Pension funds face bleak future
THE future of pension funds hangs in the balance as demand for office space and shopping malls has declined as companies scale down on physical working stations and switch to e-commerce..
Pension funds derive most of their incomes from properties.
Zimbabwe Association of Pension Funds director-general Sandra Musevenzo ( pictured) this week said it was high time pension funds diversified their investment portfolios into warehouses and other opportunities like constructing hospital facilities.
COVID-19 has seen many organisations limiting office space, with workers being asked to work from home.
Equally, the rise of e-commerce has affected demand for retail space in shopping malls.
Musevenzo said some employers might face viability challenges resulting in retrenchments and business closures.
This may result in high pension withdrawals within a short space of time, which affects contribution income and the liquidity position of pension funds.
“While we do not know for certain the level of the future impact the pandemic will have on the pensions industry, we anticipate some negative consequences in the short to medium term. We anticipate that more employers will default on pension contributions, especially those in industries that have been heavily affected by the pandemic like tourism and hospitality. The COVID-19 pandemic has economically affected the pensions industry and the Zimbabwean nation at large,” Musevenzo said.
She said the effects of this pandemic, compounded by the general economic slowdown, would negatively affect investment returns and ultimately the funding level of pension funds.
“The stock exchange will suffer if the COVID-19 effects continue weighing on economic output. Listed businesses will underperform, returns from money market investments and fixed income securities may lag inflation even further. As a result, asset values may fall resulting in actuarial deficits,” she said.
“To ensure that the investments that pension funds make in response to the new norms resulting from COVID-19, yield good returns, we need to diversify from owning large office buildings and shopping malls and perhaps go more into warehouses as ecommerce is the new norm.
The other opportunity is to reinvest into other property sectors like hospitals and clinics.”
She said all this would directly and indirectly affect the business continuity of pension funds, compromise payment of member benefits and ultimately threaten them as going concerns.
Musevenzo highlighted that some pension funds would also be incapacitated to participate in infrastructure developments and other projects of national importance as they switch to survival mode.
“Pension funds should lower rentals to ensure that buildings retain higher occupancy ratios as well as lower contributions into funds as sponsoring employers scale down,” she said. She said COVID-19 had affected the pensions industry differently depending on the pension fund scheme design, management and the industry in which the employer operates.
Globally, the immediate consequences from COVID-19 on pension systems around the world are already visible. These include reduction in assets due to economic recession and loss of jobs, which results in lower contributions.
The pensions industry had 960 registered funds as at June 30 2020, of which 919 were defined as contribution schemes while 41 were benefit schemes.
Total income for the industry for the period under review was $29,5 billion, compared to $1,35 billion for the same period in 2019.