Zim's pension models need a revamp

The Insurance and Pensions Commission (Ipec)’s latest report revealed that there were about 965 registered pension funds, with approximately 50 of them being inactive.

DESPITE making contributions to the pension funds, retirees in Zimbabwe remain extremely impoverished, a sign that the current pension plans are no longer effective.

In Zimbabwe, many people who have contributed to pension accounts for years end up with nothing when they retire.

This constituted the central theme of the 49th annual conference of the Zimbabwe Association of Pension Funds, which ended last week in Victoria Falls.

The meeting demonstrated that although financial difficulties were a contributing factor in the decline of retirees, the existing pension schemes need an overhaul to be viable for the average worker.

The Insurance and Pensions Commission (Ipec)’s latest report revealed that there were about 965 registered pension funds, with approximately 50 of them being inactive.

These are less than a million people, meaning about 967 000 members are covered showing that only 25% of the labour force is actually participating in a pension arrangement, and 75% is currently not on any occupational pension plan.

While a significant number of people have invested in funeral insurance, confidence in pensions and life insurance has over the years gone down.

To this effect, an actuary Sandra Makoni said the pension industry has been stagnant at best, or even dying for the past few decades.

“Members are not confident that they will reap a benefit of value by investing in the pensions market,” she told delegates at the conference.

“Think about the current defined benefits and defined contribution schemes that we currently have and how they look.

“In my view, they are not ideal unless there is policy stability, there is a consistent currency, and there is predictable inflation among other conditions.

“But all those variables, we all know, do not exist in our market.

“To add to the situation, for example, a defined benefit fund was made for my father’s generation.

“What we have in a defined benefit fund is no longer fit for purpose, even at a global level.”

She said the industry was never going to meet the reasonable benefit expectation that was there back then with this kind of contribution rate.

“We have not innovated away from a defined benefit and a defined contribution. No wonder it is no mystery that the man on the ground does not believe in our product, he does not believe in our results, and he therefore does not have any confidence in us as an industry,” Makoni noted. 

“So, given these problems that we all know, what should we do as an industry? I believe we need to reset, rewire, and reimagine everything that we have ever learned and ever believed in to make it past the century, otherwise we clearly won’t have relevance into the future.

“We need to introduce new products to the market, so I think that’s my time.

“I am literally finishing up, let me just say the last few sentences quickly.

“We need to introduce new products on the market that are radical in their approach, that speak to the needs of our members.”

Makoni said the industry needed to come up with products suitable for an ever-changing currency.

It also needs products that allow people to maximise their accrued benefits whenever there is a change in currency and crystallise loss of value for beneficiaries.

“We need products that speak to the 54% non-formerly employed population so that they can participate in retirement savings. We need products that are responsive to our market and that can restore confidence,” she said. 

“So what could this mean? We should think about harnessing a dollar a day that a regular street vendor is making into a long-term savings plan.  

“How do we do that as an industry? We should think about establishing plans that allow members to finance their own retirement homes.”

Another delegate indicated that the industry was not moving with the times.

“As an administrator, I get to interact a lot with members of pension funds and I think the rallying cry is really around member beneficiation,” he said.

“How do I benefit now before the next cycle hits us?

“Maybe that is the time to start thinking about it (two-part system) and say the two-part system and a member has access to part of their benefits but in a prescribed manner for reasons that will then not make them destitute in the future.”

With all these ideas in place, the delegates agreed that it was time the pension industry moved to implementations given that history keeps repeating itself and pensioners keep living value.

“I would suggest that maybe let us look to have social security only to be mandatory then pension funds be voluntary. I will tell you before you know it new products will come,” another delegate suggested.

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