> years' service are entitled to a refund of their accumulated contributions, provided that

> the related actuarial value of the accrued retirement benefits from a previous employment

> has not been transferred to the superannuation fund established by the new employer. 9

The regulatory framework is obviously very extensive. However, it has some important gaps. There are no explicit requirements: for maintaining a proper funding level to secure scheme benefits; for ensuring the safe custody of assets; for hiring qualified actuaries, auditors and custodians; for imposing on actuaries, auditors and custodians the responsibility to inform the supervisory authority of any material breaches of regulations; or for submitting regular reports to the supervisory authority.10 There are also no rules on investments and asset diversification. While the absence of minimum investment rules and the investment freedom enjoyed by fund managers mark a welcome departure from prevailing practice in most developing countries, failure to impose limits on self-investing in sponsoring employers and to require reasonable asset diversification may place pension fund assets at unnecessary risk.

Neither the Employees Superannuation Fund Act nor the Income Tax Regulations specify that pension funds must undertake periodic actuarial reviews. Sponsoring employers who must publish audited accounts are required to comply with the revised international accounting standard on pension liabilities (IAS 19, adopted in Mauritius as MAS25). IAS 19 specifies, _inter alia,_ the AA corporate bond yields (or similar) as the discount rates to be used in valuing actuarial liabilities and requires employers to report in their accounts any shortfall in the pension fund they sponsor. Although there is no systematic monitoring of the shortfall situation of pension funds in Mauritius, it is estimated that on average pension schemes suffer from a 20 to 25 percent shortfall. Actuarial reviews are undertaken at regular intervals, mostly every 3 years. Local actuaries use investment return assumptions that are close to, or slightly higher than, projected rates of salary growth. Mortality tables are selected from the set that is produced by the UK Institute of Actuaries.

Pension funds with defined-benefit plans operate with a large duration mismatch of their assets and liabilities, since there is a shortage of long-term assets, other than equities and real estate. At present, this mismatch does not cause problems because interest rates on short-term instruments are high. But pension funds face a large reinvestment risk. They could find themselves in a situation of huge shortfalls as a result of a large and persistent fall in interest rates. Actuaries should be required to report on the exposure of pension funds to such an occurrence, however unlikely it may seem at present, in order to facilitate early preventive action.

> 9 The wording of this provision which was added in August 2000 is not clear. It appears to be stipulating that leaving employees who transferred the actuarial value of accrued benefits from a previous employment

> have the same portability rights as employees with more than 5 years of service.

> 10 As argued further below, financial reports should be submitted in electronic form, preferably on a quarterly basis. The FSC should develop a capability for efficient analysis of financial reports and off-site surveillance.

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