Pensioners to get compensation in February 2024 for pre-2009 losses
PENSIONERS whose pension savings lost value around 2009 will start receiving compensation in February 2024.
This follows promulgation of Statutory Instrument 162 of 2023 (Compensation for Loss of Pre-2009 Value of Pension Benefits Regulations) on September 29, 2023. The regulations are effective from October 1, 2023.
Between 2007 and 2009 the country experienced its first major hyper-inflationary period, which eroded the value of most savings (including pensions).
Poor regulatory enforcement and change in currency were largely blamed for value erosion by the Justice Smith Commission of Inquiry, which was appointed in 2015 to investigate the conversion process.
The commission recommended fair compensation of insurance policyholders and pensioners.
But the compensation process has been long-drawn-out — 14 years to be exact.
Addressing the Zimbabwe Association of Pension Funds (ZAPF) 4th edition of the Principal Officers and Chairpersons Convention in Bulawayo this week, Insurance and Pensions Commission (IPEC) actuarial director Mr Robson Mtangadura outlined the compensation timelines.
“We expect you (pension funds) to submit your compensation plans within 90 days, and we commit to approve your submissions within 30 days if they meet our expectations.
“If they do not meet our expectations, we will give you seven days to address the issues. Failure to do that, penalties will come in,” said Mr Mtangadura.
“In terms of the timelines, it’s November to December for submission of compensation plans, January (2024) for approval and February (2024) for payments.
“By June 2024, the process must be completed, no extensions.”
By January 2009, the Zimbabwe dollar had lost significant value due to hyperinflation, which saw the Reserve Bank of Zimbabwe (RBZ) issuing a $100 trillion dollar note that same month.
It was no longer sustainable to maintain the use of the local unit, and the authorities implemented a multi-currency system.
The Zimbabwe dollar was eventually demonetised between June and September 2015, with the central bank paying a flat US$5 for bank account holders with balances of zero to $175 quadrillion as at December 31, 2008.
Presenting the report of the Justice Smith Commission to Parliament in May 2018, then Finance and Economic Development Minister Patrick Chinamasa said: “Upon demonetisation of the Zimbabwe dollar, pensioners only received as little as US$5 as their one-third lumpsum benefit.
“Most complainants indicated that their pensions were reduced from several hundreds or thousands of dollars to a few United States dollar cents.
Last July, Government then committed US$175 million to compensate pensioners and insurance policyholders for value that was lost during the changeover from the Zimbabwe dollar to the multi-currency system in 2009.
Finance and Economic Development Minister Professor Mthuli Ncube has made it clear that the US$175 million will complement funds that will be put on the table by the pensions and insurance industry.
Independent actuary Mr David Mureriwa has estimated compensation for pensioners to be around US$900 million.
“If we are to compensate using the proposed 3 percent in the regulations, then there is something for the members, because it’s higher than what the economy fell by (in US dollar terms).”
“And if we use the 3 percent indicated by the regulator, we expect a compensation of just below US$1 billion, but if we are to compensate using the Barclays Emerging Markets Index, the potential compensation would be around US$3,98 billion.
“But we are using the regulations, which are pointing to something like a 25 percent compensation to our members.”
Traceability
There may, however, be concerns over the traceability of some pensioners who qualify for the compensation.
Latest data from IPEC show that unclaimed benefits for the quarter to June 30, 2023 amounted to $27 billion, compared to $4,3 billion over the same period last year.
And unclaimed benefits with more than 10 years accounted for 78 percent of that total.
Mr Mtangadura said it is not feasible for pension funds to operate without functional member data.
“The 2009 compensation framework is expecting you to do computation using member data, and we want to see an existing pension fund that will tell us that they do not have data for their members,” he said.
“How can you manage a pension fund without data? What are you using?”
Capacity to pay
As at June 30, 2023, the pension funds industry’s assets stood at $9,14 trillion (around US$1,63 billion, using this week’s official rate of 5 591).
And of the $9,14 trillion, investment properties accounted for 52 percent of assets at $4,76 trillion, showing the extent to which most pension funds’ monies are locked up in property.
The pensions industry’s assets have declined from a peak of US$5,95 billion in 2018.
Notwithstanding the shrinkage of the industry over the past few years, it is likely that pension funds will use current assets to finance the compensation.
“There is no fund with such huge reserves earmarked for compensation,” said actuary Mr Gandy Gandidzanwa.
IPEC has previously indicated that various options are open to pension funds with high levels of exposure to property assets, to smoothen the compensation process.
“For the purposes of facilitating compensation, the following options will be considered: 1) for funds or insurers with exposure to listed properties, it will be easy since the properties are already unitised; 2) unitisation of direct property holdings through REITs (real estate investment trusts) or collective investments schemes, and 3) outright disposal of properties where partial disposal is appropriate,” IPEC commissioner Dr Grace Muradzikwa told The Sunday Mail.