eBusiness Weekly
Golden Sibanda
The value of total assets in Zimbabwe’s pensions industry declined by 6 percent to $4,1 billion in the quarter to December 31, 2017 weighed down by shrinkage in equity investments as the stock market bubble burst.
Given the effect of the stock market bubble burst, the Insurance and Pensions Commission (IPEC) bemoaned lack of alternative investment options to spread the risk to pensioners and active members’ retirement benefits.
The equity investments shrank from $1,83 billion as at 30 September 2017, to $1,46 billion as at 31 December 2017, IPEC said in its fourth quarter report.
Total assets in the industry totaled $4,31 billion in September, from $3,5 billion in March 2017 and marginally rising to $3,52 billion by June, when the Zimbabwe Stock Exchange (ZSE) bubble began.
Stocks went on a rampage in the third quarter as economic agents holding huge amounts of rapid transfer gross settlement (RTGS) balances sought safe havens to hedge against inflation prospects.
“The shrinkage in equity investment was mainly a result of the decrease in equity prices on the Zimbabwe Stock Exchange during the quarter under review, which followed after the “bull run” that took place during the third quarter,” IPEC said.
Of the total assets in the quarter under review, $2,51 billion was invested in property and equities combined. The two long-term asset classes accounted for 62,8 percent of the total assets.
The proportion attributable to equities and properties was considered to be in line with the risk profile of the industry, with 61,52 percent of the members being active and generally requiring a long-term investment horizon to match their liability profile, the commission reported.
Notwithstanding the observation on the balance between equity and property investments and age profile of contributors, IPEC bemoaned the lack of diversity in the capital markets in Zimbabwe.
“The lack of diversity makes the industry vulnerable to inherent weaknesses of investments in equities and property, such as market risk and liquidity risk respectively,” IPEC noted in its report.
The IPEC report shows that equities accounted for the largest chunk of investments at 36,32 percent, followed by investment property 25,92 percent, contribution arrears 14,89 percent, prescribed assets 7,05 percent, money market and bank cash 6,48 percent and others 9,34 percent.
The pensions industry reported $284,36 million invested in prescribed assets as at 31 December 2017.
This translated into a prescribed asset ratio of 7,05 percent, against 6,03 percent as at 30 September 2017
Meanwhile, $600 million, accounting for 14,89 percent of the asset base was tied up in contribution arrears.
The contribution arrears figure increased from the $556,64 million reported as at 30 September 2017 due to correction to reported figures by insurers after the IPEC training seminar.
IPEC said the high level of contribution arrears compromises the asset quality and liquidity of pension funds due to the arrears not being available to fund day–to-day operations of pension funds.
Stand-alone funds reported $473,39 million of the contribution arrears, accounting for 78,86 percent of total contribution arrears.
Among the stand-alone pension funds, the contribution arrears were mainly concentrated in three funds.
The three pension funds accounted for a combined 77,74 percent of total contribution arrears for stand-alone funds and 69,30 percent of contribution arrears for the pensions industry.
Self-administered and insured pension funds accounted for 12,62 percent and 8,52 percent of the contribution arrears respectively.
