ZiG can help preserve pension funds’ savings

ZIMBABWE’S pension funds should take advantage of foreign-denominated assets such as the gold-backed digital gold tokens, also known as Zimbabwe Gold or simply ZiG, to help insulate workers’retirement savings from being eroded by inflation.

This comes after the country experienced erosion of pension fund values partly from the effects of the hyperinflationary environment the country experienced from 2000 up to 2009 and the subsequent conversion of funds from Zimbabwe dollars to United States dollars. Pension fund values were badly eroded due to the devastating hyperinflation, which soared to a record 500 billion percent in 2008, according to the International Monetary Fund.

The Government dealt with the troublesome hyperinflation in 2009 when it abandoned the Zimbabwe dollar for a basket of foreign currencies dominated by the US dollar, leading to dollarisation of the economy.

Following the inflation-induced erosion of savings, Government appointed a commission of inquiry chaired by retired Justice George Smith to investigate the extent of value erosion during the hyperinflationary period. The exercise confirmed a“huge”loss of value and recommended compensation to the victims.

Some of the pensioners got zero value owing to a lack of benefit inflation-indexation and currency debasing. That left many people, after years of hard work, poor.

With some foreign-denominated assets available on the local market, the Insurance and Pensions Commission (IPEC) said pension funds should take advantage of such instruments to insulate the assets from being eroded by hyperinflation. Some industry players said pension funds should remain alive to the potentially devastating effects of inflation on retirement savings, despite the country experiencing a relatively stable macro-economic environment.

“The holding of foreign currency-denominated assets helps in cushioning the assets from being eroded by inflation in the current hyperinflationary environment,”said IPEC in its Life and Pension Report for the second quarter of 2023.

According to the document, foreign currency-denominated assets amounted to US$288 million, constituting 18 percent of total industry assets. This reflects a slight growth in forex business from a proportion of 16 percent for the same period last year.

The foreign currency-denominated assets of the industry were mainly invested in equities, prescribed assets and money market investments, which constituted 72 percent. The quoted equity investments are mainly on the Victoria Falls Stock Exchange.

Self-administered funds invested 83 percent of the industry’s total, with the remaining 13 percent being put under the standalone funds. The insured sector is yet to tread the digital gold path.

“Pension funds are encouraged to invest in such value-preserving instruments, which can facilitate person-to-person and person-to-business transactions,” said IPEC.

The gold-backed digital tokens are now a designated means of payment, store of value instrument, and bear prescribed asset status. Previously, pension funds were not allowed to invest in foreign markets to enable them to diversify the investment risks of some of their portfolios, but the new legislation now allows them to do so. This is, however, subject to the terms and conditions the regulator may prescribe. Harare-based analyst Mr Carlos Tadya said, while the country was experiencing macroeconomic stability, pension funds should invest a portion of their assets in value-preserving products.

“Pension funds should remain alive to the pain which pensioners and some policyholders suffered after the 2008 hyperinflation. We now have the foreign currency-denominated stock exchange and the gold coins which are on the market,” said Mr Tadya

Of the US$288 million invested in foreign-denominated assets, 38 percent were invested in quoted equities on the Victoria Falls Stock Exchange, 14 percent on unquoted equities, 16 percent in prescribed assets, 5 percent in properties and 8 percent in the money market.