“Ignorantia juris non excusat” (Ignorance of the law excuses not) – Roman Law.
As we continue the retirement series, I encourage members of pension funds to familiarize themselves with pension laws. Members need to know and have thorough understanding of pension laws to ensure that they are protected.
What are pension laws?
Pension laws such as the Lesotho Pension Fund Act (PFA) of 2019 seek to protect the interest of members who make contributions into pension funds. Because the pension fund industry in Lesotho is predominately defined contribution (DC) funds, the responsibility to ensure you have adequate savings for retirement lies with you and NOT the employer, but what does this mean for a member?
Defined benefit (DB) vs. Defined contribution?
Defined benefit (DB) funds determine an employee’s pension benefit pay-out using a formula based on the following factors i.e., number of years worked, prior earnings and the scheme accrual rate. With DB funds, the employer bears the investment risk to ensure adequate retirement savings. Whereas a defined contribution (DC) fund allows the employer and employee to jointly make contributions towards the retirement fund. With DC funds however, the risk to ensure adequate savings lies with the employee.
So, it is key to know about the PFA and how it protects your interests.
- Access to comprehensive prospectus
A pension fund should provide members with a prospectus that states that the retirement fund is regulated and supervised by the Regulator (Central Bank of Lesotho). The prospectus must also state the retirement benefits, fund’s objectives, whether it’s a DB or DC fund, details about the board of trustees and principal officer.
- Provide benefit statements.
The pension fund should provide members with benefit statements three-months after the financial year end. A benefit statement is a summary of how your retirement fund performing and should contain your personal information, name and registration of the retirement fund, date of statement, date when member joined the pension fund. It must also provide the beneficiaries nominated by the member, member’s and employer’s contributions and any voluntary contributions
- Disclosure of information – fees and investment choice
The PFA requires pension funds to provide members with comprehensive information that is factually, not biased, all available investment options, all fees related to the fund, associated risks and disclosure of fees.
- Members must complete a Beneficiary nomination form
Members are required to complete a beneficiary nomination form and must be updated annually. These nominations are important in the event of death because it help the fund distribute benefits.
- Allowable deductions from pension benefits
No deductions can be made against your pension benefits except in the following cases. Where the courts of law issued a maintenance of dependants’ order against a member. Secondly, where a member has a debt arising from a housing loan issued by the Fund or employer under a pension-backed home loan. Lastly, where an employer suffered a loss by the employee for unlawful activity and judgement has been issued by a court of law. I encourage you to familiarise yourself with all the laws governing pension funds and ensure you are protected.
Source: Pension Fund Act No.5 of 2019 and Regulations of 2020.