Reforms proposed by Zimbabwe’s pension body will help the country mobilise about $1 billion in retirement savings per year to fund infrastructure projects.
The reforms — expected to be presented to stakeholders today by the Insurance and Pension Commission also seek to enable workers in the informal sector to make contributions.
Broadly, the three-tier reform agenda being proposed by the IPEC will largely focus on improving sustainability, affordability, adequacy and coverage of the pension.
The reforms are also meant to improve welfare of pensioners and improve regulatory framework.
In addition, they are targeted to strengthen the governance, management and improve efficiency in the delivery of pension services within the industry pension system.
“It is envisaged that the proposed three-tier system will increase resource mobilisation, estimated in excess of $1 billion per annum that can be channelled towards infrastructure development projects and positively impact economic development,” said IPEC.
This augurs well with the Government policy, which emphasises the need to raise capital for development using domestic capital (savings) and will be a catalyst to the attraction of Foreign Direct Investment (FDI).
Recognising growing informal sector
IPEC has proposed attractive terms to encourage retirement savings by the informal sector.
The southern African country’s economy is now dominated by informal business after it went through some economic structural shifts resulting from shrinking formal economy.
These include allowing contributors to make withdrawals from their accumulated credits in the event of being out of employment for more than six months after making contribution for at least three years.
The tier also provides the option to withdraw at least one third of their contributions accumulated over five years.
“This offers flexibility in the application of pension saving, which respond to the needs of the contributing members,” IPEC said in the draft document of the proposals.
“This is a divergent view from the traditional approach of pensions that implies that pensions are only available on retirement.” Zimbabwe’s pension system excludes the informal sector that constitute more than 90 percent of the country’s economy.
According to IPEC, the pension coverage ratio as at December 2017 was 18 percent, implying that 82 percent of the working population did not have formal pension plans.
The occupational pension scheme cover 7 percent of the working population.
Low domestic savings
Many African economies seeking to diversify away from foreign aid or borrowing to fund infrastructure are turning to their pool of domestic savers.
Considering resource constraints that most developing country’s face, Zimbabwe included, analysts say there is need to turn to domestic sources of funding such as pension assets to finance long term infrastructure projects such as power generation, transportation, telecommunications networks and water and sanitation.
While research has shown that high long term savings were major drivers of infrastructure development for developing nations, Zimbabwe’s saving ratio has been negative since 2011, making it one of the countries with lowest savings rates in the region.
Zimbabwe’s savings ratio to the GDP was negative at -3,5 percent in 2011, -2 percent in 2012, -4,7 percent in 2013, -4,2 percent in 2014 and -1,5 percent in 2015