Martin Tarusenga:Trade Unionist
In his 2021 National Budget Statement, the Finance minister Professor Mthuli Ncube announced that the government will institute two forms of pensioner compensation from 2021, and to review pension and insurance legislation.
Item 576 of the budget statement stipulates pensioner compensation arising from currency losses sustained by pensioners as the United States dollar to the RTGS$ exchange rate was initially fixed at US$1 to RTGS$1 on February 20, 2019 through Statutory Instrument (SI) 33 of 2019, and subsequently to US$1 to RTGS$2,5, and thereafter to an interbank currency market determined rate.
A facility has been set aside to be co-managed by the government and the Insurance and Pensions Commission (Ipec). Item 577 stipulates pensioner compensation as recommended by the Justice Smith Commission of Inquiry, this compensation form being distinct from the 2019 instigated pension currency losses. In item 578 of the budget, the minister announces that “… three Bills namely the Ipec Bill, the Pensions and Provident Funds Bill and the Insurance Bill are at different stages of approval”.
To be sure compensation is “something, typically money, awarded to someone in recognition of loss of suffering or injury”. In these circumstances, the 2019 currency loss programme of pensioner compensation is the difference between a) pensions that should have been paid at the level just prior to SI 33 of 2019 in February 2019, and b) the (lower) corresponding pensions that were actually paid from February 2019 to date when this compensation will be instituted.
The difference between these two pension types, for each month of pension payment (if pension was payable monthly), adjusted for interest (opportunity costs suffered by the pensioner), represents the compensation that the minister provides for in the 2021 budget.
In cases where the pension was increased (as is the pension-increase practice for most pensions) after the introduction of SI 33, or the pension commenced after this SI 33, the pension that should have been paid will need to be recalculated to incorporate the exchange rate alignment required by the minister in the budget.
With regards to compensation under the Justice Smith Commission of Inquiry, the same principle of compensation applies, that is, the difference between a) the pension that should have been paid, and b) the pension that was actually paid to the pensioner, for the entire period that the pension actually paid constituted a prejudice.
In terms of the Pension and Provident Fund Act, the rules of any given pension fund stipulates the pension that should be paid. Anything else is prejudice to the pensioner, if the pension paid is lower than what these rules provide for.
It is certainly not the assets that should determine pension to be paid to the pensioner, particularly when the management of the pension fund assets were reported to have been mismanaged, and pension contribution diverted, as is the case in Zimbabwe. Neither are asset revaluation gains a way of compensating pensioners, as asset revaluation gains or losses are an on-going asset adjustment accounting item arising from sources susceptible to variation. Apart from being the wrong way of calculating pensions due, use of such mismanaged assets in pension calculations, would seriously understate pensions due, and maintain prejudice.
The use of assets in pension calculation, so called ‘asset allocation’, was the reason for low to nil pensions, that pensioners would cry foul, leading to the Justice Smith Commission of Inquiry — it should be abandoned altogether. In the latter regard, Ipec has (through a circular of November19, 2020) thankfully set aside the Revaluation Gains Guidance paper, misleadingly founded on SI 69 of 2020, as difficult to interpret.
While the inquiry report is a starting point, it has several flaws, being particularly inconclusive regarding the correct methods of pension calculations. In one or two cases, the courts have essentially condemned the “asset allocation” methods used by insurance companies to calculate pension benefits, the latest labour judgment against CFI Holdings clearly indicating that US$ denominated pensionable earnings provided for in the Pension and Provident Act are derivable and must be used in pension calculations.
Further, these court judgment imply that any competent persons, can calculate and contest pension benefits calculated by another party if they deem them unsatisfactory, rendering the parliament Acts surreptitiously entrenched actuaries, unjust and unenforceable.
Comprehensive review of pension and insurance legislation as the Finance minister undertakes in the 2021 budget will ensure that the compensation is not derailed as it has been for the past 10 years, by conflicted parties with the perverse interest to public interests to maintain the unsatisfactory status quo.
This requires that all key stakeholders participate in shaping the Bills that the minister says are at different stages of approval.
As it is, pensioners and policyholders have in particular appealed to parliament against the Pension and Provident Fund Bill citing fundamental flaws and omissions, having been side-stepped in the shaping of this Bill. The Bill outrageously entrenches the wrong methods that have called for the compensation.
These stakeholders only got to know about the other Bills through the minister’s budget announcements.
The outline above on the specific compensation for pensioners and policyholders that Zimbabwe has to implement from 2021 onwards, and the attendant legislation review, requires the minister and his team (Ipec included) to transparently set up a competent non-partisan party, in good governance to implement the compensation.
The approach will need to deviate from the hitherto approach of secrecy, sidestepping the key stakeholders, curiously and surreptitiously maintaining the prejudice to pensioners.
Bona fide expert advice from this party will be key in resolving the problem. Pensioners and policyholders are encouraged by Ipec commissioner’s undertaking that compensation will not be swept under the carpet this time.
Tarusenga is general manager of the Zimbabwe Pensions & Insurance Rights. — firstname.lastname@example.org; +263 (0)4 883057 or mobile: +263 (0)772 889 716. Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent.