Andrew Moyana, a 65 year old Chitungwiza pensioner, who retired in December last year on a good salary, receives a pension payout of ZWL$300 a month but owes 10 times that amount in loans as part of efforts to eke out a decent living.
Moyana still has two children attending local universities and four others who are unemployed and staying with him at his home.
He did not invest on income generating projects which ordinarily would have given him regular income in these trying times. Unlike many pensioners whose savings have been wiped out by bad economic policies over the last years, he has a property that he calls home. He cannot, however, rent out some rooms because they are all occupied by his children.
The pension payout can only buy a 2 litre bottle of cooking oil and will not be enough to cover other essential items like meanie meal, sugar and soap, among others hence his appetite to continue borrowing. He is now over borrowed and risk losing personal belongings to the local loan sharks whose interest rates are punitive.
Thousands of Zimbabwe pensioners across the country’s urban centres are like him and rely on credit to feed their families.
“I can’t afford to repay (debts) because it (pension payout) has been eroded by inflation. I am the one who is providing food on the table,” Moyana told Business Times this week.
The situation of pensioners like Moyana shows both the potential and unintended consequences of hyperinflation in Zimbabwe.
There are public outcry over eroded pension values as the Zimbabwe dollar is under attack with prices of basic goods spiralling beyond the reach of many.
Hyperinflation has rendered the Zimbabwe dollar, re-introduced last year in June worthless. The annual inflation rate stood at 737% in June.
Pensioners, some burnt by the last hyperinflation crisis of the 2007-8 when the Zimbabwe dollar was worthless, are now faced with the same where hyperinflation has again wiped out pensions, meaning imminent retirees are facing a far less certain future, than ever.
Realising the plight of pensioners, government has compelled all pension funds to invest a minimum of 20% of their assets in government-approved prescribed assets.
But, the pension industry compliance ratio was 7.6% as a March 30,2020, according to official data obtained from the Insurance and Pensions Commission (IPEC).
These fixed-income instruments pay periodic interest payments and then principal amount invested when the bond matures.
Fixed-income assets provide a steady rate of payment, which is beneficial when prices are stable.
But when there is runaway inflation, as there is in Zimbabwe, the interest paid on a fixed-income instrument can fall far behind rising prices.
Grace Muradzikwa, IPEC commissioner said pensioners were hardest hit by the devastating impact of hyperinflation on retirement savings.
“The pensioner was worse off in 2019 following the second round of loss of value,” Muradzikwa said.
She added: “Average monthly benefit fell from US$167 to ZWL$278.The Commission has, however, issued Circular 15 of 2019 to review minimum pension to ZWL$500 and preservation value from ZWL$600 to ZWL$6 000.”
The development comes at a time when the implementation of the Commission of Inquiry’s recommended compensation framework for loss of value suffered during the pre-2009 period has not progressed with the expected speed.
This has largely been due to the repeat loss of value suffered in 2019 due to inflation and currency reforms.
IPEC, Muradzikwa said had to prioritise arresting the second loss of value by coming up with a Guidance Paper on adjusting insurance and pension liabilities in response to currency reforms.
In addition, engagements with government are underway to establish a compensation fund which will partly be funded through government to bail out pensioners and policyholders who cannot meaningfully be compensated by insurance companies and pension funds as some are not in a sound financial position.
Even ordinary Zimbabweans with funds under the care of asset management firms have been withdrawing their money and investing in asset classes such as real estate that they feel will preserve the value of their retirement savings.
Business Times can report that a number of investors are now withdrawing funds, rather than seeing them eroded by fixed-income investments that fail to keep pace with the country’s runaway inflation.
Most Zimbabwe pension funds invest the bulk of their money at the Zimbabwe Stock Exchange but they have lost quite substantial amount in real terms.
To worsen the situation, the local bourse was closed by government in June last year. The closure saw the stock market losing half of its value, according to investment analysts.
Prior to its closure on June 26, employees who are about to retire were looking at their pension statements with some confidence after share prices had hit record highs.
Total market capitalisation as at the last day of trading June 26, 2020 before its forced closure stood at ZWL$228.6bln.
It appeared the stocks, in which many Zimbabwe pension funds are invested, would continue on its ever-upward trajectory.
However, after its closure, the continued weakening of the Zimbabwe dollar, it means value has plunged, placing imminent retirees on a far less certain future, than they were a year ago.
This means someone in their early 60s with a typical pension pot has seen its value fall by around more than half in the last 12 months.
An investment analyst, Tavonga Moyo told Business Times: “Pension saving is a long game. People can be saving for up to 40 or even 50 years, so it’s important to keep looking at the bigger picture, rather than short-term events. Younger savers should comfortably ride out short-term fluctuations.”
The majority of Zimbabwean workers have also taken a cut after most companies in Zimbabwe moved workers to defined contribution (DC) pension plans, one which shifts all the risks onto workers from the once common scheme, the defined benefit (DB) pension plan, a move which has also wreaked havoc on retirement plans of all varieties.
Several unions’ representatives who spoke to this newspaper this week say the shift was likely to cut retirement benefits by about 30% or even more in some cases.
The change, which has inflicted damage to workers, who have built up a lifetime of savings in pension funds, is likely to leave workers in abject poverty on retirement. In a DB scheme, the employer promises to pay retirees a guaranteed pension income related to their wage and the number of years of employment, meaning that there was zero risk to the member as the sponsor or the company takes all the risk. The incomes were often generous perks.
Under this scheme workers used to get pension projections that tell them their retirement income.
But now, under the DC pension scheme, the opposite is true as workers benefits are no longer guaranteed. In fact, workers have been forced to take income projections cut.
The employer only promises to make set contributions and benefits depend on the size of investment. All or full risk is now to the member and zero risk to the employer. This is the sort of dilemma facing the workers.
Tassius Chigariro, Old Mutual Life Company MD said: “The sponsor (company) used to take all the risk under the defined benefit scheme but now it’s the worker who takes full risk.” Many companies have changed pension schemes to DC because DB schemes proved to be a crippling problem for businesses, which had to prioritize its ailing pension fund ahead of other, vital investments, several captains of industry told Business Times this week.
A trustee of a Harare based pension fund who requested not to be named said: “Many pension schemes are now in crisis, with inadequate funds to pay the promised pensions.
Employers pay a pittance under the DC pension scheme and workers have no guarantees of their retirement income. The move, analysts said long standing workers will have an enormous cut in projected income under the new pension scheme
The pensions industry in Zimbabwe has 1 067 registered pension funds as at end of December 2019.
Total members stood at 809’,176.
Total assets for the pension funds amounts to about ZWL$17.2bn as at 31 December 2020 compared to US$4.2bn in 2019 whilst pension assets stood at ZWL$16.41bn against US$5.95 billion in prior year.
Most pension funds, however, had not revalued their portfolios following the currency reforms, according to IPEC.
Contribution arrears as at end of December 2020 rose to ZWL $675m from ZWL$621.2m in December 2020 due to viability challenges dated by sponsoring employers.
In 2019, contribution arrears were ZWL$606.6m
More than 30 pension funds were undergoing dissolution at the end of the year.The growing deficits are partly caused by companies across all industries that are finding it difficult to remit contributions deducted monthly from workers’ salaries.