at the essence and the role of the retirement funds in the economy. these funds perform various functions in the economy, including consumption smoothing, insurance and redistribution of income. a key function of retirement plans is to enable individuals and households to smooth consumption over the life course, by collecting savings during people ’ s working lives and providing retirement income. the second function of the retirement plans is the insurance. the retirement fund provides insurance against a range of contingencies which may otherwise adversely affect household consumption. uncertainty over the time of death, disability, retrenchment, retirement, etc., is a primary factor in explaining the establishment of retirement plans. the insurance function of the retirement fund is extremely important but the insurance properties of the fund plan are often not well understood especially in developing economies and, as a result, greatly undervalued. this is one area where, i think, retirement funds should become more transparent by reducing the amount of “ small print ” in their rules and contracts. the third function is the redistributive function. retirement funds, particularly the defined benefit types, collect contributions from one group and pay to a different group, enabling the pursuit of social norms and policy objectives with regards to the distribution of income in society. further, they can also redistribute income within generations for example by skewing entitlements in favour of women or poor pensioners. i would also like to cite some of the key roles played by these institutions in developing the financial sector of a country. the development of retirement funds leads to increasing demand for long term financial assets, thus promoting financial market development and improving the capacity to manage financial risks. they compete with investment banks which lead to more efficient primary markets. furthermore, they play a major role in enhancing market discipline, for instance by stimulating transparency on securities market, and they have the ability to actively promote the interests of minority shareholders of the firms in which they invest. future of retirement funds in namibia ladies and gentlemen, the retirement fund industry in namibia has certainly grown strongly in line with the global trends. in 2002, the assets under management by retirement funds totalled n $ 16. 3 billion, which is equivalent to 48. 5 percent of gdp. this ratio compares well with that of 20. 3 percent in emerging markets. among the 19 emerging market economies, only chile, malaysia and singapore boast with higher pension fund assets in relation to gdp. the tremendous growth in retirement fund assets in namibia is ascribed to

regulation of private pension funds is based on quantitative investment limits – the so - called draconian regulation. regulators in emerging markets consider investment limits to protect pensioners ’ rights better than regulations based on the “ prudent person ” rule. the latter rule requires managers to follow high fiduciary standards in investing the funds. it allows fund managers to set their own investment guidelines, encourages financial innovation and avoids the pitfalls of government direction of funds and interference with market processes. prescribing quantitative investment limits is generally defended on the basis that the underdevelopment and lack of transparency of local security markets make them susceptible to manipulation and excess volatility ; and that the general public, pension fund trustees, and fund managers lack financial sophistication. investment limits can also be prescribed with a view of obliging pension funds to make a greater contribution to national development in both the real economy and the local financial market. the downside of draconian regulation is that in some parts of the world they have created distortions in asset management, limited opportunities for diversification and, as a consequence, have hampered the performance of retirement funds. ladies and gentlemen, for the regulators, especially in developing countries, it is important to strike a suitable balance between draconian regulation, on the one hand, and absolute liberty in the way funds are managed and invested, on the other. draconian regulation is more appropriate for mandatory systems that are newly created in countries with shallow and dysfunctional financial systems and little tradition of private retirement funds. today, there are numerous means through which governments regulate pension funds and these are not limited to developing countries, but could be found in many developed and emerging market economies. they include prohibiting or limiting investments in assets considered to be risky, volatile or complex, restricting investments in foreign securities and even going as far as prescribing minimum returns. the modern trend is to move away from quantitative investment restrictions and to rather empower the trustees with fiduciary powers to take sensible, prudent, strategic, tactical and socially responsible investment decisions. the regulator ’ s responsibilities are reduced to ensuring high corporate governance standards and reasonable returns on investments. given these trends, one may ask whether the namibian retirement fund industry is ready to assume greater responsibility to manage retirement funds without prescriptive investment regulations. there are, in my view, two compelling reasons why i have to answer this question with a qualified no. it is my considered opinion that we are