Pension Society Conference Highlights Urgency for Adequate Savings
In a keynote address at the Botswana Pension Society Conference, Daniel Loeto, Chief Financial Officer (CFO) of the Bank of Botswana (BoB), emphasised the imperative of reducing management fees to bolster fund performance.
The conference, held annually, convened under the theme “Bridging the Pension Gap: Solutions for Ensuring Adequate Savings for All,” spotlighting the pressing challenge of insufficient savings and exploring strategies to augment voluntary contributions and optimise fund performance.
Loeto stressed the need for strong competition for service providers to better align fees with the cost of services provided.
“The funds must leverage on innovation, technology and efficiency to foster better record keeping to better communicate with members and therefore build people trust in the management of their retirement savings.”
In his view, innovation and technology can cheaply be used to better inform members of their options and choices, if any, and can also be effectively deployed to provide the much-needed financial literacy. Loeto noted inertia, lack of financial literacy, and competing financial priorities which often lead individuals to under-save.
Alongside fostering voluntary contributions, he believes it is equally important to ensure pension funds perform efficiently and generate sustainable returns.
This can be achieved by ensuring pension funds are managed by qualified professionals with expertise in navigating the investment landscape and maximising returns within acceptable risk parameters.
“Due to the foregoing, the investment strategies of selected asset managers should be diversified across active (high alpha) and passive (high beta) strategies.” Loeto said.
In particular, he believes such investment strategies should be clearly defined across value, quality, momentum and growth styles.
While the recent revisions to the Prudential Fund Rules limiting offshore investments present challenges, he said exploring domestic investment options with high growth potential within the regulatory framework remains crucial.
“Asset classes such as property which are a good proxy for bonds with monthly rentals (coupon payments) and rental escalations which offer inflation protection.”
Meanwhile listed and direct equity in addition to infrastructure and bond investments offer intelligent diversification benefits.
Loeto also emphasised implementing robust governance structures within pension funds, including transparency and accountability measures. This can build trust and confidence among members and stakeholders.
“Numerous research studies have clearly demonstrated that well governed investments provide superior and sustainable returns.”
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