Zimbabwe is not in a position to effectively deal with old age poverty due to the prevailing economic conditions and the post-hyperinflation era which severely eroded pension values, according to the Insurance and Pensions Commission (IPEC).
The regulator therefore plans a cocktail of reforms that are meant to, among other things, improve welfare of pensioners.
The reforms are also meant to harness long term domestic savings for economic development, as well as improving the legal and regulatory framework for pensions.
“The primary objective of the proposed reforms is to improve sustainability, affordability, adequacy and the coverage of the pension,” said IPEC.
The call for reforms comes at a time, the sector is bedevilled by several challenges including low confidence levels, low coverage ratio, viability of the pensions industry, poor corporate governance, high administration costs, high contribution arrears and high asset concentration among others.
Loss of pension values
The loss of insurance and pension value during the hyperinflation period and the conversion of pension and insurance values from Zimbabwean dollars to United State dollars adversely affected confidence levels in the pensions industry, said the insurance and pensions regulator.
“The relevance of pension as a cushion for retirement income has become questionable. In most cases the pension benefits fall short of the reasonable expectations of the pensioners.”
Some of the things that have also contributed to low confidence levels in the uptake of insurance and pension policies are to do with weak corporate government practices as well as lack of transparency in the manner in which pensions are administered.
Questions have also been raised on whether pension schemes are being administered for the benefit of pension fund members or employees of the fund.
According to IPEC, the Zimbabwean pensions industry is characterised by high expense ratios, with the average administrative expenses to income ratio for occupational pension funds at 8,2 percent as at 31 December 2017.
“The stand-alone self-administered schemes, on average, have the worst expense ratios. Thus the general question is whether these schemes are being administered for the benefit of pension fund members or the employees of the fund,” IPEC said in a draft document on proposed pension system reforms.
Administrators chew more money
On the other hand, administration expenses on NSSA Pension and Other Benefits Scheme during the three-year period 2014 to 2016 were also on the high side as evidenced by the average administration expenses of around 28 percent of contributions, this is according to the Commission of Inquiry Report which followed an inquiry into the conversion of insurance and pensions values from Zimbabwe dollar to US dollar.
Another challenge faced by the sector is that of high pension contribution arrears, which amounted to $600 million as at December 31, 2017.
This IPEC said, compromises the ability of pension funds to pay benefits in full and on time with outstanding and due benefits entitlements reaching $84 million at the end of 2017.
“In addition, to the problem of contribution arrears, most of the few remaining defined benefit schemes have actuarial deficits. The available assets of these funds are not adequate to meet the respective funds’ obligations to their members, creating underfunded liabilities and undermining the soundness of the pension plan.
Assets for some schemes are also heavily skewed towards immovable properties with inadequate liquid resources.
“This has constrained the ability of the schemes to pay benefits as they fall due.”
Another serious issue in the current system, is the reality that the country’s pension coverage ratio was as low as 18 percent as at December 31, 2017, implying that 82 percent of the working population did not have formal pension
This means most Zimbabweans will not be financially independent when they retire in other words, the country risk old age poverty.
Such a scenario would require the Government of the day to provide safety nets for citizens of the country in their old age.
But according to IPEC, “the obtaining economic environment is characterised by high total debt to GDP ratio, recurring fiscal deficits, and the current account deficit, makes it clear that the government lacks the fiscal space to commit meaningful financial resources to alleviate poverty through the provision of social safety nets for all the citizens of the country.”
A fiscal budget deficit of 25 percent in 2017, with more than 90 percent going towards recurrent expenditure mostly salaries, against a shrinking tax base, has constrained the Government’s ability to deal with old age poverty, IPEC added.