The $600 million contributions arrears bedevilling the pensions industry are actually understated as a number of insured contributions arrears are not being reported on the basis of accounting methods being used, businessdigest has learnt.
Zimbabwe’s pension industry is plagued by persistent and growing contribution arrears, a sign that companies and individuals are struggling to maintain life and income cover, weighed down by a harsh economic environment.
The contribution arrears fell to $600 million as of December 2018 from $635 million in September 2018, a development which the regulator thinks could have attributed to companies pushing up their spend in terms of payments.
The Insurance and Pensions Commission(Ipec) acting commissioner Blessmore Kazengura revealed on the sidelines of the Zimbabwe Association of Pension Funds (ZAPF) 44th annual conference in Victoria Falls last week that the commission was looking into normalising the accounting methodology for contribution
This comes as Ipec is working on a draft guidance paper on the treatment of insurance and pension assets and liabilities in response to the currency reforms.
The importance of the guidance is the need for pension funds and insurers to revalue pension and insurance liabilities in a manner that apportions asset revaluation surplus in an equitable way between pension funds, policyholders and shareholders where applicable.
“In terms of the contribution arrears figure of $600 million we are talking about, it has emerged that some entities are accounting for arrears on a cash basis as opposed to an accrual basis. What they are only capturing are contributions that will have been actually paid, leaving out the portion that is owed. If you factor in that which is not being catered for, the figure can be higher than $600 million,” he said.
“It’s something that we are working on in terms of correcting the industry. There has been a reduction which is positive sign and it could be that some entities have pushed speed in terms of payments.”
Kazengura said entities are supposed to capture the non-payment as an asset of the company in the form of debt.
“It should be on accrual basis. No entity should be accounting on a cash basis.
Whether a contributing member pays or not, you are still supposed to capture it as an asset of the country and reflect a debt. It’s a few entities that were
applying that policy, I think they had seen a sustaining period where companies were not paying but all the same it’s a wrong accounting method,” he said.
He said weak corporate governance practices, high administration costs, out-dated legislation and the unresolved loss of value issue were other factors that were making the operating environment difficult.