Pension funds administrators heaved a sigh of relief after the Namibian Competition Commission (NaCC) cleared them of any wrongdoing after being accused of monopolising the industry.
The competition body early this year instituted an investigation to determine whether offering administration services to umbrella pension funds and providing additional services such as consulting, actuarial, investment, and insurance was not in violation of the country’s competition laws.
NaCC Spokesperson Dina //Gowases said the Commission’s investigation determined that they had not violated any provisions of the Competition Act.
“This is due to the finding that the administrators and associated pension funds operate with the same common purpose, as a single economic unit, being vertically integrated with one another.”
She added that the Commission’s investigation had found that indeed, the pension fund administrators’ market is one that can be considered as an oligopolistic market, which refers to a market structure in which a small number of firms have the large majority of the market share, as opposed to a monopoly where one firm dominates the market.
“An oligopolistic market, however, does not per se lead to foreclosure of competition. As a result of this finding, the Commission is of the view that, the redress (if any) to alter these relationships will best be achieved through direct regulatory intervention by the industry regulator (NAMFISA), if such authority is granted through legislation (such as the Financial Institutions and Markets Act),” she said.
//Gowases said despite its findings, said the Commission reserves its rights to investigate any other potential anti-competitive behaviour in the pension fund market or by similar parties, in future.
The investigation stems from an article which contained allegations that various pension fund administrators are cross-selling administration services tied with consulting and actuarial services and offered to umbrella pension funds as a conditional selling.
The article contained allegations of anti-competitiveness, explaining the theory of harm as such the pension fund administrators are oligopolistic and based on imperfect competition. This means that these pension fund administrators are too few in the market and can easily collude to control the market and shy away from competition.
Based on these allegations, the Commission initiated an investigation into pension fund administrators, Alexander Forbes Financial Services Namibia, Metropolitan, Old Mutual, Retirement Fund Solution.
//Gowases notes this means that for an administrator to carry out administration services on behalf of the umbrella pension fund, the umbrella pension fund must accept consulting and actuarial services as part of the package.
“They offer administration services to umbrella pension funds in the pension fund industry. They do not only offer administration services to the umbrella pension funds, but they also offer or facilitate the offering of additional services such as consulting, actuarial, investment, insurance, etc. to umbrella pension funds,” she explained.
Furthermore, the pension fund administrators are not regulated by the Namibia Financial Institutions Supervisory Authority (NAMFISA) under the Pension Fund Act.
“This makes it difficult for the administrators to be controlled. Pension fund administrators have market power over their established umbrella pension funds and are influential in the appointment of principal officers and board of trustees of umbrella pension funds. Information asymmetry given their custodial ownership and exploitation of membership data of administrative firms: Pension fund administrators control the market through the exclusive service level agreements which they use to prevent potential new entrants in the market,” states the commission.
“Additionally, no possibility for market expansion due to exclusivity and cross-selling strategy and Pension fund administrators have the power to increase administrative costs beyond reasonable levels due to lack of regulatory regime that is currently absent from the market.”
Pension funds are registered for the purposes of managing retirement contributions on behalf of participating employers, members and employees and currently, the country’s pension fund industry in Namibia accounts for more than N$160 billion in total assets with over 300,000 active members and more than 40,000 pensioners.
