Sunday, March 7, 2021

BPOPF not reaping economies of scale ÔÇô World Bank Report

Despite its celebrated growth over the recent years, the country’s leading pension fund, the Botswana Public Officers Pension Fund (BPOPF) has higher operating expenses compared to private pension funds.

According to a report compiled by the World Bank and the Botswana Institute for Development Policy Analysis (BIDPA), as a result, BPOPF which is twice the size of all the private funds put together is not reaping economies of scale.

BPOPF’s operating expenses are 16 percent of contribution income compared to 14 percent for the private funds. Private pension plans operating expenses and contribution income tallied up to P90.3 million P648.5 million respectively during the 2011/12 financial year.

At the same time, operating expenses and contribution income for BPOPF for the same financial year stood at P253.7 million and P1, 602.2 million respectively.

“These rates appear to be higher” the World Bank, BIDPA report reads. The World Bank and BIDPA findings follow a 2010 report on the retirement systems in countries in the southern African Development Community (SADC) bloc which indicated that, “The best practice in the region demonstrates that costs of four percent” can be achieved in civil service plans.

BPOPF was registered in 2001 following Government decision to change the public Officer’s pension arrangement from a Defined Benefit Pension Scheme to a Defined Contribution Pension Scheme.

The Fund has experienced phenomenal growth since inception owing to the overwhelming positive response from the public service as public servants exercised their option to join it.

Employees who joined the public service from 2001 automatically become members of Botswana Public Officer Pension Fund

Late last month BPOPF acting Chief Executive, Lesedi Moakofhi, announced plans to embark on an ambitious three-year investment strategy with particular focus and bias towards Botswana alternatives that are private equity, infrastructure and strategic investment.

Traditionally the fund has been investing heavily in the offshore markets as they were faced with challenges of limited investment opportunities in the local economy. The fund invested as much as 70 percent in offshore markets and only 30 percent.

BPOPF data shows that is has enjoyed a strong growth on the active member portfolio since inception with an annualised return of 9.5 percent over the past 12 years compared to effective annual inflation of 7.3 percent over the same period.

The fund’s financial statements show that its investment strategy remained unchanged during the 2012/13 financial year as it continued with the implementation of the ‘alternative’ investment strategy.

The strategy, according to the executives at the fund resulted in an additional direct property acquisition and commitment to invest in a Pan African infrastructure Fund.

Still in the same year, BPOPF declared a final interest rate of 19 percent for Active and deferred pensioner portfolio and 6.1 percent for the With Profit pensioner portfolio.

“The financial year 2012/13 was characterised by general financial markets recovery,” says the fund’s board chairman, Carter Morupisi.

A significant percentage of BPOPF’s Active Member and deferred Pensioners funds are said to have been invested in equities, with a majority of the equity holdings being outside the country.

Meanwhile the 2014-2016 new strategy which BPOPF has adulated as diversified and specific has added new portfolios that are International property and South African inflation linked bonds.

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