SUPERVISION OF PENSION FUND MANAGERS

Introduction

Over 90 percent of the 234 registered occupational Pension schemes in this country are managed by fund managers. This is essentially an arrangement where a pension scheme contracts with an outside institution to manage the investment function on behalf of the scheme.

To assure safety of pension funds and the integrity of the pensions industry as a whole the Pension Scheme Regulation Act of 1996 provides for registration and subsequent supervision of financial institutions that wish to offer investment management services to pension funds.

There are currently five (5) licensed Pension Fund Managers, the majority being Life insurance companies.

In this article we consider the minimum requirements that fund managers must meet in order to be licensed as such.

Legal Structure of the applicant

Currently, only incorporated companies whose articles of association names the management of pension funds as one of its main objects are eligible to apply for fund manager’s licence.

Further Section 17B of the Pension Scheme Regulation Act (as amended in 2005) provides that 51% or more of these companies’ shares should be held by Zambian citizens. Fund managers who were in operation at the time of this amendment were given a grace period of 24 months within which they had to comply with this shareholding requirement.

Management

The Act has mandated the Pensions and Insurance Authority (PIA) to determine whether the applicant has the professional capacity to manage pension funds and it further requires that persons that were at any time involved in the management of any pension scheme which was deregistered due to management failure are barred from ever filling any managerial position in the fund management company.

The PIA may equally refuse to register a fund manager on grounds that any of its directors, secretary or senior manager is an undischarged bankrupt or has been convicted, whether in Zambia or elsewhere, of an offence involving fraud or dishonesty, or has been convicted of any offence under the Pension Scheme Regulation Act.

Further a fund manager can only be granted a licence where its Chief Executive Officer is assessed to be suitably qualified. In this regard the Act prohibits the PIA from approving a fund manager where its chief Executive officer has not served in the pension fund or the financial sector in a senior management position for a period of not less ten (10) years. By way of a statutory instrument similar requirements may be extended to any other relevant positions within the management structure of the fund manager. As at now no such statutory instrument has been issued.

Capital Requirements

The Act has empowered the PIA to prescribe a minimum paid up share capital which fund managers must satisfy prior to licensing. The said minimum capital is yet to be set but virtually all the licensed fund managers have maintained their share capital above K1billion (being the current statutory requirement for Life insurance companies)   

Registration Fee

Currently the application for fund manager’s licence attracts a minimum licence fee of K1, 499, 940. Where the applicant intends to manage a scheme, or schemes, with a combined membership in excess of 8,333 an additional 3 fee units per scheme member in excess of this threshold is charged. (a fee unit is equivalent to K180)

Conclusion

It may have to be noted that there may be other additional registration requirements which the PIA may demand from an applicant depending on the merits of each individual case.

Granted requirements for registration of fund managers are onerous but at the end of the day the regime promotes market confidence results in mutual benefit to pension scheme members and service providers themselves

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