The hefty cost of living adjustment allowances awarded to employees in most local companies to cushion them against hyperinflation in the past 12 months has significantly affected their pension pots, leaving a meaningless pensionable basic salary component.
A survey by Business Times shows that most cushioning allowances, which are not part of the regular basic pay and non-pensionable, are higher than the basic salaries of employees which have remained almost the same.
This means an employee’s pension pot remains insignificant as there is no build-up for a rainy day fund.
This also affects most pension funds as they cannot purchase meaningful fund assets that could track the rate of inflation.
Zimbabwe’s runaway inflation at 737.3% in June, indicating deep problems embedded within the economy and has stripped many Zimbabweans of their capacity to proper basic welfare.
To remedy these deficiencies, companies and the government have awarded hefty non-pensionable allowances. The Insurance and Pensions Commission (IPEC) has expressed concern saying the gesture was affecting retirement benefits.
“We are seeing the practice of awarding non-pensionable cushioning allowance (by companies).
This is affecting retirement benefits,”IPEC commissioner Grace Muradzikwa told the Commission’s annual general meeting held recently.
Pension funds are beginning to show signs of severe stress because of the threat posed by the move and other challenges facing the sector resulting in more than 26 funds filing for dissolution.
“Of the 26 cases, four dissolutions were finalised. The applications for dissolutions were necessitated by financial challenges faced by the sponsoring employers, some of whom had closed down. Five additional pension funds approved for dissolutions this year,” Muradzikwa said.
She said an internal guideline was developed to help deal with troubled funds.
The pension funds are also battered by contribution arrears amounting to ZWL$675m as at 30 March 2020 from ZWL$621.7m at the end of December
Muradzikwa said trustees are being pressured to recover the arrears.
The formal business is scaling down and some closing due to viability challenges in a shrinking economy. Economic activity has shifted to the informal sector.
The industry is also faced with other challenges including high premium debtors estimated to be as high as 25%, negative real return on investments ranging from -2% to -17%, and high administration expenses.
The pension fund contributions amounted to ZWL$692.6m in the 12 months to December 2019, which was a 62% absolute change from US$426.9m in 2018.
The nominal growth, according to Muradzikwa, is on account of an upward review of pensionable salaries in response to inflation developments and liquidation of arrear contributions by some pension funds following the adoption of the mono-currency.
Total assets for the pensions industry stood at ZWL$16.41bn at the end of December 2019, reflecting a 214.37% increase from the ZWL$5.22bn reported in 2018.
The increase was mainly driven by an increase in the values of investment properties and equities, which accounted for 79.19% of the industry’s assets. The increase in the value of investment property was mainly due to revaluations of property values from US$ values to ZWL$.
The industry reported a surplus of ZWL$8.99bn in the year under review, reflecting a marked increase of 546.76% in absolute terms from the surplus of $1.39bn reported for the same period in the year 2018, on account of fair value gains.
Fair value gains were realised on equities, dividends from investments, rental income, and interest from investments, which amounted to $8.67bn, accounting for 90.40% of the total income, according to IPEC