Mas­sive rise in pen­sion funds ar­rears

Chronicle (Zimbabwe) - - Business Chronicle - Ti­nashe Ma­kichi

AR­REARS to pen­sion funds are ris­ing at alarm­ing lev­els as some em­ploy­ers have failed to re­mit since dol­lar­i­sa­tion, In­sur­ance and Pen­sion Com­mis­sion head of pru­den­tial su­per­vi­sion Pupu­rai Tog­a­repi has said.

Self-ad­min­is­tered pen­sion funds con­tri­bu­tions in the first quar­ter grew 60 per­cent to $351 mil­lion in the first quar­ter this year, but 85 per­cent of that amount was in ar­rears.

Ac­cord­ing to the IPEC re­port for March, ar­rears rose to $297 mil­lion, 85 per­cent of con­tri­bu­tions. At the same time the Na­tional So­cial Security Au­thor­ity was owed $217,58 mil­lion by em­ploy­ers at the end of 2015.

“Out­stand­ing con­tri­bu­tions to pen­sion funds are ris­ing at alarm­ing lev­els as some em­ploy­ers have been fail­ing to re­mit since dol­lar­i­sa­tion and even prior dol­lar­i­sa­tion. The other is­sues be­hind this have been indi­rect in­vest­ment into the busi­ness of the spon­sor­ing em­ployer ac­cru­ing no in­ter­est or return lower than in­fla­tion.

“Lost in­vest­ment op­por­tu­ni­ties and in­come have also been an is­sue be­hind the strug­gles of sev­eral pen­sion funds,” said Mr Tog­a­repi.

As at March 31, 2016 the pen­sion in­dus­try had ap­prox­i­mately 1 608 pen­sion schemes split as 1 438 in­surer ad­min­is­tered schemes and 170 self ad­min­is­tered.

Due to the pre­vail­ing harsh eco­nomic con­di­tions, the pen­sion in­dus­try ex­pe­ri­enced a huge drop in mem­ber­ship for pen­sion funds. For the pe­riod end­ing March 31, 2016, to­tal fund mem­ber­ship for fund ad­min­is­tra­tors was 73 700, a 7 per­cent de­cline from 79 000 mem­ber­ship re­ported the same pe­riod last year.

The pop­u­la­tion for ac­tive mem­bers for the quar­ter un­der re­view de­clined 12 per­cent to 45 100 from 51 460 of the same com­par­a­tive pe­riod. The de­cline in ac­tive mem­ber­ship across the whole pen­sion in­dus­try be­tween the two pe­ri­ods had been a re­sult of the re­trench­ments that oc­curred after the June 27, 2015 Court judg­ment.

On pre­scribed as­sets in the pen­sion in­dus­try, Mr Tog­a­repi said the pri­mary ob­jec­tive is to get an al­most risk-free return above in­fla­tion for the scheme mem­bers that is a form of in­sur­ance for pen­sion funds.

“Se­con­dar­ily, the as­sets are a way of mo­bil­is­ing funds for in­fras­truc­tural de­vel­op­ment for ex­am­ple roads, en­ergy, hous­ing among oth­ers. A num­ber of projects have al­ready been fi­nanced through pre­scribed as­sets,” said Mr Tog­a­repi.

“Not all projects re­ceive pre­scribed as­set sta­tus, but those of na­tional in­ter­est and which give re­turns above in­fla­tion to the scheme mem­ber­ship are con­sid­ered for ap­proval,” he said.

Mr Tog­a­repi said most pen­sion schemes have col­lapsed due to cor­po­rate gov­er­nance de­fi­cien­cies, poor in­vest­ment strate­gies and philoso­phies while mis­man­age­ment and high ex­pen­di­ture than real in­come has also been a chal­lenge.

He said the ul­ti­mate aim of pen­sion fund in­vest­ing is to meet the fund’s obli­ga­tions to its mem­bers and their ben­e­fi­cia­ries.

“Pen­sion funds should there­fore look to man­age their in­vest­ments ac­cord­ingly. This is usu­ally re­ferred to as “Li­a­bil­ity Driven In­vest­ment”. Funds should adopt an over­all li­a­bil­ity based bench­mark,” said Mr Tog­a­repi.

Go­ing for­ward he ad­vised pen­sion funds to take in­vest­ment risk when they ex­pect to be re­warded for do­ing so as a prin­ci­ple.

“Pen­sion funds should look to di­ver­sify their in­vest­ments. Suc­cess­ful di­ver­si­fi­ca­tion strate­gies should be ‘dy­namic’, re­act­ing to changes in the eco­nomic en­vi­ron­ment. Pen­sion funds are very long-term in­vestors. They should there­fore look to ex­ploit this by in­vest­ing in as­sets with time based premiums such as the illiq­uid­ity pre­mium (that is re­ceiv­ing a pre­mium for lock­ing up cap­i­tal for a pe­riod of time). Match­ing as­sets with fu­ture li­a­bil­i­ties,” he said.

Mr Tog­a­repi said pen­sion funds should avoid fo­cus­ing on short term per­for­mance ex­ces­sively be­cause they are long-term in­vestors.

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