LIVINGSTONE MARUFU
Zimbabwe’s pension industry is in a quandary amid revelations that the sector players are grappling with viability challenges and have limited capacity to compensate pensioners that suffered loss of value during the hyperinflationary period, Business Times can report.
Insurance and Pension Commission (IPEC) commissioner Grace Muradzikwa said the pensions industry has limited capacity as the average pension assets per member are low
“Using statistics as at March 31, 2021, if we were to dissolve all pension funds today, each member of a pension fund would get ZWL$189,425, including those that are still contributing to a pension scheme,” Muradzikwa said.
“Though shareholders of life insurance companies can compensate to some extent where it has been proved that they unfairly benefited from assets of policyholders and insured funds members, their capacity, as informed by the current capitalisation levels of some insurers, is limited, unless there is fresh capital injection.”
Muradzikwa said the capacity of sponsoring employers in actuarial deficit and contribution arrears to make good what is due to the fund can also be limited.
“Notwithstanding the hyperinflationary experience and the above limitations, pensioners and policyholders are expecting some form of compensation and the commission is seized with ensuring that they get a share of the available assets whatever they are,” she said.
Recently, IPEC announced that modalities to start compensating insurance and pension losses
suffered during the hyper-inflationary era will be concluded before the end of this year, following the recommendations of Justice Smith led Commission of Inquiry report.
“The Justice Smith Inquiry established that some of the employers have since gone under or are facing viability challenges, hence prospects of paying from this source may be limited,” Muradzikwa said.
She said the source of funds will depend on the type of the fund as informed by the administration model and pension scheme design.
The industry has three types of administration models namely the insured funds, self-administered stand-alone pension funds and self-administered pension funds.
Insured funds are those funds whose administration and investment management is done by life insurance companies and assets of the fund are registered in the name of the insurer.
She said for insured pension funds, the source of compensation will be assets that are matching liabilities of the pension fund.
Where it has been proved that shareholders of life companies have unfairly benefited from funds of pension scheme members and policyholders, the shareholders would have to meet the obligations to the extent of the proved prejudice to policyholders and pension scheme members.
The self-administered stand-alone pension funds– are those with in-house administration structures and they do their investment management.
The assets of such funds are registered in the respective names of the funds.
Self-administered pension funds are under the administration of independent professional administrators and their assets are registered in the names of the respective funds, and they outsource pension administration and investment management to independent professionals.
Muradzikwa said in the case of self-administered pension schemes, the source will be assets supporting liabilities whether under the administration of independent professional administrators or stand-alone.
Some can outsource the investment management function only and retain the administration function.
In terms of pension scheme design, there are mainly two types of pension schemes namely defined benefit and defined contribution.
The design of the fund is critical in that it can also inform the source of funding.
