Can we not start something called the Universal Non-Contributory Pension Scheme. This is based on the principle of Solidarity-’we look after each other’s backs’.

The government would bring all bonafide citizens, regardless of whether they paid to a formal pay-as-you-go scheme or not, above a certain age into a minimum monthly pension. This would immensely benefit the poor and the rural needy. For instance, the monthly pension of Nu 500/- to a urban and rural pensioner will have differences.

Google it. Advanced countries like NewZealand and underdeveloped countries in the African Continent alike have used this system to distribute national wealth and address many social issues like social welfare, bridging the haves and have-nots gap and transfering the traditional Pay-as-you-go pension scheme to a three tired scheme.

Uncertainty and risk are not two different things and are almost synonymous. Risk by definition has to be uncertain. If an outcome of an event, say your investment, is certain, there is no risk at all. But when it is uncertain and you have the possibility of losing your investment, you have risk.

All kinds of risks encompass uncertainty. Take market risk – you don’t know how it will behave, it is uncertain and takes a random walk. Otherwise anybody could predict the market and become rich. What about financial risk of your customer? Again there is uncertainty that they may not pay and you lose money. This is true for credit risk, country risk, political risk and all sorts of other risks.

Foreign exchange risk is also no different. It is a risk because it is uncertain (in terms of movement of exchange rates) and you have a possibility of loss.

There are financial instruments which are used to manage foreign exchange risks. These instruments aim to hedge potential losses that a company can incur through foreign exchange.

The so-called foreign exchange risk isn’t a “risk” at all.
It’s what real finance experts call “uncertainty.”
I call it “gambling”!

Risk is something one can manage, because one knows the probability of it happening.
Uncertainty cannot be managed, because one doesn’t even know how likely it can happen.

In the finance jargon, foreign exchange rates take a random walk.
In our lingo, you take a bet.

The only way you can manage the foreign exchange risk is by not taking that risk, i.e., match the currency on both sides of your balance sheet, or not making the investment at all if you don’t have any liabilities denominated in foreign exchange.

All in the spirit of keeping ourselves informed…

I suggest we all heed OL’s advice, and INFORM OURSELVES first. Pension is a serious business for its members as well as those who are tasked to manage it, and calls for an well-informed and constructive dialogue.

To add to our information, managing investments that demand long-term security of their returns is one of the most challenging undertakings in finance anywhere in the world — especially in Bhutan where such investment opportunities are rare.

And, remember, diversifying into foreign assets in countries other than India introduces foreign exchange risks of unknown magnitude. If it were my money, I would invest overseas if and only if I can match the foreign assets with my liabilities (pension benefits) in the currency of denomination dollar for dollar, euro for euro, etc. For NPPF liabilities, this is obviously not an option.

Easier said than done, everyone!

NPPF would consider various options.

Sonam Yeshey
NPPF

NPPF must now look to professionally manage our pensions. Seek to match pension payments with returns from the funds. Diversify from real estate into more assets like foreign equities and bonds. Develop investment research and analytical skills, and risk management capabilities within the organisation.