Members can select their own investment options
Since its inception in 1999, the Super Fund, operating under the aegis of the Mauritius Employers’ Federation has come a long way. This fund, it must be noted, is the only not-for-profit organization in its field
Since its launching what have been the important milestones in the history of the Super Fund?
Super Fund was set up in November 1999 and is now licensed by the Financial Services Commission (FSC). It operates under the Private Pension Schemes Act 2012. Super Fund provides retirement, withdrawal, death and disability benefits to its members. It is an umbrella pension fund open to employees of enterprises which are members of the Mauritius Employers’ Federation (MEF). Super Fund is of the “Defined Contribution (DC)” type pension scheme, which implies that the participating employer’s contribution is calculated as a percentage of salaries of his own choosing and known at the outset. Employees willing to top up are free to do so by making additional voluntary contributions.
At its inception Super Fund started operating with one participating employer and 10 Members and today it has reached a membership of 78 participating employers, 1,538 active members and some 400 deferred pensioners (members who chose to keep their benefits in the Fund until they reach an appropriate retirement age). The fund value which was Rs 720 000 at its inception has now reached Rs 420 million.
What is the target audience of Super Fund?
Super Fund is targeted at enterprises wanting to pool together their contributions into a common fund, in order to benefit from better investment opportunities and economies of scale. Most of our members are SMEs as there is no minimum number of employees to join the scheme. However, many bigger companies have joined Super Fund because it was easier to set up a scheme under an umbrella pension fund which has already been approved and is managed in a professional way. Some companies want to avoid the burden of setting up a Management Committee and hiring service providers (which is now a requirement by law if a company wants to set up its own scheme).
Can the different pension schemes in operation cater for retiring at the age of 50?
Most pension schemes plan for retirement at 60 or 65 years. However a member of an approved pension fund in Mauritius can opt for an early retirement as from age 50 as defined by the Private Pension Schemes Act or an early retirement for invalidity reasons. However, if we consider the middle class population, retirement at 50 years old will be quite challenging as the fund value might not be sufficient for an adequate pension payout. If someone wants to retire at 50 years, he should ideally have started contribution to a pension scheme at a very early stage from the moment he started working and contribute a big percentage of his/her salary. We are not in a trend of early retirement at 50 years but rather late retirement. In some countries retirement age has even been extended to 70 years old. In Mauritius we are confronted with an ageing working population, where someone above 60 or 65 years old is still fit for duty and some pensioners are forced to work as they have not planned appropriately their retirement. Retiring at 50 years old is not something I can foresee as the norm. We should understand that contributing to a pension scheme is to save now to meet the financial needs at retirement.
How does Super Fund differ from other pension funds?
This fund is open to members of the MEF who do not have the time or the size needed to create and manage their own pension funds as large groups do. We are not an insurance company and we work for the benefit of our members only. What differentiates Super Fund from other service providers is that it is a multi-employer not-for-profit organization, whereby any surplus is reinvested back into members’ accounts and directly enhances the value of their fund. It is also worth highlighting that Super Fund has an annualized investment performance of 13.05 % since its inception. Moreover, Super Fund is a provider but also acts as a promoter by encouraging employers to fulfill their social responsibility in order to enhance employees’ welfare.
The fund is managed by the Managing Committee which is the strategy and policy-making arm of Super Fund. The Managing Committee comprises of representatives of both Employers and Employees elected at the annual general meetings. This ensures that both interested parties play an active role in decision-making for the running of the fund. The Management Committee is totally independent from the service providers and its sole objective is the interest of the members and their employees. It is worth highlighting that members of the committee serve Super Fund graciously.
Unlike an insured arrangement whereby all the functions pertaining to a pension scheme (administration, investment, actuarial services & risk benefits provision) are performed by the insurance company, these different services have been unbundled and entrusted to professionals in their respective fields. All service providers report to the management committee which meets on a quarterly basis.
What incentives does Super Fund offer?
Ideally, everyone should prepare for retirement during the period of employment as the effort during this period of about 40 years is lighter than, say, the last 10 years when most people begin to think about retirement and which is perhaps a bit too late. Super Fund allows employers and employees to prepare for retirement since their first day at work. It is easier to save 5% or 10% of salary for 40 years than 20% or 30% at the end of a career for the same pension. Being a not-for-profit association also provides numerous advantages to members. Super Fund leverages on economies of scale and charges very competitive expenses rate uniformly, even to enterprises with only 1 employee. It is also flexible as it can accommodate companies of any size with any contribution structure (as far as it is reasonable and fulfils the conditions set by the Private Pension Schemes Act)
As from 2014 we started providing an investment choice to members. They will have the choice to select their investment options or follow our proposed lifestyle guide, consistent with a variety of risk tolerances and individual choices. The four sub-funds provide access to two major asset classes regrouped under ‘Equity and Bond’. The Aggressive Strategy consists of a higher proportion of equity-type investments and a lower proportion of fixed-income (Bond) investments whereas the Defensive Strategy consists of a higher proportion of fixed-income (Bond) investments and a lower proportion of equity-type investments. If members do not wish to make their own choice, the Committee will allocate a fund for them based on a Lifestyle Strategy.
Participating Employers can also opt for a Death and Disability cover for the members and under the Private Pensions Schemes Act (PPSA) 2012 there is no limit on the cover and the employer may choose any amount. When the cover is provided, it is secured by the Fund after an open tender process whereby a pre-selected number of local insurance companies are invited to tender.
How do you ensure the profitability of the fund?
The fund is managed by a Management Committee and service providers such as Actuaries, Investment Managers and Investment advisors assist the Committee in the management of the Fund. These service providers are specialists in their respective fields and handle the operational aspect on a day-to-day basis. Moreover all pension funds are now required to appoint an Actuary, a licensed Administrator and a licensed Fund Manager to be compliant with the current regulations. Super Fund has been following these Rules even before the PPSA was in force.
What is your analysis pertaining to the aging population?
The phenomenon of an ageing population is a global one and is also a major challenge to Mauritius. According to Statistics Mauritius, the proportion of elderly (60 or older) has increased from 9% in 2000 to 11.8% of the total population in 2013. It is estimated that this will reach 20% in 2026 and 29.5% in 2051. The main impact of the ageing population in Mauritius is the increase in the dependency ratio. There will be relatively more people claiming pension benefits and less people working and paying income taxes. The fear is that it will require high tax rates on the current, shrinking workforce.
It is also good news that we will all live longer than our elders but we must ensure that our quality of life is maintained by adequate retirement income. If we rely only on the old-age pension from the government and the National Pension Fund, we may be disappointed and become a burden to our children and the government. At the same time there is not enough awareness to save in a pension scheme. Worse: employee or individual pension contributions are no longer tax-deductible since 2006 and this can discourage them from making such savings. Government should seriously consider re-introduce this tax deduction, albeit with a percentage cap linked to the monthly income if considered necessary.
Do Contracts of Determinate Duration affect in any way contributions to a pension scheme?
Pension schemes are traditionally open to permanent employees only. Initially, employees who were hired on a contractual basis were not eligible to join an approved scheme. They had the option to invest in a Personal Pension Plan. However, under the PPSA, such a restriction has been removed and pension schemes can amend their Rules to include contractual employees as members if they so wish.