Pension fund collects MVR3.5bn in six years

The pension fund collected MVR3.5 billion (US$226.9 million) during the past six years, the CEO of the Maldives Pension Administration Office (MPAO) has revealed.

Mohamed Hussain Manik told the press at a function held on Wednesday to mark the fund’s sixth anniversary that the pension office has been investing in government treasury bills. The office has purchased the highest number of T-bills so far, he added.

Manik said the MPAO is planning to launch a housing scheme and a disability insurance scheme.

Under the housing scheme, an employees’ savings with the pension fund will be “securitised” or used as mortgage.

A 20 percent downpayment is usually needed to buy a home or apartment, he explained, and the pension office “will give guarantee to the bank that if the [home owner] is unable to pay the 20 percent, the money kept as a mortgage can be given to the bank under an arrangement.”

The pension office is consulting with the relevant authorities and banks to finalise the scheme, he said.

Manik said the office estimates 3,000 employees could benefit from the housing scheme.

The disability scheme is meanwhile aimed for employees who suffer debilitating workplace injuries. The employee will be able to withdraw from the pension fund if he or she is unable to continue working.

The MPAO has also filed several lawsuits against employers who do not contribute to the retirement pension scheme as mandated by law. The Pensions Act require a monthly contribution of seven percent of pensionable wage from both the employer and employee.

Manik said some employers owe the state “huge sums of money” in unpaid contributions, adding that signing up to the scheme was the responsibility of employers, even if a business has only one staff member.

At last week’s ceremony, he MPAO also launched a new rebranded website, hotline (1441) and mobile app to improve services.


Legal restrictions a challenge to investment expansion: Pension Office

The Maldives Pension Administration Office (MPAO) has said legal restrictions are preventing the expansion of investments into profitable industries such as real estate.

The MPAO cannot invest in real estate as none are currently listed securities at the Maldives Stock Exchange, the only registered stock exchange in the country, said CEO Mohamed Hussain Manik.

The Maldives Pension Act states that pension assets can only be invested in securities listed at a licensed stock exchange in the Maldives.

Manik said the office was currently in the process of identifying reliable and secure investments at technical level. Based on the findings of this work, the MPAO will consider expansion, but it may require amendments to the law, he added.

In order to prepare for the future plans for expansion, the MPAO recently held an investment seminar targeting the finance sector as well as a finance forum to discuss international finance and capital markets.

While the Pension Act details many conditions which should be considered when investing from the fund – such as minimum risk and maximum returns for the beneficiaries of the scheme – it also stresses diversification of investments.

According to the office, the annual return from current investments are on average at 7 – 8 percent with the fund expected to reach an estimated MVR3 billion by September or October this year.

In a press statement, the office has said that, considering the current inflation rates, this return is profitable for the beneficiaries for the scheme.

It was highlighted, however, that in order to sustain the increasing returns as the fund grows in size, they may have to take advantage of more investment opportunities both in the Maldives and abroad.

Statistics from April 2014 indicate that nearly 83 percent of the fund’s investment portfolio goes into government treasury bills which, according to the office, is also the most profitable due to high interest rates caused by increasing government debt.

Only 7 percent of it is invested in domestic equity and less than seven percent in fixed deposits.

Earlier this month the Capital Market Development Authority (CMDA) – an independent institution set up to develop and regulate the capital market and pension industry – said market development had not kept pace with pension development.

Speaking to Minivan News, CEO of the authority Fathimath Shafeega highlighted the importance of diversification and seeking profitable alternative investments for the pension fund, beyond the limitations of the Pension Act.

She also said that, following CMDA recommendations, the government – which holds a majority in the newly inaugurated parliament – is planning to introduce amendments to the Pension Act.

Beginning in March this year, the government more than doubled the monthly basic pension – with all citizens aged over 65 now receiving MVR5,000.

The basic pension, to which all retirement-age citizens are entitled, is still MVR 2,300 per month while the additional MVR2,700 is provided from the state budget by the Ministry of Finance and Treasury.

With an estimated 17,000 pensioners, the government had allocated MVR470 million (US$30.5 million) in the state budget to give out an MVR2,300 (US$149) in cash handouts.

At the time, the head of the cabinet’s economic council Ahmed Adeeb said that “innovative” methods, such as investing in the pension fund or government T-bills would prevent the need to divert funds from within the state budget. The MPAO has, however, said that no such arrangements have yet been made with regard to the basic pension.

The MPAO investments are currently made only for the Maldives Retirement Pension Scheme (MRPS) beneficiaries, a defined contribution scheme which requires both employer and employees to contribute seven percent (total fourteen percent) of the pensionable wage.

Under the plan, pension benefit payout at retirement will depend on the amount contributed and investment returns. It is mandatory for all Maldivian contract employees but voluntary for foreign employees.

Currently, MRPS beneficiaries will also receive a minimum of MVR5,000 if their payout is smaller than this amount.


Pensions office performs U-turn on benefit increase

After initially reporting that the promised pension increase from MVR2300 to MVR5000 could not be done this month, the Maldives Pension Administration Office (MPAO) today confirmed that it is working to transfer the MVR5000 by tomorrow.

The CEO of the office had yesterday told Haveeru that it had not received the additional funds for the increase and that it would therefore transfer the current MVR2300, giving the rest when the government released additional funds.

“They are doing this to fulfill a government pledge. This has nothing to do with the pension fund. We will not increase it to MVR5000 by taking money from that fund. What we will do is transfer it when the government provide us with it,” Manik was quoted as saying.

The state funded pension for all citizen’s above the age of 65 was introduced in 2009 at MVR2,000, and was later increased to MVR2,300 through an amendment to pension legislation.

A further increase to MVR5000 – starting from March 2014 – was an election pledge of President Abdulla Yameen, though changes to the amount disbursed from the existing pension funds will require another amendment to the act.

Cabinet minister Ahmed Adeeb has recently assured that the increase would take place in March as promised, saying that it can be funded through a sustainable model based on long term bonds and T-bills.

Adeeb also talked about the prospect of combining various funds such as housing, health insurance, and pension funds into a single fund.

The government had already allocated MVR470 million (US$ 30.5 million) in the state budget for the MVR2,300 allowance (US$149). These funds will now be invested in the retirement pension fund or in financial instruments such as T-bills in order to generate the monthly MVR5000 stipend, Adeeb has said.

Following Manik’s comments yesterday, Adeeb told Haveeru that the delay was due to the first of the month falling on the weekend and “because it is a new allowance”.

Yesterday, MPAO CEO Manik stated that eighty percent of the pension funds are already being invested in T-bills sold by the government to finance the budget deficit, and that discussions with the government are underway to invest the rest of the funds in bonds.

While the government maintains this to be a sustainable model of financing the increase in pensions, critics have argued that, with a MVR1.3 billion (US$84.3 million) deficit budget, the move will plunge the country further into debt.

“These are loans, and taking loans is acceptable to invest in to increasing productivity. But this is not such an investment, this is something the government is spending. Eventually people will have to bear the burden of this,” former Economic Development Minister Mahmud Razee has remarked.

Last December, the central bank and regulator – the Maldives Monetary Authority – advised the state to pay all due treasury bills and treasury bonds and to turn existing short-term debts into long-term ones.