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‘We are navigating through a vexing terrain’

The Zimbabwe Association of Pension Funds (ZAPF) last week held its 47th annual conference in Victoria Falls. The conference which was held under the theme *The Zimbabwean retirement industry post the pandemic* touched on a number of issues, including reviewing current insurance models. Our senior business reporter Melody Chikono (MC), spoke to ZAPF chairperson Rutendo Magorimbo (RM,) about the trajectory that the industry would be charting after the conference.  Here is how their discussion turned out:

MC: Tell us more about this conference and why you chose the theme: “The Zimbabwean retirement industry post the pandemic”?

RM: The theme was coined around the fact that there was going to be a lot of changes and a lot of upheavals. We learnt a lot during Covid-19 shutdowns in terms of new ways of working. We were relooking the industry. We said we had issues before, such as pension industry viability. We were digesting how we can move forward since Covid-19 brought its own set of challenges. That was the theme. It was informed by the shocks that we have gone through as a nation, such as loss of value. But the message we are putting across is that there are certain things that we cannot run away from. You either die whilst you are in employment, in which case you need insurance, or you survive and you retire. On retirement, we need to make sure that people have a plan. The message we are putting across is that yes, we have had problems but we need to rebuild.

MC: Tell us, Are there countries that have gone through a similar experience?

RM: If you go to Taiwan today you would not think that a decade ago that whole country was razed by a tsunami. But they have rebuilt. So, we are saying why can’t Zimbabwe do the same? We can’t keep crying over spilt milk. We need to say this is our country, let’s rebuild. But we can’t rebuild without money from pension funds.

Fact file: Rutendo Magorimbo

  • General manager Old Mutual Life Assurance Company
  •  Nearly two decades of experience in the financial services industry.
  •  Former Chief Risk Officer for Old Mutual Africa with risk and compliance oversight over the 13 countries in Africa.
  •  Former Head of Strategy and Reporting and Actuarial executive for the Life business.
  •  Holds a BSc (Honors) degree in Actuarial Mathematics and Statistics from Heriott Watt University, an MBA from the University of Cape Town.
  •  Fellow of the Institute and Faculty of Actuaries (UK).
  •  Council member of the Actuarial Society of Zimbabwe

MC: How will you achieve your plans?

RM: The first is confidence building. We had a lot of challenges, which means there were lessons we have learnt.  For instance, during engagements with authorities we keep saying there are prescribed assets. But we have noticed that the nature of prescribed assets has changed. The majority of the current set of prescribed assets are real assets and they are equity, property and infrastructure development. These are things that provide some form of a hedge against inflation. At the same time, they contribute to economic growth. We have done hydro, solar and other projects. There are hotels that are being built, which have gained a prescribed asset status because they help build the tourism industry. The other issue that has become topical is the model of retirement funds.

MC: Tell us more about this.

RM: We have noticed that we have had defined benefit (DB) schemes and those didn’t work. With a DB fund, employers sink and members survive. With DBs you promise the member a certain percentage of the final salary for retirement. But what that means is that when shocks happen, it’s the employer who carries the risk. Where we have inflation or loss of value, your employer still needs to give you a salary in real terms. That becomes very expensive for funds. A majority of them moved to Defined Contribution.

MC: Please explain more about this.

RM: With this one it is what you contribute plus return. In that instance the member carries all the risk. That is the reason why we are where we are today. It is because whenever there is a shock it is the member who feels it. We want a relook of those models, taking lessons from what we have seen in order to come up with a model where external risks are shared between the contributing member, employer and perhaps active pensioners.

MC: What are your thoughts around sovereign paper?

RM: We have been engaging with the regulator and the Ministry of Finance and Economic Development to say we have seen what happens when we have government paper which is not linked to inflation. In an inflationary environment it results in loss of value. I think the government has been responsive to that. We really need to market the country so that we can get new money coming in. Having said that, I still think we can use available resources to drive those investments, recapitalise companies rather than wait for foreign direct investment (FDI). If we use the capital we have, we can grow the economy without depending on FDI.

MC: And you have indicated that pension funds are receiving less and less.

RM: I don’t have the numbers off hand. But what I can tell you is that because of an uncertain environment the remuneration structure has changed. Pension fund rules normally base amounts they get on the pensionable salary. Previously, 90% of your total pay would be pensionable with 10% being allowances. What we see today is that probably 20% is pensionable and 80 % is non-pensionable allowances.

Because it’s non-pensionable, what you are now putting into the pension fund is 5% of a very small amount because most employers do not want to commit. We have coined the phrase economic hardship allowances and we have said those allowances can be taken away if things improve. The fact that they will be taken away means it can’t contribute to your pension and that is why it has been dwindling over time. Let’s have a relook. Can employers not change the base?

MC: Most pension funds have properties that are experiencing huge voids. What damage has been inflicted by Covid-19?

RM: Covid-19 came but the truth is that we were already in a crisis. Even before the pandemic, the issue of voids was already there. The reason for voids is that companies are shrinking. When they are retrenching, they require less space. Yes, when Covid-19 came, people worked from home. But for me, the issue is the economic crisis. When the economy is vibrant, you have demand for warehouse office space.

MC: What is your outlook as an association?

RM: I have spoken about rebuilding, and rebuilding means all Zimbabweans must participate. As Zimbabweans we complain a lot. Can we do what we do as individuals, politics aside? At an individual level if I’m not contributing pensions and I’m not saving, I can’t expect the country to prosper.

If we are able to pull investments and the contributions and direct how we want to invest, a lot can be done. We can invest in hospitals, or invest into re-capitalising companies but only as a collective effort.

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