FIRST Mutual Life has declared a 24% bonus for policyholders on its guaranteed pensions scheme, following strong annual results by the insurance group last week.
Report by Clive Mphambela
This is the third year in succession that the group has passed on such benefit to its policyholders.
The country’s second largest life company announced a bonus declaration of 24% on its guaranteed pension funds, following what it said was a satisfactory performance of the investment portfolios that support its pensions business.
The 24% increase on pensions currently being paid out on its insured pension funds was significantly ahead of average inflation for the year ended December 31 2012, which was at 3,8%. The bonus declarations are backdated to January 1 2013.
First Mutual MD Ruth Ncube told businessdigest this week that the level of the bonus declared this year and in the prior ones was influenced by the level of returns earned on policyholder investments supported by the bonus smoothing reserve accumulated in prior years.
“Performance of investments is what drives the level of returns to be declared each year. As part of the process of bonus declaration, the actuaries also recommend an increase to be awarded to the pensioners which will boost their monthly pension,” she said. Pensioners in the Growth Pensions Fund had been awarded a 21% increase effective January 1 2013, pro-rated for the period that the pension has been in payment in respect of new pensioners in 2012.
The recent declaration brings the cumulative pension increase for a pension which was in force since dollarisation to 66,98%.
Ncube said the increases also had a positive impact on future pensioners who were currently contributing to the fund.
“Their accumulated values are increased to the extent of the bonus declared and this will in turn result in higher capital available to purchase a pension on retirement,” she added.
Ncube said the consistent annual bonus declaration of 24% had been underpinned by solid investments in properties and selected shares listed on the Zimbabwe Stock Exchange (ZSE).
The bonus smoothing reserve also provided the company with additional capacity to enhance bonus declarations in years when investments do not perform particularly well.
“We believe in unlocking value and passing it on to policyholders as the situation allows and the annual pension increases are a way of us ameliorating the hardships faced by pensioners in the form of increased pension payments,” Ncube said.
She said the bonus declarations earned by insured funds would be different from those earned by the segregated or self-standing funds.
Segregated funds are mainly invested in listed equities and the returns generally mirror the performance of the ZSE depending on the portfolio structure for each particular fund.
Ncube said pensioners had an active role to play in their pension affairs.
“For example, current pensioners can lobby their former employers for pension increases through capital injection into their pension fund,” she said. “Contributing members can also increase their future pensions in a variety of active ways such as voluntarily making additional contributions as individuals into their current fund,” she said.
Members could also make direct contributions to a preservation fund to enhance their accumulations.
Policyholders also had a duty to rebuild their retirement benefits which were adversely affected by hyperinflation.
However, Ncube warned pensioners could erode their pension accumulation by encashing their employee portion whenever they left or changed employment. Instead, members were encouraged to preserve their employee portion upon leaving service, in addition to the employer portion which is statutorily preserved until reaching retirement age.
“Thus members are discouraged from encashing their terminal benefits when they change jobs.”