Home » Industry » Companies in U.S.$170 Million Pension Arrears

PENSION funds are struggling to collect contributions from the country’s troubled corporate sector with figures from the Insurance and Pensions Commission (IPEC) indicating that US$170 million was in arrears as at December 31,2013, the Financial Gazette can report. The figure might have shot up by now as the liquidity crisis rattling businesses took a turn for the worst in the last four months, resulting in more employers failing to remit their pension contributions.

As at December 2012, the arrears amounted to US$142 million. Experts said pensioners would remain vulnerable as long as the cash crunch continues to bite the few companies that are still operational. A number of companies have closed shop since the beginning of the recession more than a decade ago owing to a cocktail of challenges among them high utility bills, high interest rates, lack of competitiveness and the shortage of working capital.

The company closures, which worsened following the adoption of multi-currencies in February 2009, have compounded the unemployment situation in the country.

Several companies are unable to remit pension contributions because of cash-flow challenges. The chief culprits have been local authorities which are said to be deducting pension contributions from employees’ salaries and converting the funds to other uses.

The practice is now widespread as companies try to juggle critical payments. As a result, a number of pensioners are facing delays in receiving their money, as pension funds claim they have no money and pass the buck to employers, whom they blame for delaying with remittances.

IPEC has been warning companies that failure to remit pensions was illegal and the commission may be forced to intervene to stop the rot. The commission said failure to remit contributions deprives the pension funds investment income and further depletes their coffers. In its report for the fourth quarter ending December 31, 2013, IPEC said the pensions industry continues to grapple with arrear contributions, high expense ratios not matched neither by favourable investment returns nor viable investment avenues and low benefits among other factors.

“In light of these challenges, pension funds should always seek to meet fund objectives such as income replacement through better investment decisions and adhering to good practices of corporate governance,” said IPEC. The industry has also come under fire from critics who accuse it of paying out paltry amounts to pensioners. IPEC has not been spared either in the criticism. Critics say the commission was complicit in its failure to act on errant industry players.

A robust pension industry is normally one of the biggest sources of capital. But because of the challenges in the local industry, pension funds have remained at the periphery of economic activity. In the fourth quarter ended December 31, 2013 self-administered funds reported a 38 percent growth in contributions to close the year at US$392 million from US$284 million.

“However, the fund administrators’ industry reported total contributions received in the sum of US$222 million from US$142 million and total expenditure (net of benefits) of US$51 million reflecting a 23 percent contribution to expense ratio,” IPEC said.

“Total fund membership rose by 25 percent from the prior year to 360 000 partly due to previously errant funds submitting their quarterly returns. Active members contributed 57 percent or 204 000 (December 2012:69 percent), deferred pensioners remained flat at 18 percent, pensioners numbered 68 000 or 19 percent (December 2012: six percent) whilst the balance of six percent, or 22 000 was made up of beneficiaries,” said IPEC.

IPEC said employers contributed US$42 million or 19 percent of total contributions from 22 percent or US$41 million in December 2012 while active members paid US$50 million or 23 percent of total contributions from 26 percent, or US$49 million, in 2012. The commission said it would continue to stress to pension funds to trim their expenses in a bid to improve member benefits.

Annual reports by the former Registrar of Pension and Provident Funds, and by IPEC show that the value of pension fund assets under the administration of insurance companies, as regulated by the former registrar, now known as IPEC, has fallen from US$3 billion in 1992, to just below US$800 million in 2009. The latter US$800 million for 2009, is less than 30 percent of the 1992 fund value, and is the total value of funds held by the 10 life insurers operational in Zimbabwe at year end in 2009.

The fall in the value of these pension funds is actually worse than the 30 percent, considering that the US$800 million recorded by IPEC in 2009 would be lower for pension funds, on subtracting the value of funds related to long-term insurance policies. Pensions expert, Martin Tarusenga, said attempts by anyone to cite pension contribution arrears as the cause of low pension benefits, was just another attempt to divert attention from the real cause of pension benefit rights abuse.

“Pension rights abuse lie right at the heart of mismanagement… I have just seen the 2013 IPEC report, which tries to divert attention from mismanagement and mis-regulation, and scapegoat pension contribution arrears. This is totally unfounded,” he told the Financial Gazette on Wednesday.

“Pension benefit levels have declined simply because those entitled by insurance companies do not constitute the full rightful benefits. The insurance companies have arbitrarily offered the pensioners what is often referred in the media as paltry benefits, if at all,” he said.

Tarusenga alleges that IPEC and other regulators had not, as part of their regulatory duties, reviewed current legislation for pension, insurance and social security in general.

Source : Financial Gazette