Taking Stock Kudzanai Sharara
The latest pensions report by the Insurance and Pensions Commission (IPEC) makes a bit of sad reading. The report which is for the third quarter to end of September 2018 shows that Zimbabweans only have $4,6 billion in pension assets, excluding what is held by the National Social Security Authority (NSSA), the country’s statutory corporate body tasked by the Government to provide social security.
With only 790 562 people being members of the pension funds, it means the country’s pension coverage ratio is very low probably below 20 percent. It also means each member has an average $5 886 worth of assets available as a pay-out, assuming we dissolve all funds today.
It also means there isn’t much to distribute to pensioners if the pension funds’ asset base does not significantly grow in the future.
More worryingly though is that the industry’s total liabilities amounted to $4,83 billion vis-à-vis total assets of $4,65 billion for the period under review, indicating a mismatch of $204,18 million.
But what could be the reason for such a low number?
As the figures show, less than 5 percent of the 16 million Zimbabweans are members of a pension fund other than the mandatory NSSA. There are many factors why this could be so one of which is the lower number of the formally employed, who are potential members of pension funds. With a lot of companies having closed, it resulted in lower numbers of contributors to pension funds.
The second reason why the asset base is worryingly low could be the fact that some employers and employees are failing to keep up with their pension premiums.
As at September 30, at least $633,1 million worth of contributions were in arrears. According to IPEC, contribution arrears continue to be a major concern within the industry as they compromise the benefits that will be received by pensioners on retirement. We totally agree as these are funds, which if they had been paid in time, could have boosted the asset base for pension funds.
The third reason why the asset base is low could be the fact that the bulk of the contributions and income generated is going towards administrative expenses among other costs of running pension funds. For the period under review, total industry administration expenses increased to $68,7 million in 2018 from $58,24 million during the 9 months ending 30 September 2017.
The administration expenses for the nine months ended September 30, 2018 translated to average expense ratios of 20,04 percent and 8,76 percent based on total contributions and total income respectively. The same ratios were 18,15 percent and 4,70 percent for the same period in 2017. The worsening of these ratios is a cause for concern.
The lower asset base could also be a result of the country’s subdued economic performance. Both investment income and rental income are linked to economic performance. If the economy is not performing these two income streams will also be affected. For example, in the period under review, investment income decreased to $228,6 million from $600,4 million recorded in the previous quarter. The decrease, which emanated from a reduction in fair value gains on equities, just shows how vulnerable pension funds and subsequently pensioners are in a volatile economic environment.
Another contributing factor is the inclusion of the said inactive funds in the current reporting period saw a combined spike in the number of deferred pensioners and suspended pensioners from a combined total of 5 748 members as at June 30, 2018 to 204 019 as at September 30, 2018. The bulk of the deferred pensioners emanated from the hyperinflationary period.
Given the factors above, the relevance of pension as a cushion for retirement income has become questionable. In most cases the pension benefits fall short of the reasonable expectations of the pensioners.
Questions have also been raised on whether pension schemes are being administered for the benefit of pension fund members or employees of the fund. According to IPEC, the Zimbabwean pensions industry is characterised by high expense ratios, with the average expenses to income ratio at 8,78 percent.
This means most Zimbabweans will not be financially independent when they retire in other words, the country risk old age poverty. Such a scenario would require the Government of the day to provide safety nets for citizens of the country in their old age.
But according to IPEC in a previous report, “the obtaining economic environment is characterised by high total debt to GDP ratio, recurring fiscal deficits, and the current account deficit, makes it clear that the Government lacks the fiscal space to commit meaningful financial resources to alleviate poverty through the provision of social safety nets for all the citizens of the country.”