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Insurance arrears spike

BY MELODY CHIKONO

THE pensions industry, hard hit by the economic downturn over the years, is grappling with challenges ranging from limited foreign currency investments, low disposable incomes, low confidence and non-pensionable allowances, which have seen contribution arrears balloon to ZW$2,23 billion (US$26 million).

As the cost of living continues to rise, prices of goods and services have failed to meet the pace of inflation resulting in low disposable incomes.

This, according to the Insurance and Pensions Commission (Ipec), has led to low contributions to pension funds while insurance policies’ uptake has dipped to less than 3%.

Ipec commissioner Grace Muradzikwa on Wednesday said the reduced disposable incomes have also been worsened by company closures, retrenchments and lack of formal employment opportunities.

As the economy continues to tank, non-pensionable allowances have also declined while limited foreign currency-denominated investments have resulted in significant forex contributions sitting as nostro deposits in banks.

Muradzikwa said the sector was also stuck with unclaimed benefits of over ZW$1,67 billion (US$19,5 million), which accrued in the first quarter of the year, owing  to various issues including lack of knowledge of the existence of such benefits.

“The pensions sector is facing a number of challenges. You will realise that a number of companies have closed, some retrenched while there is lack of formal employment opportunities which have resulted in reduced disposable incomes. The situation has also resulted in pensionable allowances being cut off — the reason we now have contribution arrears sitting at ZW$2,23 billion as at 31 March 2021. We also have unclaimed benefits with 169 000 members to the tune of about ZW$1,67 billion as at 31 March 2021,” she said.

Above all, Muradzikwa said, the industry is yet to recover from the legacy issues from as far as 20 years ago.

She said pensioners are yet to be compensated for the 2008-2009 losses caused by hyperinflation.

This has resulted in low confidence in the entire industry.

These challenges have also now been worsened by Covid-19, which has seen supply-chain and labour market disruptions, waiver of contributions by employers in affected sectors, paid up status, illiquidity due to declining contributions, increase in rental income arrears, reductions in covers as well as personnel retrenchments.

Muradzikwa, however, commended the sector for its resilience as it has managed to pay benefits in excess of ZW$1,4 billion (US$16,3 million) from January 2021.

“Notwithstanding the Covid-19 pandemic, the industry remains resilient as indicated by the fact that it has continued to operate, paying claims and benefits even during Covid-19-induced lockdowns,” she said.

“The insurance sector paid about ZW$827 million (US$9,64 million) in claims from January to March 2021. The pensions sector paid benefits worth ZW$1,4 billion (US$16,3 million) from January to March 2021. The industry is capital intensive as opposed to labour intensity.”

Meanwhile, Ipec has approved deployed premiums and contributions in various investment classes, for example, investment properties (42%), ZSE (35%), money market (1,5%) with a total of ZW$ 4,7 billion (US$ 54,8 million) prescribed assets approvals.

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