Retirees thrown under the bus

PHILLIMON MHLANGA

Zimbabwean companies have shifted the risk on workers after they dumped the defined benefit scheme due to the economic crisis painting a gloomy outlook for retirees.

Under the defined benefit 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 is zero risk to the member as the sponsor or the company takes all the risk. The incomes were often generous perks.

Business Times can report that the bulk of companies are moving workers to the defined contribution scheme, a move which has inflicted damage to workers, who have built up lifetime savings in pension funds.

Companies say the defined benefit scheme has proved costly for the entities as they would be forced to prioritise ailing pension funds ahead of other vital investments.

The move by companies, which are facing viability challenges, is likely to leave most retirees destitute and also compromise the future of current employees as they reach old age.

Zimbabwe’s pension industry has 974 pension funds at the end of June 2021. Out of that only 41 are still holding defined benefit scheme, reflecting only 4% with more than 96% on defined contribution scheme.

Analysts said the shift will likely cut retirement benefits by between 40% and 50% or even more in some cases.

Under the defined benefit scheme, workers used to get pension projections that tell them their retirement income.

But now, under the defined contribution 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 depending 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.

“We are seeing a massive transition with most pension schemes becoming Defined Contribution Schemes from defined benefit scheme where one makes a contribution into a scheme and you are assured of benefit regardless of how much you have contributed into that fund. (But) employers, who traditionally made good of any deficit of these pension plans, have realised that there is a burden of carrying this deficit or this funding liability,” Insurance and Pensions Commission (IPEC) commissioner, Grace Muradzikwa said.

She added: “It means what you put in is what you get in addition to investment income that could have accrued to the fund.

“Its now absolutely important that we have trustees who know what they are doing. And this is why as a regulator; we have started to take an interest in the qualifications of Trustees.

We ask, “Are there people who know what they are supposed to be doing in terms of protecting the policyholders and the fiduciary responsibilities which they have over the pension funds they are being trusted with?”

“Because if you don’t take care of contributions, it also impacts on what you get at retirement for defined contribution scheme.”

Tawanda Chisango, a worker at a manufacturing company in Harare, told Business Times this week: “I am 63 years old, but I am struggling to retire because there is no mudyandigere (retirement package) Everything was eroded,” Chisango said.

A director with a Harare based manufacturing firm, who preferred anonymity said: “As companies, we are facing viability challenges and struggling to fund operations. Therefore, the shift to difined contribution schemes  is justifiable as we struggle to stay afloat.”