Coronavirus amplifies role of trustees
Pension funds have not been left unscathed by the devastating impact of the coronavirus and this has required them to be more intelligent in protecting the system from collapse.
This duty naturally falls upon trustees; whose ultimate role is to ensure that a pension fund runs like clockwork.
Covid-19 has affected the labour market, which has had a negative outturn on pension contributions, at least in the short-to-medium term. In the long run, if the situation is not mitigated, the ability of these pension funds to meet their obligations (read “payouts to pensioners”) will be seriously compromised.
Ernst & Young Zimbabwe advisory partner Nqaba Mkwananzi told a Zimbabwe Association of Pension Funds ( ZAPF) annual general meeting recently that the oversight role of pension fund Trustees has become ever so important.
“The Covid-19 pandemic highlights the need for effective risk and crisis management programmes and Trustees play a crucial oversight role given their collective experiences with other crises and overall business judgment,” said Mkwananzi.
“The Trustees must maintain clarity on the levers and impact of this disruption.”
Beyond that it remains important who pension funds bring in as their Trustees.
“The collective experience and wisdom of board members is critical in shaping how their organisations respond to the pandemic,” said Mkwananzi.
According to Zimbabwe’s insurance and pensions regulator — the Insurance and Pensions Commission ( IPEC), trustees function to ensure that proper control systems are put in place so that the fund complies with the Act and any other law in terms of its rules and administration.
Trustees also work to ensure that members of the fund are adequately informed of their rights, benefits and duties in terms of the rules of the fund.
Trustees are also required to take all reasonable steps to ensure that contributions to the fund are paid when they are due; and where appropriate, obtain expert advice on matters on which the trustees lack expertise.
Perhaps even more critically — given the disruptions caused by the Covid-19 pandemic — Trustees should formulate an investment policy to further the objectives and purposes of the fund.
For instance, pension funds Trustees may need to rethink existing investment policies/strategies.
Traditionally, local pension funds in particular have long heavily invested in property, but this is now likely to come back and bite them due to the damage that Covid-19 has had on rental incomes.
The matrix around the devastating impact of the pandemic goes far beyond this simple example, and Trustees need to have a full appreciation of the entire scope and range of possibilities.
Other observers say it is incumbent upon pension funds’ trustees to manage the situation in the best way possible, which entails both flexibility and enhanced communication with critical stakeholders.
“Covid-19 is placing huge additional pressures on the administration of pension schemes.
Muvingi & Mugadza Legal Practitioners in a paper titled “Covid-19 and the additional pressures of Administering Pension Funds: Guidelines for Trustees” added their voice and said “with many fundamentals of business operations changing in a dramatic and unpredictable way, forecasting” impact “will be difficult” .