Some pension funds protecting values in US dollars

21 Jun, 2019 - 14:06 0 Views
Some pension funds protecting values in US dollars

eBusiness Weekly

Tawanda Musarurwa
The Reserve Bank of Zimbabwe (RBZ) has been supporting some pension companies in the country to preserve the value of their funds in United States dollars, the bank’s governor Dr John Mangudya has said.
As at the end of the second quarter of last year, the pensions industry had six life offices insuring 860 pension funds.
There has been growing concerns that pensioners’ savings would be eroded after the banking regulator earlier this year moved to liberalise the United States dollar exchange rate by introducing an inter-bank market.
The floating of the US dollar effectively dismissed the 1:1 peg that the fiscal authorities had set for the US dollar and the bond notes and real time gross settlement (RTGS) balances, which may result in a devaluation of some assets.
However, the governor said the bank has assisted several pension firms to preserve the value of their funds in US dollars.
“We have assisted some of the pension firms in this country to purchase what we call deposit receipts in foreign currency so as to preserve the value for their funds for the pensioners, and that is at our expense not their expense,” said Dr Mangudya.
The issue of maintaining the value of pension funds is particularly relevant, especially after concerns were raised on how pension companies converted pension benefits from the Zimbabwe dollar to the United States dollar following the dollarisation of the economy in early 2009.
Numerous pensioners out there found their contributions eroded overnight and they were paid paltry rewards by the pension funds.
The pension companies claimed that the pensioners’ contributions had been wiped out during the hyperinflation period.
Economic observer Dr Gift Mugano has said floating of the US dollar would have some adverse effects on savings.
“It is undeniable that the floating of the exchange rate will result in erosion of savings and pensions of the ordinary Zimbabweans. For instance, if one individual had made investments in a savings account and at one point the monies had accrued to $100 000 at a rate of 1:1,” said Dr Mugano.
“Or consider one who deposited $100,000 real dollars eight years ago and now bring in the liberalised exchange of 1:4 into account one will see that the real value of the $100 000 today is now US$25 000. The same observation applies to pensioners. This was again one of my reservations on floating.
“With this experience where economic agents have lost their pension twice in a 10-year period will discourage savings which are key for driving investment and economic growth.”
Although numerous pensioners have found their contributions eroded and are currently being paid paltry rewards by their pension funds, the pension companies themselves appear to be on a growth path.
According to an Insurance and Pensions Commission (IPEC) second quarter 2018 report The pensions industry had an asset base of $4,38 billion as at 30 June 2018, reflecting a 5,29 percent increase from the $4,16 billion reported as at 31 March 2018.
“The growth in the asset base was mainly a result of an increase in the value of quoted equities from $1,38 billion as at 31 March 20 18 to $1,60 billion as at 30 June 2018,” noted IPEC.
“The total assets translated to an industry average capital accumulation per member of $7,487 as at 30 June 2018.
“The average capital accumulation per member was 5,73 percent higher than the $7,081 per member reported as at 31 March 2018. The increase in the average capital accumulation was mainly due to the afore-mentioned increase in total assets.”
Meanwhile IPEC is soon expected to announce a compensation framework to policy holders whose claims were eroded during the conversion of values from Zimbabwe dollar to the US dollars during the February 2009 period.
This is after a Commission of Inquiry into the conversion process found that pensioners and policy holders suffered a significant loss of value and recommended compensation.
It also noted values were not only lost during the conversion period, but during the investigation period between 1996 and 2014.
The Commission’s investigations covered the period 1996 to 2014 and looked into the operations of life insurance companies, pension fund administrators, stand-alone pension funds, funeral assurance companies, the Guardians Fund, Government’s pension system and the National Social Security Authority.

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