Pensions: Defaulting firms face criminal action

Companies failing to meet their contribution obligations to standalone pension funds could face the full wrath of the law as this is in defiance of set statutes.

Latest figures show that the problem of arrears is largely affecting pensioners that are subscribed to stand-alone pension funds.

In Zimbabwe, the relationship between employer and employee is guided by the Labour Act Chapter 28:01.

That piece of legislation advocates for social justice and democracy in the workplace by declaring and defining the fundamental rights of employees, providing a legal framework within which employees and employers can bargain collectively for the improvement of conditions of employment; and promotes fair labour standards.

And in terms of pension schemes — public or private — all companies in the country are compelled to remit pension contributions.

Insurance and Pensions Commission ( IPEC) public relations manager Lloyd Gumbo says defaulting on pension contributions is a criminal offence.

“Contributions that have been deducted must be honoured and it is a criminal offence not to remit these deducted contributions in terms of Statutory Instrument 243 of 2006. It’s not consequential whether the fund is standalone or insured,”he said.

Mr Gumbo said sponsoring employers are required to remit the contributions within 14 days from the end of the month in respect of which the contributions are payable.

It is also incumbent upon representatives of the stand-alone pension funds to ensure that due contributions are paid.

In terms of Statutory Instrument 80 of 2017, Sections 6E (1) (d), trustees shall “take all reasonable steps to ensure that contributions to the fund are paid when they are due.”

But facts on the ground point to a long-standing defiance, to the extent that pension arrears are currently running into hundreds of millions.

According to the Insurance and Pensions Commission ( IPEC)’ s first quarter 2019 pensions report, contribution arrears to standalone pension funds constituted 27,5 percent of the total assets of the sector and also accounted for 83,1 percent of the industry’s total contribution arrears, which is a huge figure.

The data shows that the contribution arrears were concentrated in six pension funds, namely the Mining Industry Pension Fund, Local Authorities Pension Fund, Zimbabwe Electricity Industry Pension Fund, Unified Councils Pension Fund, National Railways Contributory Pension Fund and Communication and Allied Industries Pension Fund.

The six funds accounted for 95,3 percent of contribution arrears for standalone funds, amounting to $477,96 million.

The contribution arrears and rental arrears amounted to $523,45 million as at March 31, 2019 and continued to be the main drivers of liquidity challenges in stand-alone pension funds.

To the extent that of the resultant liquidity problems in the sector, the arrears have the negative impact on investment decisions and ultimately the pay-outs when required.

For example, as at the close of the first quarter of this year, stand-alone funds had $69,8 million invested in prescribed assets, translating to 3,5 percent of the total assets — significantly below the regulatory requirement of 10 percent.

All things being equal, employers take the view that, while their employees are working, they should be building up an entitlement to a pension when they retire.

Pensions help to provide an important cushion for Zimbabwean citizens during invalidity, retirement or death of a breadwinner who was a member of the scheme.

But when these same employers fail to remit the requisite payments, it defeats the whole purpose of having a pension fund in the first place as it results in these standalone pensions’ pay out liabilities exceeding the assets it has to cover those pay-outs.

Ultimately, it’s the simple pensioner who has been honouring his or her part that suffers at the end of the day.