Zimbabwe is facing an opportunity cost of national savings in excess of US$400 million per annum by having an unfunded pension scheme whose liabilities now stands way above US$6,5 billion, businessdigest has learnt.
The government pension scheme, which is administered by the Government Pensions Office, has traditionally been funded by Treasury on a pay-as-you-go basis with no assets backing liabilities and pensioners being paid from the same source as civil servants who are still at work.
The Insurance and Pensions Commission (Ipec) said the establishment of a funded pension scheme would result in pension contributions being invested in infrastructural development projects given that pension funds are the largest source of long-term financing world over.
Considering government’s wage bill of around 89% of annual budget, the envisaged funded pension fund has potential to mobilise over US$400 million in pension contributions per annum assuming total employer and employee contributions of 15% of the annual wage bill.
If such national savings are augmented by pension contributions from private occupational pension funds, the National Social Security Authority (Nssa) and insurance premiums, the country can realise in excess of US$1,2 billion per annum.
Ipec, which has been pushing for the government pension scheme to be funded, says if such pooled resources are properly managed and effectively regulated, the sector could play a critical role in long-term savings mobilisation and domestic investment.
Ipec executive assistant to the commissioner, Cuthbert Munjoma told a journalism mentorship programme that through investment in securities, the insurance and pensions industry contribute to the broadening and deepening of capital markets.
While insurance companies and pension funds are the biggest institutional investors on the ZSE, the sector accounted for an average share of 42 % of the ZSE market capitalisation as at April 2018. Traditionally, the sector commands 65% of investments on the Zimbabwe Stock Exchange.
“…there is also an opportunity cost of an unfunded Government pension scheme with liabilities of over $6,5 billion dollars.
The setting up of a funded scheme entails the establishment of a pension fund, which will receive monthly pension contributions that are investible in different asset classes as is the case with Nssa and private occupational pension funds,” Munjoma said.
“Assuming that the government pension scheme had matching assets to support current liabilities, the fund’s assets would have been more than US$6,5 billion.
If such national savings were to be deployed in public sector investments such as infrastructure development like dualisation of Beitbridge-Chirundu highway and irrigation infrastructure.”