Pension Funds are autonomous assets intended to finance one or more Pension Plans and constitute a set of assets whose purpose is to provide Beneficiaries with an additional source of future income.
The management of Pension Funds focuses on the capitalisation of contributions and can be carried out by Management Companies or Insurance Companies, seeking to generate a sufficient accumulation of income for the Beneficiary to maintain the same level after retirement.
These entities form part of the complementary social security system, but do not completely eliminate the usefulness of social security institutions. In this way, and because the investments are long-term, pension funds are some of the largest institutional investors in the world, as they have large amounts of capital to invest.
Pension Fund Management Companies, the entities responsible for administering and managing pension funds, are in charge of investing the funds’ assets, monitoring investment performance and ensuring that benefits are paid out in accordance with the established rules. These companies play a crucial role in financial management and in protecting the interests of beneficiaries.
Pension fund assets must be managed prudently to ensure that pensioners receive the promised retirement benefits. Over many years, in order to generate stable returns, the Funds must be very conservative in the process of choosing their investments and favour sovereign bonds, whether treasury or municipal, because they present low risk, investment grade corporate bonds and solid shares.
Changing market conditions and the need to maintain a sufficiently high rate of return to guarantee future income have resulted in changes to pension funds’ investment policies, which now allow investments in most asset classes. These new asset classes are venture capital or private companies, real estate, infrastructure assets, Hedge Funds, commodities, financial derivatives, among others.
As well as providing financial stability for Beneficiaries, Pension Funds are also an important source of funding for national economies
The world’s largest Public Pension Fund (PPF) was, in 2024, the Social Security Trust Funds and was domiciled in the United States of America with total assets of more than USD 2.8 trillion. The Government Pension Investment Fund of Japan was the second largest, managing assets of over USD 1.6 trillion.
The Military Retirement Fund, also based in the United States, appeared in 3rd position, managing around USD 1.3 trillion in assets. The assets managed by these funds include, among many others, financing granted to governments, public and private companies, with a strong emphasis on making investments in the economies of these countries.
The positive impact of pension funds can also be seen in the increase in investments
The role of pension funds
Pension funds thus play a crucial role in the global economic landscape because, as well as providing financial stability for Beneficiaries, they are also an important source of funding for national economies to develop their investment activities.
As they seek long-term returns to cover long-term liabilities, pension funds should favour long-term investments that are protected from inflation, and infrastructure investments in productive capacity, as they are the best investments for these purposes. In this way, pension funds play a vital role in strengthening global economies by financing investments in structuring projects that will make the economic futures of these countries viable.
Their positive impact is felt through increased investment, financial stability and sustainable development, making them an essential component of long-term economic growth.
In Mozambique, there is a well-defined legal framework for pension funds which approves the regulations for setting up and managing them within the scope of Complementary Social Security, establishing general rules and principles for investment policies, among other regulations for the actions of these entities. There are eight Pension Fund Management Companies (SGFP) licensed to carry out this activity in 2024, according to the Insurance Supervision Institute of Mozambique (ISSM).
Variability of funds
In Mozambique, the diversification of pension fund portfolios is conditioned by the depth of the national capital market, both in terms of the availability of instruments and their variability. The Mozambique Stock Exchange (BVM) mainly has Treasury Bonds, issued for a total of USD 2738 million, but there is still little interest from private companies.
Efficient asset management, in line with the best international risk management practices, requires an evolution of the national capital market, expanding the number of issuers, as well as basic work to encourage the generation of liquidity and depth in the current assets available. Only in this way will the complementary national pension funds, which already exceed MZN 15 billion, be able to acquire financial assets and thus foster more prosperous and stable economic activity in Mozambique.
