Home » General » Zim Pensions Industry in Dire Straits

There is room for the industry to come up with products that suit our current context, instead of sticking to tired exotic products and investment models that may not necessarily be suitable to our current situation

SEVEN years after the roof came crushing down on Zimbabwe’s pensions industry following the demise of the Zimbabwe dollar, the sector remains dazed by the catastrophe.

Entire pension contributions were wiped out to zero overnight when the country switched over to a multicurrency system after hyperinflation rendered the Zimbabwe dollar useless.

The February 2009 switchover saw Zimbabwe adopt the United States dollar as the main currency.

Even before the switch, the Zimbabwe dollar had long lost its function as a medium of exchange due to hyperinflation, which had eroded its value.

As Zimbabwe transited to the multicurrency regime, those who contributed to pension schemes had to start all over again.

The feeling among many of them is that they were robbed of their lifetime savings.

After no plausible conversion formula was provided for the industry to use to establish new values of pension fund portfolios under the new dispensation, everyone had to start from scratch.

Government has since promised to set up a commission of enquiry into the whole conversion mechanics, but it remains work in progress six years after dollarisation.

Salvaging something from the country’s hyperinflation rubble has been especially tough with some pension fund asset bases having dangerously shrunk to as little as US$5 000, amounts that can easily be wiped out by just one claim.

The country’s poor economic performance has worsened matters.

Investments made by pension funds into property and stock markets have, in the meantime, not yielded enough to boost revenue required to shore up replacement ratios for pensioners to meaningful levels.

These realities emerged as a record number of pension fund industry players, 350 in total, met last week in the resort town of Victoria Falls for their annual indaba.

The sector is facing one of its gravest moments in recent history, if the deliberations at the conference are anything to go by.

While ideally a replacement ratio, which is the percentage of a worker’s pre-retirement income paid out by a pension scheme upon retirement, should be between 60 and 90 percent for a pensioner to maintain a modest standard of living, in Zimbabwe the replacement ratio is now as low as 10 percent due to effects of yesteryear hyperinflation.

“Pensioners (in Zimbabwe) may be facing a bleak future because of hyperinflation effects… it may take 12 to 15 years to reverse this (effects of hyperinflation)… ,” said Malcolm Fair, managing director of investment aisory company, Riscura Solutions.

He was addressing the Zimbabwe Association of Pension Fund indaba in Victoria Falls.

Fair said all hope should not be lost because the country still has the basic ingredients to ride out of the woods.

While the country’s hyperinflation caused serious damage to the industry, many sector players were also caught napping when the country dollarised.

Finance Minister Patrick Chinamasa is one of those who believe that the industry has not been innovative enough.

“Is the industry being innovative enough?” he asked, during his keynote address. “There is room for the industry to come up with products that suit our current context, instead of sticking to tired exotic products and investment models that may not necessarily be suitable to our current situation… we need to introspect and revisit our investment allocation strategies… the investment models may be out of sync with reality because there has been structural shifts in our economy with the small and medium enterprises emerging while big institutions continue to struggle.”

Chinamasa, whose portfolio encompasses economic development, has been trying hard to revive the country’s economic fortunes ever since his appointment in 2013.

His programmes have been crippled by lack of funding, itself an indictment on the pension industry.

Pension Funds should promote and protect locally based industry and renovate the country’s economic infrastructure.

It is a known fact that pension funds play an important role in the national economy. When put to good use, pension funds provide a mechanism for unlocking savings, stimulating economic growth and ensuring that pensioners are provided for in retirement.

Chinamasa is therefore of the g view that there is serious need for the pension industry to assist the country to generate, sustain and retain domestic financial resources to finance local development.

Securities and Exchange Commission chief executive officer, Tafadzwa Chinamo, is also of the view that pension funds should do more.

He believes pension funds have not been prudent enough in tracking and protecting their investments to a point that they have become so inactive and ineffective that many companies and banks into which they have invested in have collapsed under their very watch.

Companies are taking their sweet time to produce financial reports well beyond their mandated period simply because shareholders (who include pension funds) in companies are not demanding accountability, good governance and transparency from managers who are looking after their investments.

“A lot of company failures are due to poor management… managers are breaking up companies for their own benefit… You don’t have to wait for a company to be liquidated to act… Shareholders are owners of the company… who purchase shares seeking price appreciation… How do you allow a company to operate for eight months without any information going to the shareholders… Shareholders have the right to question management on all the decisions that they make,” said Chinamo.

Innscor Africa managing director for salaries and wellness business unit, Chipo Ndudzo, also weighed in by indicating that the buck stops with boards of trustees of pension funds who have allowed a lot of people’s money to be lost.

“What happened to those experts when our money was being eroded?… Do what we call experts really know what they are talking about? As trustees, we must ask the experts pointed questions… hyperinflation shows that many of us were sleeping on the job,” said Ndudzo.

Ndudzo is aocating for independent boards of trustees to be established because the current boards have been compromised by serious management influences.

“There are a lot of things that trustees have taken for granted… We are responsible for millions of dollars of people’s money… We are responsible for steering the pensions fund ship,” she said and further asked, among other questions that : “Are we, as trustees, ensuring that contributions are being remitted? Are we ensuring that funds are being invested? Are we ensuring that benefits are paid and paid timeously?”

And amid all this the Insurance and Pensions Commission (IPEC) has bemoaned the pension fund industry’s inflexibility in the wake of illiquidity in the economy.

IPEC commissioner, Marnet Mpofu, said many pension funds were sitting on empty buildings simply because they are refusing to adjust rentals to suit prevailing demands.

High rentals are forcing tenants to move out of pension fund buildings, yet the pension funds desperately need to raise money to fund pensioners’ benefits.

After all has been said and done and if truth be told the pensions industry’s 40th congress was a moment of reckoning as all pointers indicated that they all need to quickly re-strategise to survive and continue being relevant in an economy that remains illiquid.

Source : Financial Gazette