Brief analysis on the mandatory legal conversion of existing mechanisms related to compulsory social security in Pension Funds

In accordance with the rules set out in paragraph 1 of Art.5 of Law 4/2007 of 7 February, which approves the Law of Social Security (LBSS), the social protection system in Mozambique is structured on three levels, namely : i) Basic Social Security; ii) Compulsory Social Security; and iii) Complementary Social Security.

On this analysis , I will address on the Complementary Social Security (SSC), which is intended to protect employees or self-employed employees, and their families, complementing an optional basis the benefits awarded under the compulsory social security. Decree No. 25/2009 of 17 August, adopting the Regulation of the Constitution and Pension Fund Management in the Scope of Complementary Social Security (RCGFP) sets that the particular mechanisms and complementary social security lays in the nature of Pension Funds and other, embodied in autonomous assets exclusively assigned for attaining the objectives that have been formed.

Before the establishment of (RCGFP), there was a legal vacuum regarding the rules of the Constitution and Management of particular mechanisms and complementary to social security, and many entities, particularly insurance companies, aiming at of offering additional services to the compulsory social security established a number of insurance which might serve the same purpose, namely: i) insurance annuities to ensure the payment of pensions of retired employees; ii) capitalization of life insurance to meet future liabilities to employees in active service; and iii) life insurance risk to cover disability or survival pensions.

It happens however, that the (RCGFP), in its article 101, came to provide for the autonomous assets that at the time of publication of the Decree, are already set up independently for ensuring compliance with pension plan, in addition compulsory social security, and wish to remain as complementary mechanisms to compulsory social security, must within 2 years, submit to the arrangements set out in the Decree, that is, converted into pension funds.

Thus, it is important to reflect on the need or not of the conversion of the above mentioned insurance packages, even in commercialization on pension funds

Strictly speaking, these insurance packagesby its very nature does not embody in the pension fund, embodied in autonomous assets, but rather a contract of insurance by which the insurer, compensating under the laws of statistics a number of risks for it assumed, undertakes in the case of assessment of the risk to compensate the insured, this being required to maintain capital that, under the law are aimed at providing compliance with its obligations, in case of assessment of the risk. Indeed, I believe that these services do not embody in a separate assets, as the risks to be covered by these insurance packages, do not the result of a fund (assets), exclusively assigned to the realization of this insurance package, as that such risks are encompassed solely by the assets of these institutions, which excludes immediately the possibility of such insurance emboding the nature of pension funds.

It should be noted that the adoption of a particular mechanism and complement the compulsory social security, could bring benefits to employees, since, being a fund a shared autonomous assets for all, can serve as an investment vehicle on benefits of the employees themselves with view to maximizing its assets, on the other hand, the taxation of pension funds may also bring some advantages for the them.

Hermenegildo Penicela

Lawyer