Chart of the Week
Namibia is one of a handful of countries that boasts pension fund assets in excess of the size of its economy. For 2024, Namibia’s total pension fund assets equated to 106.6% of nominal GDP. These long-term savings are highly regulated, both in terms of what they may be invested in, and where they may invest. Following changes gazetted in August 2018, Namibian pension funds have been required to invest at least 45.0% of their total assets in Namibia since 31 March 2019. This requirement, however, was only met by the end of March 2021. While Namibia boasts a large ‘domestic savings pool’, including these assets, Namibia is home to a very limited investable universe.
The size of these savings has often resulted in calls for increasing amounts to be invested locally and to take on riskier investments or to be used for ‘national development’ purposes. It is important to bear in mind that these savings are not some abstract pool of money, but ultimately the savings that workers rely on to see themselves through retirement (once they no longer earn a salary). It is thus imperative that the risks and returns of these investments are very carefully balanced. After all, these assets have a corresponding liability – the payments due to the savers upon their retirement. This includes those who are currently retired and dependent on this income. Additionally, the country’s largest pension fund is the Government Institutions Pension Fund (GIPF) – a defined-benefit scheme. This means that payments to beneficiaries are guaranteed, typically based on the person’s salary and years of service, unlike defined-contribution schemes where the pension provided is determined by the funds invested and the returns they generate. Should a defined-benefit scheme be unable to meet its liabilities, the employer is responsible for funding the difference. In the case of the GIPF, this means that taxpayers would foot the bill.
It is important to note that Namibian pension funds have a majority of their assets invested in Namibia. As of 31 December 2024, Namibian pension funds had invested 50.3% of their assets within Namibia (down from 51.1% by end of September 2024). This means that pension funds held N$13.8 billion more in Namibia than the minimum requirement. A large proportion of Namibian assets are made up of Government instruments, namely treasury bills and bonds. Local pension funds have thus played an important role in funding Government’s chronic deficits. There have been calls for pension funds to, amongst others, increase their Namibian exposure to unlisted investments and national infrastructure. This comes with a variety of dangers, including high risk, loss of investments, difficulty in exiting positions (unlike more liquid public markets), and increasing geographic exposure. It is important to bear in mind that often national infrastructure should be the domain of central government, one of the reasons for which it administers and collects taxes. To have ‘national savings’ take over this responsibility thus means that, to some extent, those who contribute to pension funds are required to fund government’s responsibilities directly (through taxes) and indirectly, through their savings.
The size of these savings has often resulted in calls for increasing amounts to be invested locally and to take on riskier investments or to be used for ‘national development’ purposes. It is important to bear in mind that these savings are not some abstract pool of money, but ultimately the savings that workers rely on to see themselves through retirement (once they no longer earn a salary). It is thus imperative that the risks and returns of these investments are very carefully balanced. After all, these assets have a corresponding liability – the payments due to the savers upon their retirement. This includes those who are currently retired and dependent on this income. Additionally, the country’s largest pension fund is the Government Institutions Pension Fund (GIPF) – a defined-benefit scheme. This means that payments to beneficiaries are guaranteed, typically based on the person’s salary and years of service, unlike defined-contribution schemes where the pension provided is determined by the funds invested and the returns they generate. Should a defined-benefit scheme be unable to meet its liabilities, the employer is responsible for funding the difference. In the case of the GIPF, this means that taxpayers would foot the bill.
It is important to note that Namibian pension funds have a majority of their assets invested in Namibia. As of 31 December 2024, Namibian pension funds had invested 50.3% of their assets within Namibia (down from 51.1% by end of September 2024). This means that pension funds held N$13.8 billion more in Namibia than the minimum requirement. A large proportion of Namibian assets are made up of Government instruments, namely treasury bills and bonds. Local pension funds have thus played an important role in funding Government’s chronic deficits. There have been calls for pension funds to, amongst others, increase their Namibian exposure to unlisted investments and national infrastructure. This comes with a variety of dangers, including high risk, loss of investments, difficulty in exiting positions (unlike more liquid public markets), and increasing geographic exposure. It is important to bear in mind that often national infrastructure should be the domain of central government, one of the reasons for which it administers and collects taxes. To have ‘national savings’ take over this responsibility thus means that, to some extent, those who contribute to pension funds are required to fund government’s responsibilities directly (through taxes) and indirectly, through their savings.
