Pension fund and its investment
The basic purpose of a pension system is to provide a source of income to the retired members during their old age. All member of a pension scheme are expected to work and contribute to the pension fund until he or she reaches old age and is no longer able to work. The National Pension and Provident Fund (NPPF) was therefore established by the Royal Government with the objective of providing civil servants and other members with income security in their old age. The scheme is also extended to their immediate family members by providing pension benefits to the surviving spouse and children in case of demise of a member.
As per its current design, the NPPF enables members to save for their old age by making regular contributions during their working lives. The cumulative contributions of the members are treated as savings and are invested in those areas which fetch good returns so that pension benefits can be paid to the retired members. Currently, the NPPF is one of the largest institutional investors in the country with a monthly collection amounting to Nu.144 million in contributions from 48,996 members. With such a large and regular inflow of funds, and given the limited investment avenues in the country, the NPPF faces a serious challenge in investing the funds optimally.
With the aim to protect the interest and welfare of the members, the NPPF is governed by a Board of Directors whose members are appointed by the Royal Government from the Civil Service, Labour and Human Resources, corporations and the Armed Forces. Among its various responsibilities, the Board is also responsible for ensuring that the NPPF abides by a safe and prudent investment policy. The Board is supported by a Technical Advisory Committee and management committees. In order to keep the members informed about the performance of the Fund, the NPPF disseminates information from time to time through its semi-annual newsletters and annual reports which. are readily available on the NPPF's website.
Recognizing that it is managing the savings of members for their old age, the NPPF pursues an investment policy that accords greater importance to the safety of the fund than the potential returns. Moreover, the NPPF's investments are made in keeping with the limited investment mandate issued under the Royal Government's Executive Order. In the recent past, given the growing size of the pension fund and the limited investment avenues, the Royal Government approved an expansion of the NPPF's investment mandate to include investments in private companies. The NPPF has nevertheless, been very selective in its investments, and so far has invested only in viable projects that are backed by adequate assets.
Meanwhile, with the support of the Royal Government, the NPPF continues to look for opportunities to fully invest its funds. In the process, it has contributed significantly to the country's socio-economic development through its investments in productive sectors such as hydropower, telecommunications, manufacturing industries and airlines, as well as in housing through public-private partnership projects. As per its risk management strategy all these projects are well secured by fixed assets.
Specific loan products that are directed towards the benefit of the members include the housing and the education loan schemes. These loans have been of great benefit to the members as evidenced by the continuing and growing demand for these loans.
Despite the challenges and constraints, with the support of the Royal Government, the Board of Directors and the Committees, the NPPF will continue its efforts to optimize its investments. It is constantly exploring safer and better yielding investments so as to optimize returns on its funds without compromising their safety, In order to stay up-to-date and relevant to the current market situation, NPPF will ensure that its investment policy is regularly reviewed from time to time. Presently, experts under an Asian Development Bank technical assistance program are reviewing the NPPF's investment policy from the perspective of a risk based supervision system.
The NPPF assures that it is always here to serve the interest of its members.