25th October 2022
The Clerk of the National Assembly
P O Box 31299
ATT: Mr. Charles Chishimba
RE: SUBMISSION TO THE COMMITTEE ON NATIONAL ECONOMY, TRADE AND LABOUR MATTERS IN CONSIDERATION OF THE NATIONAL PENSION SCHEME (AMENDMENT) BILL N.A. B NO. 21 OF 2022
The Zambia Federation of Employers appreciates the opportunity given by the Committee on National Economy, Trade and Labour Matters to comment on the National Pension Scheme (Amendment) Bill which is National Assembly Bill No. 21 of 2022. We wish to comment as follows:
1.0 PROPOSED REDUCTION OF PENALTY RATE OF 20 % TO 10%
1.1 The Zambia Federation of Employers being a member of the Tripartite Consultative Labour Council (TCLC) has for a long time been engaged in the discussion concerning the National Pension Scheme Authority and its Act No. 40 of 1996.
1.2 The critical issue on the side of the Employers has always bordered on the provisions of section 15(2) of the National Pension Scheme Act No. 40 of 1996 which provides that ‘’If any contribution is not paid within the time stated under subsection (1) a sum equal to twenty percent of the amount unpaid shall be added as a penalty for each month or part thereof after the date the payment is due and the amount of penalty shall be recovered as a debt owing to the scheme by the Employer’’.
1.3 This provision in the National Pension Scheme Act has caused a great deal of misery to those employers out there who find themselves in a position of default by way of not being able to remit the NAPSA contributions on the due date not deliberately but due to financial constraints. It has been unbearable in a number of companies in the sense that in most cases the amount of penalties to be paid exceed the principal amount by very big margins such that some companies have gone to the commercial banks to borrow money to settle the NAPSA penalties. This situation has not been health to business houses as it has created extra expenses to businesses in most cases carrying unsustainable debts.
(An Affiliate to International Organisation of Employers and a Partner to the International Labour Organisation
1.4 We recall that during the 2015 discussions on the Social Security Reforms agreement was reached in the TCLC to amend the National Pension Scheme Act in particular reference to Section 15 (2) so as to reduce the penalty from 20% and align it to the Monetary Policy Rate as always to be announced by the Bank of Zambia (BOZ) Monetary Policy Committee. Unfortunately, it so happened that the Government back tracked on this matter and the then Minister of Labour and Social Security did not push this matter to have this amendment passed.
1.5 ZFE therefore, supports the proposal to amend this section of the NAPSA Act No. 40 of 1996 as provided for in this Bill. The economic ramification of this proposed amendment in our view is enormous such as with less or affordable penalties on employers on delayed remittances, companies will come out of unsustainable debt levels and will have room to grow their businesses either through diversification of their products or through innovations of entering new markets. Such initiatives will no doubt lead to creation of more jobs for the Zambian people by those companies. It should be noted that any capacity to be created in any single company to create a single job will bring a member into NAPSA which means more money into the pension scheme. Even sustainability of the current jobs in such companies depends more on the solvency status of companies.
1.6 The ZFE therefore, commends the New Dawn Administration for realizing that the 20% rate of penalty on companies currently provided for in the NAPSA Act No 40 of 1996 has been a source of misery and prohibitive to expansion of business houses and that it must now be reduced.
2.0 INSERTION OF A NEW SUB-SECTION IMMEDIATELY AFTER SUBSECTION (2)
2.1 We note that the proposed insertion of what is to become subsection (3) of section 15 which must read as “Despite subsection (2), the Authority may waive a penalty incurred by a contributing employer on conditions that the Minister may by statutory instrument, prescribe. We understand that this provision intends to give powers to the Authority to waive penalties that may arise from delayed remittances by employers once the Authority finds that the reasons for the delay are in compliance with the Ministerial Statutory Instrument provisions. Honorable Chairperson and members of the Committee ZFE finds this as a very necessarily provision to included in this Act. You may wish to know that often times ZFE has been approached by some of its members that have been found in the situation of penalties with a request that ZFE must engage the NAPSA Management and negotiate for a waiver. This has not been possible as the NAPSA Management has always stated that they have no such legal powers. Considering the fact that not all delayed remittances are on purpose but are caused by cash flow challenges ZFE welcomes this provision in this Act.
2.2. It is a well-known fact that over the years the Zambia Revenue Authority that has been waiving penalties and interests on delayed tax remittances through announcements of tax amnesty have been saving huge sums of money that could be spent on expensive prosecutions. Equally the amnesty facility also prompts violators to come forward who might otherwise have eluded authorities and it promotes reconciliation between companies and the Tax Authority on unremitted taxes.
3. REPEAL AND REPLACEMENT OF SECTION 39 (ONE-OFF AGE BENEFIT)
3.1. We note that under this section the Bill proposes that “Despite section 11 (1), a person, who before the commencement of this Act, was under pensionable age and was a member of the existing fund, may be paid a one –off age benefit under the existing fund where that person
(a) attains a minimum age of thirty- six, and
(b) has made contributions to the existing fund.
3.2. While we welcome the idea for a one – off age benefit under the existing fund where that person attains a minimum age of thirty – six and has made contributions to the existing fund, we propose the following:
(a) that the age at which a member must qualify for a partial withdrawal be increased from the proposed thirty – six (36) years to Forty (40),
b) the Act to be passed must prescribe the number of contributions in terms of months or years as a minimum number of contributions into the pension scheme before a member qualifies for age benefit withdrawal.
(c) To this effect we wish to propose that a member should have contributed for not less than 120 months or 10 years before deciding to apply for the one – off age benefit. Our view is that while the scheme should allow partial withdrawal, it should be noted that one’s funds in the scheme must first grew before a withdrawal is made against the same funds.
3.3. The ZFE proposals above are based on the fact that much as one-off age withdrawal will be beneficial to members of the scheme that may want to invest their funds , it is very important that the Scheme must remain financially sound and one mechanism of achieving this is by allowing the pension scheme to have enough time to invest a member’s contributions for better returns so that by the time a member elects to withdraw, the withdrawal must be made from a total sum of the contributed amounts and returns earned from investments undertaken by the pension scheme.
3.4. This will not only address the issue of solvency in the pension scheme but will also lead to an enhanced withdrawal amount especially if the Minister in the Statutory Instrument to be prescribed decides that the amount to be withdrawn will be a percentage of the accumulated funds available in the pension scheme at the time of applying for the one – off age benefit.
3.5. We note that the Bill on page 4 provides in (2) that “A person who receives payment under subsection (1) shall not be entitled to a further payment of a benefit under the existing fund. We understand this to mean that once a member receives this benefit, such a member will not be eligible to receive another payment until retirement. We support this position as once a member receives an age benefit, such a member should only receive one’s next benefits at retirement age.
4.0. LOAN OPTION.
4.1. As sated above the ZFE is not opposed to the one-off age benefits but at the same time wishes to propose an option of a loan facility from the National Pension Scheme to its members. NAPSA should innovate by way of not only lending funds to the commercial
banks and investing in a number of projects of which some have not yielded meaningful returns but can as well have a loan facility for its members at competitive rates. Currently NAPSA lends out funds to Commercial Banks and a number of members of NAPSA borrow funds from the commercial Banks at higher interest rates. A Loan facility for its members may be an option to some members who may opt for a cheaper loan than the commercial bank lending rates as opposed to electing for one-off age benefit.
5.1. We wish to conclude by indicating that while the partial withdraw is welcome NAPSA should come up with a financial literacy program to be attached to the one-off age benefit to minimize chances of some people misusing their money once they have received it from the scheme through the one-off age benefit. What is true is that while some people can misuse their financial earnings at any time in their lives whether at retirement age of before others can invest their earnings wisely and make a fortune to the extent that by the time they reach retirement age they will be in a stable position financially.
ZAMBIA FEDERATION OF EMPLOYERS