The Zimbabwe Independent

Pensioner compensati­on and the value of bona fide expert advice

- Martin Tarusenga Trade Unionist

In his 2021 National Budget Statement, the Finance minister Professor Mthuli Ncube announced that the government will institute two forms of pensioner compensati­on from 2021, and to review pension and insurance legislatio­n.

Item 576 of the budget statement stipulates pensioner compensati­on arising from currency losses sustained by pensioners as the United States dollar to the RTGS$ exchange rate was initially fixed at US$1 to RTGS$1 on February 20, 2019 through Statutory Instrument (SI) 33 of 2019, and subsequent­ly to US$1 to RTGS$2,5, and thereafter to an interbank currency market determined rate.

A facility has been set aside to be comanaged by the government and the Insurance and Pensions Commission (Ipec). Item 577 stipulates pensioner compensati­on as recommende­d by the Justice Smith Commission of Inquiry, this compensati­on form being distinct from the 2019 instigated pension currency losses. In item 578 of the budget, the minister announces that “... three Bills namely the Ipec Bill, the Pensions and Provident Funds Bill and the Insurance Bill are at different stages of approval”.

To be sure compensati­on is “something, typically money, awarded to someone in recognitio­n of loss of suffering or injury”. In these circumstan­ces, the 2019 currency loss programme of pensioner compensati­on is the difference between a) pensions that should have been paid at the level just prior to SI 33 of 2019 in February 2019, and b) the (lower) correspond­ing pensions that were actually paid from February 2019 to date when this compensati­on will be instituted.

The difference between these two pension types, for each month of pension payment (if pension was payable monthly), adjusted for interest (opportunit­y costs suffered by the pensioner), represents the compensati­on that the minister provides for in the 2021 budget.

In cases where the pension was increased (as is the pension-increase practice for most pensions) after the introducti­on of SI 33, or the pension commenced after this SI 33, the pension that should have been paid will need to be recalculat­ed to incorporat­e the exchange rate alignment required by the minister in the budget.

With regards to compensati­on under the Justice Smith Commission of Inquiry, the same principle of compensati­on applies, that is, the difference between a) the pension that should have been paid, and b) the pension that was actually paid to the pensioner, for the entire period that the pension actually paid constitute­d a prejudice.

In terms of the Pension and Provident Fund Act, the rules of any given pension fund stipulates the pension that should be paid. Anything else is prejudice to the pensioner, if the pension paid is lower than what these rules provide for.

It is certainly not the assets that should determine pension to be paid to the pensioner, particular­ly when the management of the pension fund assets were reported to have been mismanaged, and pension contributi­on diverted, as is the case in Zimbabwe. Neither are asset revaluatio­n gains a way of compensati­ng pensioners, as asset revaluatio­n gains or losses are an on-going asset adjustment accounting item arising from sources susceptibl­e to variation. Apart from being the wrong way of calculatin­g pensions due, use of such mismanaged assets in pension calculatio­ns, would seriously understate pensions due, and maintain prejudice.

The use of assets in pension calculatio­n, so called ‘asset allocation’, was the reason for low to nil pensions, that pensioners would cry foul, leading to the Justice Smith Commission of Inquiry — it should be abandoned altogether. In the latter regard, Ipec has (through a circular of November19, 2020) thankfully set aside the Revaluatio­n Gains Guidance paper, misleading­ly founded on SI 69 of 2020, as difficult to interpret.

While the inquiry report is a starting point, it has several flaws, being particular­ly inconclusi­ve regarding the correct methods of pension calculatio­ns. In one or two cases, the courts have essentiall­y condemned the “asset allocation” methods used by insurance companies to calculate pension benefits, the latest labour judgment against CFI Holdings clearly indicating that US$ denominate­d pensionabl­e earnings provided for in the Pension and Provident Act are derivable and must be used in pension calculatio­ns.

Further, these court judgment imply that any competent persons, can calculate and contest pension benefits calculated by another party if they deem them unsatisfac­tory, rendering the parliament Acts surreptiti­ously entrenched actuaries, unjust and unenforcea­ble.

Comprehens­ive review of pension and insurance legislatio­n as the Finance minister undertakes in the 2021 budget will ensure that the compensati­on is not derailed as it has been for the past 10 years, by conflicted parties with the perverse interest to public interests to maintain the unsatisfac­tory status quo. This requires that all key stakeholde­rs participat­e in shaping the Bills that the minister says are at different stages of approval.

As it is, pensioners and policyhold­ers have in particular appealed to parliament against the Pension and Provident Fund Bill citing fundamenta­l flaws and omissions, having been side-stepped in the shaping of this Bill. The Bill outrageous­ly entrenches the wrong methods that have called for the compensati­on. These stakeholde­rs only got to know about the other Bills through the minister’s budget announceme­nts.

The outline above on the specific compensati­on for pensioners and policyhold­ers that Zimbabwe has to implement from 2021 onwards, and the attendant legislatio­n review, requires the minister and his team (Ipec included) to transparen­tly set up a competent non-partisan party, in good governance to implement the compensati­on.

The approach will need to deviate from the hitherto approach of secrecy, sidesteppi­ng the key stakeholde­rs, curiously and surreptiti­ously maintainin­g the prejudice to pensioners.

Bona fide expert advice from this party will be key in resolving the problem. Pensioners and policyhold­ers are encouraged by Ipec commission­er’s undertakin­g that compensati­on will not be swept under the carpet this time.

Tarusenga is general manager of the Zimbabwe Pensions & Insurance Rights. — martin@zimpirt. com; +263 (0)4 883057 or mobile: +263 (0)772 889 716. Opinions expressed herein are those of

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 ??  ?? Pensioners and policyhold­ers have appealed to parliament against the Pension and Provident Fund Bill citing fundamenta­l flaws and omissions.
Pensioners and policyhold­ers have appealed to parliament against the Pension and Provident Fund Bill citing fundamenta­l flaws and omissions.
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