eBusiness Weekly
Business Writer
The Insurance and Pension Commission (IPEC) is working on reforms that might see fund members benefiting from their pension funds before retirement amid growing questions over the relevance of pension in a highly volatile and largely unstable economic environment.
The insurance regulator said the pension reforms are meant to deal with the economic vagaries being experienced by the industry.
Heightened inflationary pressures and uncertainty in the currency market, has resulted in the pension industry and retirees losing value for the second time in a decade, the insurance and pensions regulatory board noted.
Just this year, a lot of developments have taken place in the economy, which have had a largely negative impact on pension savings, IPEC said.
The economy has witnessed inflationary pressures from the time monetary and fiscal authorities announced new measures that included the separation of banking accounts into nostro (external bank) foreign currency accounts (FCAs) and Real Time Gross Settlement (RTGS) FCA accounts. The measures also saw the introduction of the 2 percent intermediated money transfer tax.
Speaking at the 44th Zimbabwe Association of Pension Funds Annual Conference last week, IPEC’s acting commissioner Blessing Kazengura, said it has become quite critical that the sector deals with the issue of relevance of pensions in an inflationary and largely volatile environment.
“The need to address this question becomes even more urgent as the pension industry loses value the second time in a decade in a way reminiscent of the losses suffered in 2009,” said Kazengura in his presentation.
“The theme, ‘Retirement Savings in an Uncertain Economic Environment’ is therefore very pertinent as we have to answer the question of the relevance of pension,” said Kazengura.
He noted that the unintended effects of the recent monetary reforms have seen a surge in inflation, which consequently has resulted in the erosion of the purchasing power adversely impacting pension values in a manner reminiscent of value loss experienced on post the hyperinflationary period.
“The general RTGS$ pricing model based on implied parallel exchange rate fuelled by speculative behaviour continues to play havoc on the general stability of the economy and in particular on pension values.
“These current developments have further dampened confidence levels in the pensions industry and brought to question the relevance of the pensions,” said Kazengura.
He also highlighted that the operating environment has been characterised by weak corporate governance and high contribution arrears, high administration expenses, outdated legislation as well as unresolved loss of value issues.
In light of this, IPEC is working on a draft guidance paper on treatment of insurance and pension assets and liabilities in response to the currency reforms, said Kazengura.
He said the guidance paper is meant to protect pensioners and policyholders.
According to Kazengura, the paper in a bid to restore confidence within the sector is proposing that fund members be given the option of early partial access to their pension benefits, partial commutation before retirement.
He said proposals on the table are to have pension fund members under 40 years get 10 percent of accumulation up to $5 000 provided they would have contributed for at least 10 years.
“Above 40 and less than 50 years — 20 percent to a maximum of $20 000. Those above 50 years would get 50 percent of their pension accumulation up to a maximum of $50 000,” he said.
Kazengura said the thresholds on the commutation are meant to ensure sustainability of industry.
The low commutable levels proposed for the younger pension fund members takes into account the long term view of pensions and the assumption that there exist future investment opportunities for them to recover from current pension losses.
“It is highly unlikely that the older pension fund members nearing retirement may recover lost value in the short-run before their retirement hence the higher proposed commutation levels.”
Kazengura, however, said before the members exercise the early partial commutation IPEC and the industry players, in particular trustees and fund administrators, should be proactive in educating the pension members on the implications of such an option on the final pension benefits on retirement.
Currently the commutation has been allowing commutation in respect of education, health and housing.
The partial commutations being proposed are also part of the holistic pension reforms that the Commission put forward in 2018.
The pension reforms are meant to deal with the vagaries being experience by the industry.
Some of the proposed reforms were incorporated into the 2019 national Budget with others having been incorporated into the Pension and Provident Funds bill.
