Pension arrears hit ZWL$1.28bn

PHILLIMON MHLANGA

Companies’ contribution arrears to pension funds have more than doubled to ZWL$1.28bn in the 12 months to September 30,2020 from ZWL$620m reported in prior comparative period due to viability challenges, official data obtained from the Insurance and Pensions Commission (IPEC) shows.

The bulk of local companies are battling a worsening economic crisis.

A huge chunk of compound interest on overdue balances is also worsening the situation and defaulting companies could loss assets as trustees heighten efforts to recover the arrears.

“Trustees are, therefore, being urged to do everything in their capacity to recover the arrears, including imposing liens on assets, seizing, and selling assets, initiating bankruptcy procedures, and negotiating Certified Repayment Agreements,” IPEC said.

The move by companies, who deduct pension contributions from employees’ salaries and wages but decide not to remit these to respective pension funds, has deprived members and their families of their entitlements in the event of retirement, or death or other developments. 

These benefits can only be paid to beneficiaries whose contributions and premiums are up to date.

This behaviour by companies, the insurance sector regulator said, constituted a criminal offence. Statutory Instruments (SIs) 323 of 1991 and 61 of 2014, clearly states that all sponsoring employers should remit contributions to pensions funds within 14 days after the end of each month to which the pension contribution relates.

However, many companies, continue to deduct amounts from employees’ wages and salaries and deliberately choose not to remit such amounts to the relevant retirement funds, funding own cashflows instead.

While there has been a significant increase in contribution arrears, IPEC said the proportion of contribution arrears to total assets declined from 6.52% at the end of 2019 to 1.18% recorded in September 2020.

This indicates the extent to which members are losing value should employers not make good the arrears.

Defaulters can be dragged to the courts and can be slapped with hefty penalties.

Pension funds, have also been struggling to meet the 20% minimum ratio threshold for prescribed assets (PAs), set by government.

Although, there was a nominal increase in the total amount invested in PAs assets, which amounted to ZWL$$8.96bn at the end of September 2020, compared to ZWL$720m in prior comparative period, the ratio during the reviewed period stood at 8.29%, according to official data obtained from IPEC.

This was way below the regulatory minimum of 20%.

As part of efforts to improve industry compliance, IPEC, has reviewed the framework for approving applications by widening the criteria to include private equity and other instruments that ensure value reservation.

IPEC has also encouraged the industry to come up with proposals of assets that preserve value and could be considered for PAs status so that the minimum requirement of 20% can be met.

“The instruments should be in line with the national developmental thrust as espoused in the National Development Strategy 1 (2021-2025) and the 2021 National Budget Statement.

“In addition, industry is urged to support government efforts in mobilising resources for critical developmental projects that will also directly or indirectly benefit pensioners and policyholders,” IPEC said.

Total asset base for the industry increased by 1043.39% to ZWL$108.05bn in the nine months to September 2020 from ZWL$9.45bn reported in the same period in 2019.

The increase was higher than annual inflation which was around 654.9%.The increase in the asset base was mainly due to revaluation of investment property and quoted equities, which increased by 1489.18% and 706.47% respectively during the reviewed period.

The two asset classes, investment property and quoted equities, had a combined value of ZWL$84.27bn, accounting for 77.99% of total industry assets.

Total income for the industry during the reviewed period was ZWL$58.97bn compared to ZWL$$2.69bn in 2019. The income was driven by fair value gains and interest on investments which constituted 54.76% and 31.59% of total income respectively, IPEC said. 8

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