Ipec wields the axe on 368 struggling pension funds
THE Insurance and Pensions Commission (Ipec) has wielded the axe on approximately 40% of pension funds operating in the country in an attempt to safeguard billions of dollars contributed by millions of Zimbabwean workers.
There were 985 registered occupational pension funds in Zimbabwe as at December 31, 2021, while 368 funds have been ordered to dissolve, as Ipec tries to make sure that members can salvage some value out of the surviving assets.
Ipec identified a plethora of challenges affecting the pension funds, including liquidity problems, high contribution arrears, and high exposures to illiquid assets, such as, investment property, with some as high as 85% of the asset portfolio.
According to the commission’s 2021 pensions Q4 report for the year-ended December 31, although sponsoring employers for the pensions fund has made payment plans, paying the arrears was slow.
In a wide-ranging interview, Ipec director pensions Cuthbert Munjoma told the Zimbabwe Independent that the decision was reached after the commission observed that the funds had been inactive for some time threatening the preservation of value.
“Most of these funds do not have functional boards of trustees and are in paid-up status and incurring costs, which have been eroding the values of assets,” he said, adding that there were prospects of resuming operations if justification could be given. “Some employers have approached the regulator expressing interest to resume contributions into some funds that had been inactive for some time.”
There are three types of pension funds, which are insured pension funds administered by insurance companies, self-administered run by administrators or insurers, and stand-alone, which are self-administered.
Munjoma said Ipec was also finalising the dissolution of some funds, which were directed to dissolve en masse in 2011, but for which the processes were not completed.
“Dissolving the funds means that members will be allocated their accumulations in line with available assets. Actual payments are, however, governed by regulations,” he said.
“Those eligible for full commutation are those whose accumulation cannot purchase an annuity of ZW$36 000 (US$230) per annum. For those with values above ZW$36 000, the amounts are preserved until they reach retirement age.”
Munjoma said while in the past unclaimed benefits were to do with data issues, the recent increase was due to the allocation of revaluation gains or investment returns arising from currency reforms and subsequent inflation.
“To ensure that there is no further increase in unclaimed benefits due to data issues, funds or fund administrators are being urged to ensure that they capture all member details so that members can be traced when they become entitled to their benefits,” he said.
According to the Q4 report, six life companies reported unclaimed benefits amounting to ZW$598 400 906,91 (US$3,7 million) corresponding to 15 811 members.
To ensure that pensioners are not prejudiced by unjustified suspensions, Ipec, according to Munjoma, ordered that pensioners be given a moratorium of a maximum of 90 days.
“Funds and fund administrators should exhaust all means possible to ascertain the status of a pensioner before suspending them,” he said.
The commission has, however, instituted a cocktail of measures to address causes of low benefits, including the issuance of a Framework on expenses to regulate high administration and investment management fees, which were significantly eating into member accumulations.
Munjoma added that Ipec was seized with enforcing the prescribed expense limits while issuing and enforcing a Risk and Corporate Governance Directive for Pension Funds to enhance governance and risk management practices in pension funds.
“Effective management and strong governance of pension funds are critical in ensuring the provision of adequate benefits,” Munjoma said.
Ipec is also reviewing investment Guidelines for pension funds to include valuepreserving alternative investments, such as, private equity and offshore investments to diversify sovereign risk and facilitate exposure to other investment markets.
The pension and insurance regulator also allowed full commutations for the purposes of meeting health, education and mortgage obligations of pensioners, while facilitating laws to provide for the payment of pension contributions in foreign currency, investment in matching currency, and payment of benefits in foreign currency.
Munjoma also called on pension funds with investment assets that generate foreign currency to pay part of the benefits in forex.
“We have rolled out Trustee awareness programmes to enhance oversight on pension funds and prudent investment decisions and enhance supervision of Management Information Systems of Pension Funds as some low benefits were on account of poor record-keeping over the years.
“We have also issued and enforced a Guidance Paper on 2019 Currency Reforms to mitigate the unintended consequences of the recent currency reforms,” he said.
Ipec also reviewed the Compensation Framework recommended by the Justice Smith commission and drafted the compensation regulations to bring closure to the 2009 loss of value.
Ipec is also waiting for President Emmerson Mnangagwa to assent to the Pension and Provident Funds Bill, which was passed by parliament and would give the commission powers to garnish defaulting sponsoring employers.