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.