Membership of the Board of Directors

Statutory Instrument No. 66 of 1998 issued by the Minister of Local
Government and Housing in pursuance of Section 41 of the LASF Act.
Cap 284 requires that the Board consists of:

1. The Permanent Secretary, Ministry of Local Government and Housing;
2. One member appointed by the Minister from two representatives nominated by the Local Government Association of Zambia;
   
3. One member appointed by the Minister from two representatives nominated by the Zambia United Local Authorities Workers Union;
   
4. One member appointed by the Minister from two representatives nominated by the management of the National Housing Authority;
   
5. One member appointed by the Minister from two representatives nominated by the management of the ZESCO limited;
   
6. One member appointed by the Minister from two representatives nominated by a trade union of the ZESCO limited; and
   
7. Director, Local Government Administration of the Ministry responsible for Local Government;
   
8. One member appointed by the Minister from two representatives nominated by the management of the National Pension Scheme Authority;
   
9. The Chief Executive of the Local Authorities Superannuation Fund;
   
10. One member appointed by the ‘Minister from two representatives nominated by the management of the Lusaka Water and Sewerage Company; and
    
11. One member appointed by the Minister from amongst the members of the public.

Statutory Instrument No 66 of 1998 (May, 1998), changed the composition of the Fund’s B oard to include the ChiefExecutive of the Fund. It also deleted from the Fund’s Board, the four members from organisations external to those belonging to the Fund, who were appointed by the Minister of Local Government and Housing.

By Statutory Instrument No. 74 of 1998 (June, 1998), the Minister expanded membership of the Board to include one member appointed by the Minister from two representatives nominated by the management of the Lusaka Water & Sewerage Company; and one member appointed by the Minister from amongst the members of the public.

The Minister designates one member as Chairperson and one member as Vice Chairperson provided that the Permanent Secretary and Director of Local Government Administration shall not be appointed Chairperson or Vice Chairperson of the Board.

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Administration of the Fund

The day to day administration of the Fund is under the responsibility of the Managing Director who is appointed by the Board in pursuance of Section 9(2) of Cap 284.

The Managing Director appoints Directors and Managers in the Fund. The two Divisions, Finance & Pensions Administration and Corporate Services are headed by the Directors while the Departments are headed by Managers. The Departments include Finance & Investments, Contributions & Benefits, Internal Audit, Information Technology, Legal Services, Public Relations and Human Resources & Administration.

Section 5 of the Local Authorities Superannuation Fund Act establishes the Board of the Local Authorities Superannuation Fund as a body corporate with perpetual succession, capable of suing and being sued in its corporate name and with powers to acquire, hold, charge and alienate property, real or personal and with power to do all such acts or things as are necessary for or incidental to the performance of the duties and the exercise of the powers imposed or conferred by the provisions of this Act.

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Operating History of the Fund

The Fund enjoyed a favourable operating history following Zambia’s independence in 1964. Contributions from all Associated Authorities were regular and were paid on time resulting in the prompt payment of benefits to retirees and to all persons who were separated from employment by an Associated Authority for one reason or another. The regular payment of contributions also resulted in the Fund having surplus assets. The surplus assets were invested largely in real estate as there were few investment outlets at that time.

In view of the above, LASF did not have a backlog of retirees in unpaid benefits. In addition, the debt on unremitted contributions did not reflect in the Fund’s Financial Statements.

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Amendments of the LASF Act

From 1989, a series of amendments were made to the Principal LASF Act. These amendments greatly affected the operations of the Fund. Specific amendments, their dates and their implication towards the financial position of the Fund are outlined below.

• August 1989 — LASF Amendment Act No. 17 of 1989

This Amendment Act reduced the age for mandatory retirement from 60 to 55 years. It meant that persons who had reached the age of 55 and had worked for at least 10 years would be entitled to full retirement benefits. This resulted in unplanned p ayments o f b enefits due to early exit from the membership of the Fund, and in so doing adversely affected the Fund’s liquidity position.

The amendment also adjusted the monthly contributions to the Fund from 14% of the individual member’s monthly basic salary (7% contributed by the employee and 7% by the employer) to 33% of which the employee now contributed 10% and the employer 23%. This was meant to cushion the increased demands on benefits resulting from members who qualified for retirement due to the reduction in the retirement age.

• July 1990 — LASF Amendment Act No. 14 of 1990

This Amendment Act changed the definition of pensionable emoluments from average monthly contribution for the last 5 years to last annual salary at the time of retirement.

Essentially, a higher annual salary level was now used to calculate a retiree’s Gross Annuity upon retirement. The passage of this Amendment Act also had an effect on the liquidity position of the Fund in that benefits payable were now calculated at a high rate, hence affecting the financial position of the Fund.

• December 1991 — LASF Amendment Act No. 27 of 1991

This Amendment Act made it mandatory for all employees who had worked for 22 years to qualify for full retirement benefits regardless of their age.

As a result of the Amendment Act, over 1,200 contributing members retired. This brought immediate claims of K1.8 billion on the Fund. By the time this Amendment Act was repealed in 1996, over 4,300 persons had filed retirement claims with the Fund and had made claims on the Fund amounting to K13.4 billion.

The Amendment Act completely crippled all investment plans of the Fund as all the funds in LASF Bank accounts and short-term cash deposits were used to offset part of the claims. In 1995, a decision was made to dispose off 50% of the Fund’s housing units in an effort to reduce the claims and comply with the Government policy on home ownership.

• December 1996 — LASF Amendment Act No. 30 of 1996

This Amendment Act repealed Act No. 27 of 1991. This meant that the previous conditions of retirement at 55 years old and after 10 years of continuous service were brought back into effect.

However, after this Amendment Act was passed, some contributing members who were eligible for retirement on account of having completed 22 years of service had already given notice of retirement. To this effect, Statutory Instrument No. 84 of 1997 provided that any member who was in receipt of a notice of retirement prior to 12t1 December, 1996, could retire on the expiration of six months from 12th December, 1996. Effectively, members continued to retire until June 1997 on account of 22 years continuous service. This further affected the Fund’s liquidity position.

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Membership Coverage

The Local Authorities Superannuation Fund is a defined benefit scheme responsible for the pension cover of members in all the Local Authorities (Councils), Water and Sewerage Companies, the ZESCO and the National Housing Authority (NHA). Statutory provision exists for other members to be admitted on application and subject to a favourable actuarial recommendation.

Membership of the Fund is as follows:

Local Authorities 10,450
ZESCO limited 3,265
Water and Sewerage Companies 1,106
National Housing Authority 101

Local Authorities Superannuation Fund 44

Total Active Members 14,966
Pensioners 6,676
TOTAL MEMBERSHIP 21, 642

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Fund Offices

The Fund has only one principal office — in Lusaka, Zambia. It has occupied this building since 1985 after having been previously housed at the Lusaka City Council offices. Having its own building has given the Fund a measure of independence in its daily operations.

However, LASF management found the current arrangement to be constraining in that pensioners can only collect their due payment from one place. This often required those pensioners who are located in places that are very distant from Lusaka to make long journeys to collect their lump-sum payments and monthly pension pay-outs. Given the relatively low level of economic activity in most areas outside Lusaka and the corresponding low-income levels, the travelling costs to and from Lusaka can consume a large portion of the pensioner’s savings. This significantly lowers the quality of the pension product provided as the pensioner ends up with a very small pay out in absolute and real terms.

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Decentralisation of the Annuities

In view of the centralized offices referred to in item 1.7 above, management in its Five Year Strategic Plan identified the decentralization of annuity payments as a goal to be achieved.

During the year 2002, Management concluded discussions with Zambia National Commercial Bank (ZANACO) and Finance Bank to enable the Fund use their branch network for payments of annuities. As a result of the successful c onclusion of the discussions w ith the B anks, LASF h as now decentralized the payments of annual pensions. With effect from January, 2003, pensioners have been getting their annuities at the nearest branch in their area. Pensioners do not have to travel to Lusaka to collect their monthly pensions.

In addition, during the process of developing the decentralization of annuities, management embarked on a programme to update the details of retirees through the registration process were all pensioners were requested to register with ZANACO or Finance Bank in their respective towns. The programme was aimed at upgrading the integrity of the Fund’s database maintained at LASF offices’ in Lusaka.

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Financing of the Fund's Operations

The operations of the Fund are largely financed out of members’ contributions. The contributions are currently at 10% of basic salary for employees and 23% of basic salary for the employers.

The other source of income is investment income. Part of the contributions received are invested in various investment instruments available on the Zambian financial markets. Section 12(i) of the LASF Act permits the Fund to invest in various investment portfolios. The Investment Policy which was formulated by the LASF management and approved by the B oard of D irectors in May, 2 002, further provides the Fund’s investment objectives and guidelines on the management of its investment portfolios aimed at achieving investment growth through maximizing returns and minimizing risks.

Lastly, the Government does from time to time give grants to LASF to assist in the paying of council retirees and meet other operations of the Fund.

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Collection of Contributions

In terms of Section 20 of the LASF Act, contributions are a first charge on the salary or wages payable to the members of the Fund and are required to be remitted to the Fund with the employer’s contributions before the seventh day of every month. In other words, pension contributions are statutory and it is the responsibility of employers to remit such contributions to LASF.

Recovery of the pension contributions from employees without remitting to the Fund is regarded as “theft” and it is a criminal offence. This can result into serious legal proceedings were a pension scheme enforce legal proceedings on defaulting employers.

The current position is that Associated Authorities have continued to default in the remittance of members’ contributions to LASF. The persistent and debilitating liquidity problems faced by the councils, particularly during the post decentralization era which commenced in 1980 has affected their ability to remit the contributions. Unfortunately, the defaulters list includes also ZESCO which is the biggest contributor.

Over the last five years, the trend as at 31st December each year on unremitted contributions to LASF was as follows:

The debt on un-remitted contributions increased by 58% from 2001 to 2002 due to the fact that ZESCO, which is the Fund’s biggest contributor had not remitted contributions from January to August, 2002 because it was affected by the change of ownership of the mines from Government to Konkola Copper Mine and Mopani Copper mine. Resumption of contributions commences in September, 2002 after the Government finalized that sale agreements with the new owners of the mines.

As at 31st December, 2004, the total outstanding contributions not remitted to the Fund was K72.3 billion broken down in segments of Associated Authorities is as follows:

The only member organization that is current in remitting contributions is the National Housing Authority (NHA). However, it is expected that with the payment plans that LASF has entered with ZESCO, Lusaka Water & Sewerage Company and Councils like Chipata, Chongwe, Ndola, Solwezi and Lusaka , the amount of the debt on unremitted contributions is expected to be cleared. The proposal to enter into payment plans is been extended to other Councils.

LASF management has also been closely working with the Board and Government to resolve the contribution arrears for the councils through various options such as the debt swaps.

Section 20 (3) of the LASF Act allows the Fund to charge the associated authority concerned 4% interest on the amount unpaid by the seventh day in any month.

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Effects of Non Remittance of Contributions

As indicated in item 1.8 above, the current position is that Associated Authorities have continued to default in the remittance of contributions.
The consequence of this situation is that most of the Fund’s operations have been adversely affected in particuIar the following:

(i) Liquidity Position: The Fund’s actual performance has been below the projected income. This has resulted into LASF failing to meet its financial obligations as planned.

Over the last few years, the actual income against the budgeted income has been as follows:

However, 2003 was a successful year with the Fund collecting a total of K35.7 billion income against a budgeted amount of K37.9 billion representing a 94% performance. The favourable performance was as a result of ZESCO, N}IA and Lusaka Water & Sewerage Company (LWSC) resuming paying current on a monthly basis. In addition, ZESCO and NHA have been paying the contributions arrears on a monthly basis. Out of the K35.7 billion income, K28.2 billion came from current contributions and recovery of contribution arrears. The balance was from investment income, rental income, refundable annuities, grants from Government and other sundry income.

(ii) Settlement of Unpaid Benefits: The non remittance of contributions in particular the councils have resulted into the Fund not paying retirees their benefits on time. This has created a backlog of unpaid benefits. Members who have retired have to wait before they are paid their retirement benefits. By the time they get their benefits, the value would have reduced due to effects of inflation and price increases in the commodities.

Over the last five years, the trend as at 31st December each year on unpaid benefits has been as follows:

The amount on unpaid benefits increased by 53.8% from 2001 to 2002 due to retrenchments and re-organization at ZESCO, City Councils and Municipal Councils. Most of the Directors and other senior staff in these member organizations were retired to serve on contracts.

(iii) Lack of Investment Growth and Diversification: In the past, the Fund has been unable to build up a diversified investment portfolio due to non remittance of contributions. Although LASF has been building up its investment portfolio commencing 2000, it could have performed much better in meeting its investment objectives s et i n the Investment P olicy and the Five Year Strategic Plan if all contributions were remitted.

(iv) The Fund’s Actuarial Position: As a result of non remittance of contributions, the last actuarial valuation conducted in 1997 by a South African firm of Actuaries revealed that LASF had a deficit ofK3l.622 billion and the funding level was 29%.

(v) Deferment of Capital Projects: The Fund has deferred capital projects due to liquidity caused by non remittance of contributions. Some of the projects include the development of the commercial plots and acquiring a pension package from software suppliers to back up the in-house developed programmes written by the IT staff.

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