Pensioners treated unfairly

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One of the more incomprehensible results of the hyperinflation Zimbabwe suffered in the 2000s was the way pensions became worth absolutely nothing and the way private pension administrators wanted credit for new minimum pensions a trifle less than what most people pay the maid.

Pensioners were generally neither blind nor stupid. You can hardly move more than a few blocks in any large Zimbabwean urban centre without seeing buildings owned by pension funds or giant insurance and pension administrators. And the more knowledgeable, the sort of people who peruse shareholder registers, could not miss the fact that pension funds own the vast majority of shares on the Zimbabwe Stock Exchange.

So it seemed grossly unfair that people who retired in modest affluence suddenly found themselves the receivers of US$50 a month on dollarisation as a special favour, and while those coming up to 65 now are being told that after 40 years of contributions they will be lucky to get US$100 a month when under the rules in force when they joined their plan they would have got the equivalent of tens times that sum, or even more.

Not all pensioners suffered equally. The Government, which runs a pay-as-you-go scheme for civil servants, took a deep breath on dollarisation and reset pensions at up to two-thirds the present pay for the pensioners’ former posts, with lesser percentages on a transparent sliding scale for those who joined late or retired early. This at least was fair although as State pensioners ruefully note the present salaries are nothing very exciting.

The National Social Security Authority also put in a minimum, which was also low, but as it was still a newish scheme it did not have any big pension payouts to start with. It is not long ago that the first group of 65 year olds qualified for pensions of over $100 a month so the minimum is again fair.

So how does a professional or managerial employee with 40 years contributions end up with $50 a month? The answer is simple. The pensioner retired in say 1995 on Z$2000 a month, and it does not matter if that was on a defined benefit or defined contribution scheme. He or she was warned that pensions were not adjusted for inflation although most pension funds did try and partly compensate for cost of living rises. So by the end of 2008, with all the zeroes lopped off the Zimbabwe dollar, that pension was now a miniscule fraction of a Zimbabwean cent. So legally the fund did not really have to pay anything and the US$50 was, again legally, a favour.

It was also grossly unfair as the Pensions Inquiry Commission reports. Pension funds generally managed to bring 40 percent to 55 percent of their assets through the hyperinflation. Their holdings of Government and quasi-Government bonds were wiped out, and those had to be 45 percent of their assets, and their cash or near cash deposits vanished.

But their property and equity holdings survived and even the gross overpricing of these in the last year or two of hyperinflation, when there was a buying frenzy, hardly affects them as the bulk of their holdings in these assets had been bought earlier.

We could have understood if a pension fund had laid its cards on the table and told its pensioners that on dollarisation the assets that survived meant the US dollar equivalent of the original pension was now around half. We would understand if they told those who started contributing before hyperinflation and are starting to collect their pension now that a percentage of the expected pension, say a quarter after almost a decade of dollarisation, cannot be paid but the other three-quarters is still there.

Funds mention present economic circumstances. These include the fastest growing share on the ZSE being a construction company and a doubling in the number of cement factories since dollarisation. So property obviously still has value. Some ZSE companies have done badly; some have done well. Pensioners should not be asked to pay for bad buys by their fund administrators.

The commissions detailed report now needs to be acted upon by the Government, which after all did treat its own pensioners more decently, and while the suffering we now see might be legal that can be changed by forcing pension funds and their administrators to recalculate pensions on actual asset values, giving figures that people were promised minus an acceptable percentage to take into account the destruction of the value of paper assets during hyperinflation.

That would be fair to both the pensioners, who after all paid for their pensions, and the funds, which after all must remain solvent and viable.

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