The Insurance and Pension Commission (IPEC) is working on a guidance paper on the treatment of insurance and pension assets and liabilities by the players in the sector in response to currency reforms as it moves to protect pensions and policyholders.
IPEC acting commissioner, Blessmore Kazengura, told Business Times the guidelines are part of efforts to restore confidence and to a greater extent “based on lessons learnt from the Commission of Inquiry report”.
A taskforce, comprising officials from the Ministry of Finance and Economic Development, the Reserve Bank of Zimbabwe, industry players through their associations and IPEC, among other stakeholders, has already been set up to deal with the issue.
“The guidelines are meant to avoid a situation where pensioners might end up losing value again on their retirement investments the same way they did when the country dollarised,” Kazengura said.
“They [pensioners] lost value in the conversion process. Our fear is insurance companies and pension funds are going to revalue or restate their assets and some might end up do that exercise on the one leg, that’s the asset side, without looking at the liability side.”
He said under that situation, “we will end up losing value that way and that surplus can be allocated in an unfair manner”.
“We need to also look at liability side as well so that if there is going to be any surplus, it is real surplus which can be redistributed. In extreme cases, if there is going to be a short fall, it can be treated accordingly. That way, we avoid what happened at dollarisation where investments ended up losing value or were people ended up getting virtually nothing,” Kazengura said.
The development comes at a time when Zimbabwe’s insurance and pension sector is in dire straits, a situation which emanates from low confidence after dollarisation of the economy in 2009 after ditching its defenceless Zimbabwe dollar due to hyper-inflationary pressures.
This resulted in the insurance and pension funds losing about US$3,2bn through bad investment decisions and excessive recurrent expenditures.
The investments were eroded hyperinflation, low activity in the economy, and players were also blamed for their part in failure to preserve investment values, according to a report by a Commission of Inquiry set up by former president, Robert Mugabe, in 2015 to look into the conversion of insurance and pensions values from the Zimbabwe dollar to the United States dollar.
The industry is also battling to regain confidence after players in the sector failed to honour their obligations.
As was first reported by Business Times last week, the players were, however, given an ultimatum of last Friday to submit to IPEC their compensation plans.
Under the new guidance paper, it is proposed that fund members are given an option to have partial access to their pension benefits, before retirement. The thresholds are meant to ensure sustainability of the industry.
Proposals are that those under 40 years should get 10 percent of their accumulation, up to a maximum of ZWL$5 000. Those above 40 years but less than 50 years, would access 20 percent up to a maximum of ZWL$20 000. Those above 50 years would get 50 percent of their contributions up to a maximum of ZWL$50 000.
IPEC will also be flexible in investment guidance, meaning it will allow pension funds to exceed investment thresholds especially in investment in properties and listed equities in a bid to preserve value.
Kazengura said the guidelines would be released soon as they are at some advanced stage in terms of consultations.
“The taskforce is fully engaged on that issue and we hoping that maybe in few weeks’ time they will be done and we share again with the industry. Remember, this can have far-reaching consequences and there is need to conscientise stakeholders in terms of what could be the implications,” he said adding that government and the Ministry of Finance and Economic Development should be involved “because we want them to know the implications”.