TITLE:
Value Creation on Member Contributions in Zambian Pension Funds: Evidence for Imperative Investment in Financial Education
AUTHORS:
Macmillan Handema, John Lungu, Mwansa Chabala, Chanda Shikaputo
KEYWORDS:
Value Creation, Financial Performance, Member Contributions, Pension Fund, Financial Education, Pension Benefits
JOURNAL NAME:
Open Journal of Business and Management,
Vol.12 No.2,
March
13,
2024
ABSTRACT: This paper evaluated the extent to which pension
funds in Zambia are growing member contributions to inform the behavior of fund
managers, policymakers, and prospective retirees. Stacked data on annual
pension fund financial performance for the period between 2011 and 2020 was
collected from the Pensions and Insurance Authority. Data on the performance of
riskless government securities and annual inflation was obtained from the Bank
of Zambia. Descriptive and inferential statistical techniques were used to
analyze the data set. The study established that the industry was able to grow
member contributions by a nominal average of 12% and 3% in real terms. The
study also established that the Sharpe ratio was insignificantly negative in
the short term and significantly negative in the long term. This implies that
the pension fund industry failed to significantly grow member contributions for
meaningful benefits. These findings also mean that DC pension funds will only
provide minimal benefits while DB pension funds might have challenges in meeting their obligations. The study recommends
that prospective retirees engage in other wealth-generating activities
to supplement the retirement package from the pension fund industry. It is also
recommended that the government collaborates with training institutions to
equip prospective retirees with the financial literacy skills needed for
successful investment and entrepreneurial undertakings. The study further
recommends that policymakers and fund managers need to reflect on policy
guidelines and investment strategies in the industry if pension funds are to
provide meaningful benefits for income
replacement and consumption smoothing in the deccumulation phase.