Government presence in the supervisory structure
compromises and defeats the very foundation of the governance of public pension
schemes.
6.3 Recommendations
Based on the findings, analysis and conclusions thereof, it is hereby recommended that the
structural arrangements relating to the supervision of public pension schemes should be
streamlined to make it more transparent and distant from the government and, therefore, less
susceptible to compromise due to the various reasons articulated in this study. Three critical
issues need to be singled out and addressed in this regard.
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6.3.1 Conditions for effective regulation and supervision
An adequate regulatory framework for both public and private pensions should be
enforced in a comprehensive, dynamic and flexible way in order to ensure the protection
of pensions scheme members and beneficiaries, the soundness of pensions schemes and
funds and the stability of the economy as a whole. It is critical that legal provisions
clearly and objectively state the responsibilities of the pension supervisor. These legal
provisions grant the pension supervisor operational independence from both political
authorities and commercial interference in the exercise of its functions and powers. The
legal provisions grant the pension supervisor adequate powers, legal protection, and
proper resources and staff, and the capacity to perform its functions and exercise its
powers. The legal provisions require that the pension supervisor adopts clear,
transparent, and consistent regulatory and supervisory processes. Where appropriate, the
rules and procedures of the supervisor are published and updated regularly. These legal
provisions allow the pension supervisor to consult, as appropriate, with the pensions
sector when determining its approach to supervision and regulation.
6.3.2 Definition of scheme/sponsor relations
An institutional and functional system of adequate legal, accounting, technical, financial,
and managerial criteria should apply to pension funds and plans, jointly or separately,
but without excessive administrative burden. As is the case with privately organized
schemes, public pension funds must be legally separated from the sponsor or at least
such separation must be irrevocably guaranteed through appropriate mechanisms.
6.3.3 Supervision
Effective supervision of pension funds must be set-up and focus on legal compliance,
financial control, actuarial examination and supervision of managers.
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Granted, PIA is an appropriate supervisory body. However, the institution is weakened
by its form and structure. PIA needs to develop an appropriate structure devoid of
government dependence and supervision. The institution must also be properly staffed
and funded and be in a position to conduct off and on site supervision, at least in the case
of all operating pension schemes and in particular when problems are reported. As a
supervisory body PIA should be endowed with appropriate regulatory and supervisory
powers over all individual schemes. These include powers to impose administrative
sanctions and/or to seek orders from courts or tribunals as well as power to initiate or to
refer matters for criminal prosecution.
6.3.4 Appointment of Trustees
The pension supervisor must have the authority to execute a fit-and-proper test of the
members of the governing body of pension funds in order to assess whether the persons
are qualified for the task. The supervisor must have the authority to disqualify members
of the governing body on the basis of a fit-and-proper test. The pension supervisor must
also be authorized to require a change in the organizational or governance structure of a
pension entity if it is deemed necessary to ensure their proper functioning and to request
the replacement of members of the governing body that are not carrying out their duties
in accordance with the legal provisions.
.
6.4 Summary of conclusions and recommendations
The study has shown that pension supervision of public schemes in Zambia is weak, particularly
due to the government involvement in the ownership and management of the pension system.
These weaknesses can, however, be easily reversed if a mechanism which deliberately distances
the government from the pension system was to be adopted and implemented. The study has
made specific mention of the areas that need attention and recommended what exactly ought to
be done if the current governance weaknesses in public pension schemes were to be eliminated.
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It must be acknowledged that the recommendations highlighted above are not a new invention.
These are recommendations that are in fact contained in the OECD Recommendations on Core
Principles for Pension Supervision, which if fully applied in the Zambian case would reverse the
current shortcomings of pension supervision as exposed in this study.
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6.0 REFERENCES
1. Golinowska Stanisawa and Kurowski Piotr (2000), Rational Pension Supervision,
Case Report No. 36, Centre for Social and Economic Research, Warsaw.
2. Hantuba, M (2005), A case for privatisation of Social Security in Zambia, Paper
Presented to the International Social Security Association (ISSA) Conference Regional
Conference for Africa, 9 – 12 August 2005, Lusaka
3. International Social Security Association (2003), International Social Review,
Volume 56, No. 2, “Social governance: Corporate governance in institutions of social
security, welfare and healthcare,” Page Bros. Ltd, Norwich
4. International Social Security Association (2003), International Social Review,
Volume 56, No. 3-4, “Governance of social security regimes: Trends in Senegal,” Page
Bros. Ltd, Norwich
5. International Social Security Association (2001), International Social Security
Series, Volume 6, “Building social security: the challenge of privatisation,” Transaction
Publishers, New Brunswick, U.S.A
6. Institute of Directors in Southern Africa (2002), The King Report on Corporate
Governance for South Africa 2002 (King II Report), Pretoria, RSA
7. Organization for Economic Co-operation and Development, Guidelines for
Pension Fund Governance, OECD Secretariat, July, 2002
8. Organization for Economic Co-operation and Development, Insurance and
Private Pensions Compendium For Emerging Economies, Working Party on
Private Pensions OECD Secretariat, 2001
9. Organization for Economic Co-operation and Development, Supervising Private
Pensions: Institutions and Methods, OECD, 2004
10. Pensions and Insurance Authority (2004), Annual Report for 2003, Lusaka
11. Quintyn, Marc G. ; Taylor, Michael W., Regulatory and Supervisory
Independence and Financial Stability, International Monetary Fund, Working
Paper No. 02/46, March 1 2001 12. Rhodes R (1996), “The new governance: governing without government” in
Political Studies, Vol. 44, page 652
13. Rocha Roberto, Hinz Richard, Gutierrez Joaquin, Improving the Regulation and
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Supervision of Pension Funds: Are There Lessons From the Banking Sector?, The World
Bank, December, 1999
14. The Local Authorities Superannuation Fund Act, Chapter 284 of the Laws of
Zambia, Lusaka
15. The Local Authorities Superannuation Fund (2002), Performance Review Report
for 2001, Lusaka
16. The Local Authorities Superannuation Fund (2003), Performance Review Report
for 2002, Lusaka
17. The Local Authorities Superannuation Fund (2004), Performance Review Report
for 2003, Lusaka
18. The Local Authorities Superannuation Fund (2005), Performance Review Report
for 2004, Lusaka
19. The Pensions Scheme Regulation Act No.28 0f 1996, Lusaka
20. The Sunday Times of Zambia, Special Pull-out (2005), Governance for Pension
Funds, Oct – Nov. 2005, Lusaka
21. Vittas Dimitri, Regulatory Controversies of Private Pension Funds, The World
Bank, 1998,
22. World Bank (2002), Zambia Country Assistance Evaluation Report No. 25075,
November, 2002.
23. www.ideas.repec.org/p/wop/wobadc/1893.html 24. www.imf.org/external/pubs25. www.indiainfoline.com 26. www.issa.int/documentation 27. www.mgmt.purdue.edu/centers/ciber/ publications 28. www.oecd.org/daf/insurance-pensions 29.www.piacweb.org/ Publications 30. www.pia.org.zm 31. www.rider.wharton.upenn.edu
32. www.europa.eu.int/comm/governance
33. www.worldbank.org/html
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APPENDIX I QUESTIONNAIRE
(For Pension Schemes and Pension Fund Managers)
Dear Respondent,
I take this opportunity to kindly request you to spare a few minutes of your time and respond
to the questions relating to some aspects of your company’s operations.
This questionnaire is designed to explore the effectiveness of pension supervision in Zambia.
The responses you shall provide are guaranteed strict confidentiality as only the supervisor,
and I will have access to the information gathered through this process.
The information collected by this questionnaire will form part of the dissertation that will be
submitted in partial fulfilment of the award of a bachelors Degree in Banking and Finance.
Your support in this regard is of utmost importance and will be immeasurably appreciated.
Kasonde Kaira
QUESTIONS
Please fill in responses to the following questions as accurately as possible by ticking in the
boxes or writing in the space provided.
PART A - INTRODUCTION
1. Name of institution…………………………………………………………….
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2. Type (tick whichever is applicable): Public (Sponsored directly or indirectly
and guaranteed by the
Government of the Republic of Zambia)
Private (Entirely sponsored by institution (s) and not guaranteed by
Government)
3. Age since establishment (tick whichever is applicable):
Less than 5 years 5 – 10 years More than 10 years
4. Indicate whether registered as Pension Scheme or Fund Manager
Pension Scheme Fund Manager Both Pension Scheme and Fund Manager
5. If Fund Manager, state the number of schemes whose funds you
manage………………………………………………………………………….
PART B - - LICENSING
6. Is your institution licensed?
Yes No << if no, go to question 12
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7. If yes, what is the duration of your license?
1 year
2 years
3 years
4 years
5 years or more
8. Has your institution’s licence renewal application ever been turned down?
Yes
No << go to question 10
9. If yes, were you informed of the reasons? Please, elaborate
………………………………………………………………………………………
....................................................................................................................................
10. Are there any procedures for renewing a license?
Yes
No << go to question 12
11. If yes, kindly state the procedures, step by step:
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………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
…………………………………………………………………………………
PART C - MONITORING AND COMMUNICATION
12. Is your institution supervised by the Pensions and Insurance Authority (PIA)?
Yes
No
13. Is your institution required to submit any information to PIA?
Yes
No << go to question 15
14. In the table below, list the type of information and the interval in which it isrequired for submission:
TICK
(ONLY IF
APPLICABLE)
TYPE OF INFORMATION
(IF NOT COVERED, SPECIFY
IN THE SPACE PROVIDED
AT BOTTOM)
INTERVAL
(STATE MONTHLY,
QUARTERLY, BIANNUAL,
YEARLY
E.T.C.)
A Financial Statements
B Actuarial Reports
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C Audit reports
D Annual Reports
E Schedules of transactions
F Member contribution schedules
G Bank statements
H Asset register
I Information on sponsors
J CVs for Board members
K CVs for Management
15. Does the PIA undertake other forms of supervision on your scheme?
Yes
No
16. If yes, specify below:
A.……………………………………………………………………………………
B.……………………………………………………………………………………
C……………………………………………………………………………………
D……………………………………………………………………………………
17. Has any member of your institution been invited to attend any of the followingprogrammes organized or sponsored by PIA:
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TICK
(ONLY IF
APPLICABLE)
PROGRAMME/ACTIVITY INTERVALS
(STATE EVERY
YEAR,
OCCASSIONALLY,
E.T.C.)
A Outreach/Educational
activities e.g. workshops or
seminars
B Training programmes
C Disclosure platforms e.g. Press
briefing or any kind of
publicity
PART D - ANALYSIS AND INTERVENTION
18. Is there any regulation or piece of legislation that compels your institution to
provide data, information, documents statements or records to any body or
institution?
Yes
No
19. If yes, state names or titles of the legislation or regulation (as many as you are
aware of)
A……………………………………………………………………………………
B……………………………………………………………………………………
C……………………………………………………………………………………
D…………………………………………………………………………………..
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E…………………………………………………………………………………..
F……………………………………………………………………………………
20. To which body or bodies in Zambia is your institution legally or otherwise
obliged to provide data, information, documents, statements or records (tick as many
as appropriate)?
Parliament Minister (specify which Minister)…………………………………
PIA
Media
21. Tick any box or boxes below that best describe what would happen if your
institution failed to provide the data, information, documents statements or records so
required (tick as many as would apply).
The licence would be withdrawn
The scheme would be fined
The scheme would be reprimanded
The scheme would be reported to higher authorities
The scheme would be prosecuted in the courts of law
Nothing would happen
Any other consequence (please elaborate) ………………………………………………………………………………
………………………………………………………………………………
………………………………………………………………………………
PART E - CORRECTION
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22. Does your institution have a Board?
Yes
No << go to question 27
23. If yes, who appoints thatBoard?................................................................................
24. Can the Board be dissolved by the appointing authority?
Yes
No
25. Under what circumstances would the Board be dissolved? Please elaborate
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
26. Does the PIA have a say in the appointment of the Board of your institution?
Yes
No
27. Does the PIA have a say in the appointment of the management of your
institution?
Yes
No
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PART F - GOVERNANCE IN ZAMBIA
28. How would you rate adherence to governance principles generally during the
period between 1964 and 1990, when Dr Kenneth Kaunda was President?
Very good
Good
Poor Very poor
29. How would you rate adherence to governance principles generally during the
period between 1991 and 2001, when Dr Fredrick J T Chiluba was President?
Very good
Good
Poor Very poor
30. How would you rate adherence to governance principles generally during the
period between 2001 till 2014, under the Presidency of Mr Levy P Mwanawasa?
Very good
Good
Poor Very poor
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31. How do you compare PIA’s strictness on compliance requirements during the
period in Question 30 and the period in Question 31?
More strict then than now No difference Less strict then than now
________________________________________________________________________
The questionnaire ends here. I value your time and effort in completing this questionnaire.
Thank you very much for your support. Please give the responses back by sending to my e-
mail on kasondekaira58@gmail,com. Comments outside this questionnaire are most
welcome. Once again, thank you and may God bless your activities in the year 2020.
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APPENDIX II
QUESTIONNAIRE
(For the supervisory authority of Pension Funds - PIA)
Dear Respondent,
I take this opportunity to kindly request you to spare a few minutes of your time and respond to the
questions relating to some aspects of your company’s operations.
This questionnaire is designed to explore the effectiveness of pension supervision in Zambia. The
responses you shall provide are guaranteed strict confidentiality as only the supervisor, and I will
have access to the information gathered through this process.
The information collected by this questionnaire will form part of the dissertation that will be
submitted in partial fulfilment of the award of a bachelors Degree in Banking and Finance.
Your support in this regard is of utmost importance and will be immeasurably appreciated.
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Kasonde Kaira
QUESTIONS
Please fill in responses to the following questions as accurately as possible by ticking in the boxes or
writing in the space provided.
PART A - INTRODUCTION
1. Name of institution…………………………………………………………….
2. Type (tick whichever is applicable):
Department of a Ministry
Authority
3. Year of establishment ……………………………………..
PART B -LICENSING
4. Does your institution issue licences for pension schemes?
Yes
No << if no, go to question 10
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5. What is the duration of the licenses? (tick as many as are applicable)
1 year
2 years
3 years
4 years
5 years or more
6. Has your institution ever turned down an application for a license?
Yes
No
7. Are you obliged to reveal the reasons for rejecting a licence application? Please, elaborate
………………………………………………………………………………………
....................................................................................................................................
8. Are there any procedures for renewing a license?
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Yes
No << go to question 10
9. If yes, kindly state the procedures, step by step:
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
…………………………………………………………………………………
PART C - MONITORING AND COMMUNICATION
10. Are all the pension schemes in Zambia supervised by the Pensions and Insurance Authority
(PIA)?
Yes
No
11. Are all the schemes required to submit any information to PIA?
Yes
No
12. If no, name the institutions that are not required to submit information to
PIA…………………………………………………………………………………
………………………………………………………………………………………
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………………………………………………………………………………………
13. In the table below, list the type of information and the interval in which it is required for
submission:
TICK
(ONLY IF
APPLICABLE)
TYPE OF INFORMATION
(IF NOT COVERED, SPECIFY
IN THE SPACE PROVIDED
AT BOTTOM)
INTERVAL
(STATE MONTHLY,
QUARTERLY,
BIANNUAL, YEARLY
E.T.C.)
A Financial Statements
B Actuarial Reports
C Audit reports
D Annual Reports
E Schedules of transactions
F Member contribution schedules
G Bank statements
H Asset register
I Information on sponsors
J CVs for Board members
K CVs for Management
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14. Does the PIA undertake other forms of supervision on pension schemes?
Yes
No
15. If yes, specify below:
A.……………………………………………………………………………………
B.……………………………………………………………………………………
C……………………………………………………………………………………
D……………………………………………………………………………………
16. Does PIA usually hold or organize any outreach or training programmes for pension schemes
and/or their members of staff?
Never
Rarely
Sometimes
Every year
Every other year
Other (Elaborate)…………………………………………………..
17. Specify type of outreach programmes or activities and frequency:
A………………………………………………………………………..
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B………………………………………………………………………..
C………………………………………………………………………..
D………………………………………………………………………..
E…………………………………………………………………………
PART D - ANALYSIS AND INTERVENTION
18. Is there any regulation or piece of legislation that compels institutions to provide data,
information, documents statements or records to PIA?
Yes
No
19. If yes, state names or titles of the legislation or regulation (as many as are available)
A……………………………………………………………………………………
B……………………………………………………………………………………
C……………………………………………………………………………………
D…………………………………………………………………………………..
E…………………………………………………………………………………..
F……………………………………………………………………………………
G……………………………………………………………………………………
H……………………………………………………………………………………
I……………………………………………………………………………………..
J……………………………………………………………………………………..
K……………………………………………………………………………………
20. To which body or bodies in Zambia is your institution legally or otherwise obliged to provide
data, information, documents, statements or records (tick as many as appropriate)?
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Parliament
Minister (specify which Minister)…………………………………
Media
Any other (specify)…………………………………………………
21. Tick any box or boxes below that best describe what would happen if any institution failed
to provide the data, information, documents statements or records so required (tick as
many as would apply).
The license would be withdrawn
The scheme would be fined
The scheme would be reprimanded
The scheme would be reported to higher authorities
The scheme would be prosecuted in the courts of law
Nothing would happen
Any other consequence (please elaborate)
………………………………………………………………………………
………………………………………………………………………………
………………………………………………………………………………
22. What types of penalties are legally at the disposal of PIA for use against defaulting schemes?
(List the
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penalties)……………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
23. What instruments or methods does PIA use to monitor the activities of pension schemes?
(please list the
items)………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
24. How compliant with regulations or PIA requirements are statutory pension schemes
compared to private schemes?
Public schemes are more compliant
Public schemes are less compliant
There is no difference << go to Question 26
25. Explain why either public schemes or private schemes would be more compliant than the
other………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
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………………………………………………………………………………………
………………………………………………………………………………..
26. Are there occasions when PIA utilises the services of whistleblowers to monitor the activities
of pension schemes?
Yes
No
PART E - CORRECTION
27. Does your institution have a Board?
Yes
No << go to question 30
28. If yes, who appoints that Board?................................................................................
29. Can the Board be dissolved by the appointing authority?
Yes
No
30. Under what circumstances would the Board be dissolved? Please elaborate
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………………………………………………………………………………………
………………………………………………………………………………………
………………………………………………………………………………………
31. Does the PIA have a say in the appointment of the Boards of registered schemes?
Yes
No
32. Does the PIA have a say in the appointment of the management of registered schemes?
Yes
No
PART F - GOVERNANCE IN ZAMBIA
33. How would you rate adherence to governance principles generally during the period
between 1964 and 1990, when Dr Kenneth Kaunda was President?
Very good
Good
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Poor
Very poor
34. How would you rate adherence to governance principles generally during the period
between 1991 and 2001, when Dr Fredrick J T Chiluba was President?
Very good
Good
Poor
Very poor
35. How would you rate adherence to governance principles generally during the period
between 2001 and now, under the Presidency of Mr Levy P Mwanawasa?
Very good
Good
Poor
Very poor
36. How do you compare PIA’s strictness on compliance requirements during the period in
Question 30 and the period in Question 31?
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More strict then than now
No difference
Less strict then than now
________________________________________________________________________
The questionnaire ends here. I value your time and effort in completing this questionnaire. Thank
you very much for your support. Kindly give the questionnaire back by sending it to my e-mail on
kasondekaira58@gmail.com . Comments outside this questionnaire are most welcome. Once again,
thank you and may God bless your activities in the year 2020.
100 | P a g e