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.

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