BOARD of directors at the embattled Zesa Holdings Pension Fund (ZESAPF), battling a ZW$2,4 billion (US$28,5 million) actuarial deficit, are now opting for a merger with the Zimbabwe Electricity Industry Pension Fund (ZEIPF) after actuaries declared the fund was financially unsound.
Actuarial deficit relates to the difference between future social security obligations and the present income rate of the Social Security Trust Fund.
An actuarial report on the fund for the year ended December 30, 2020, prepared by Quantum Consultants and Actuaries, revealed that the fund was not financially sound as at the conversion valuation date, as shown by a funding level of 46,3%, deficit of ZW$431,1 million (US$5,1 million) before the distribution of revaluation gains.
Issues relating to the financial unsoundness of the fund have seen pensioners receiving payouts as low as ZW$500 (US$6) to ZW$600 (US$7) per month.
ZEIPF has an asset book of ZW$3 billion, while Zesa Pension Fund has about ZW$300 million, with topical issues during the recent annual general management pointing to mismanagement.
ZESAPF principal officer Bright Kondo said various board discussions and engagements with the participating employers (Zesa Holdings and Rural Electrification Agency) were done and it was resolved to convert the fund into defined contribution with effect from January 1, 2020.
“Currently, this is the work which is underway to convert the fund into a defined contribution and merge with the Zimbabwe Electricity Industry Pension Fund by December 31, 2021. The fund posted an actuarial deficit of ZW$2,4 billion as at December 31, 2020 and the participating employers are exploring ways to settle the deficit.
“A number of outreach sessions will be held throughout the country in the month of June and July 2021 to disseminate the conversion information,” he said.
The government, in its 2019 budget pronouncements, issued a statement that all defined benefit funds for parastatals should be converted into defined contributions.
Subsequently, the Insurance and Pensions Commission issued a letter requesting the fund to disclose measures being taken to ensure the long-term financial soundness of the fund.
The funds have insufficient assets to meet liabilities caused by non-submission of actuarial deficit and failure to do new projects.
Conversion of the fund into a defined contribution and merger with ZEIPF and conversion of actuarial deficit into a loan are now seen as the immediate risk control measure. While the Pension and Provident Funds Act (Chapter 24:09) as read with the 2019 gazetted national budget, compel registered pension funds to hold not less than 20% of the aggregate fair value of all their assets in Zimbabwe in prescribed assets, the pension fund had 0,03% investments in the prescribed assets and as a result did not comply with the statutory requirements.
The fund is also battling system functionality and failure — operational risk as some systems are not available or down affecting business processes.
ZESAPF board chairperson Thammary Madzonga said the situation was unsustainable and the fund was focused on resolving the critical issue of the actuarial deficit to comply with laws and regulations.
“Of the possible solutions discussed, the board of trustees and participating employers resolved that the conversion of the fund into a defined contribution arrangement and subsequent merger with ZEIPF was the best solution for all stakeholders.
“The implementation of the conversion process from defined benefit to defined contributions is at an advanced stage, with outreach programmes to educate members on the merger to be rolled out in Q3 2021,” she said.
The fund, however, performed well in inflation adjusted terms, closing the year with a profit of ZW$406 million compared to 2019, which had a profit of ZW$217 million, with the improvement buoyed by performance of the property and quoted shares portfolio which ended the year with a growth rate of 22% in inflation adjusted terms.