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Pensions industry: Towards growth and stability

ZIMBABWE Association of Pension Funds (ZAPF) is a voluntary, non-profit making organisation which provides proactive, efficient and cost-effective advisory, research, formal training and legal services aimed at promotioning and protecting the interests of its growing heterogeneous members through newsletters, luncheon meetings, seminars, conferences and consultations with stakeholders.As a lobby body for the pensions industry, ZAPF brings together different organisations and individuals whose functions relate to the pensions industry. These include pension administrators, asset managers, regulatory authorities and trustees of pension funds

The most important function of ZAPF is to represent the industry in negotiations with government which would include commenting on legislation and other tax matters and investment related issues. ZAPF therefore depends on total support from all parties concerned with retirement benefit provision.

ZAPF successfully held its 37th Annual Congress in the resort town of Victoria Falls two months ago. Members resolved to confront head-on many challenges facing pension funds since dollarisation. The dollarisation of Zimbabwe saw pension Funds’ assets being lowly valued as the asset classes backing pension fund liabilities had their values eroded by decade-long hyperinflation and low activity in the Zimbabwean economy.

The sad reality was that these low residual assets had to be distributed equitably to a large group of pension fund members and the end result was that pension fund members got low benefit values commensurate with the low underlying values.

People naturally lost confidence in the pensions industry. But is there any hope? According to the chairman of the association Francis Masukusa, hope lay in that pension funds still hold their physical assets in the form of share certificates and property titles. The challenge is to trigger economic performance so that these physical assets can realise their true value which will see the enhancement of pension fund member benefits. The pension industry’s problem is therefore one of many Zimbabwean national economic problems that require the creation of a conducive macroeconomic policy environment.
Appreciation of the industry is generally lacking in the population specifically with regards to the resultant pensions on the back of the hyperinflation history and dollarisation, said Masukusa.

The Association launched a communication drive to sensitise various stakeholders about developments in the pensions industry and will continue with the initiative in the coming year.

Stakeholders to be engaged include the Ministry of Finance, Ministry of Labour and Social Services, the Zimbabwe Congress of Trade Unions, the National Social Security Authority (Nssa), the Pensioners Union Trust and the Employers Confideration of Zimbabwe.

Masukusa said Zimbabwe’s old age security system is comprised of the National Pension Scheme, occupational pension arrangements and individual savings. Minister of Finance Tendai Biti commissioned an independent actuarial study to guide policy on the sustainable co-existence of occupational schemes and the National Pension Scheme. Masukusa stressed that any fundamental changes to the national scheme should take a holistic perspective to overall retirement. The outcome of the study will guide policymakers on the appropriate contribution rates to the national scheme that will ensure sustainable co- existence.

In February 2009, Zimbabwe introduced a multi- currency regime. Prior to this date, all pension fund benefits and liabilities were accounted for in Zimbabwe dollars. As part of this conversion process, pension funds converted all their assets and liabilities into United States dollars.

There is widespread dissatisfaction regarding the conversion process and the resultant conversion values. The Insurance and Pensions Commission has initiated an independent actuarial review of the conversion process relating to pension funds. It is hoped that the review will highlight the way pension funds were managed prior and during the hyperinflationary period, as well as the way pension fund assets were apportioned during the conversion process.

Masukusa urged all industry players to cooperate with the consulting actuary and to provide information required for the completion of this important exercise. Masukusa added that the association would continue to contribute to the on-going review of the pension legislation to ensure a conducive operational environment for pension funds.

Trustees will be empowered through training to provide pre-retirement counselling for active members of pension funds. Pension Funds have gone through turbulent times due to the years of macroeconomic instability. The impact of the constraints on pension funds will be felt when members reach the end of their working lives. There is therefore need for on-going communication between trustees and members to manage benefit expectations.

Pension funds are one of the vehicles set up as part of financial planning for retirement. They provide a form of compulsory and disciplined savings which enable members to set aside funds for their retirement income provision when they reach the end of their working life.  Pension funds also represent long- term patient capital — one of the only significant sources of stable capital in the world.

This approach to long-term investing is necessarily driven by the  structure of pension fund benefits where liabilities extend 20, 30 or even 40 years and therefore need to invest in assets that will match their long term obligations. In Zimbabwe, once one becomes a member of a pension fund, one is legally obliged to continue making investments until the day one ceases to be a member of a pension fund.

At present, employers are not compelled to set up a pension fund for their employees. In view of the critical role played by pension funds in providing for retirement income and oiling the economy, the association is lobbying the regulatory authorities to make pension funds compulsory for all employers said Masukusa.

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