Ipec wields the ax on 368 troubled pension funds

BY SYDNEY KAWADZA

THE Insurance and Pensions Commission (IPEC) has wielded an ax to about 40% of pension funds operating in the country in a bid to protect billions of dollars contributed by millions of Zimbabwean workers.

There were 985 occupational pension funds registered in Zimbabwe as of December 31, 2021, while 368 funds have been ordered to dissolve as IPEC tries to ensure members can recover some of the value of assets survivors.

Ipec has identified a plethora of challenges affecting pension funds, including liquidity issues, high contribution arrears and high exposures to illiquid assets, such as investment property, some of which can reach 85% of the portfolio of assets.

According to the report of the commission on pensions for the fourth quarter of 2021 for the year ended December 31, although the sponsoring employers of the pension fund have established payment plans, the payment of arrears has been slow.

In a wide-ranging interview, Ipec director of pensions, Cuthbert Munjoma, told the Zimbabwe Independent that the decision was taken after the commission observed that the funds had been dormant for some time, threatening value preservation. .

“Most of these funds do not have functioning boards and are being liberated and incurring costs, which have eroded asset values,” he said, adding there were prospects for recovery. operations if a justification could be given. “Some employers have approached the regulator expressing interest in resuming contributions to certain funds that have been inactive for some time.”

There are three types of pension funds, which are insured pension funds managed by insurance companies, self-managed funds managed by administrators or insurers, and autonomous funds, which are self-managed.

Munjoma said Ipec was also finalizing the dissolution of some funds, which were due to dissolve en masse in 2011, but for which the processes were not completed.

“Dissolving funds means members will be allocated their accumulations based on available assets. The actual payments, however, are governed by regulations,” he said.

“Persons eligible for full conversion are those whose accumulation cannot purchase an annuity of ZW$36,000 (USD230) per year. For those with values ​​above ZW36,000, the amounts are retained until until they reach retirement age.

Munjoma said that while in the past unclaimed benefits were linked to data issues, the recent increase was due to the attribution of revaluation gains or investment returns resulting from monetary reforms and the inflation that results from them. resulted.

“To ensure there is no further increase in unclaimed benefits due to data issues, funds or fund administrators are urged to ensure they capture all member details. so that members can be traced when they are entitled to their benefits,” he said.

According to the fourth quarter report, six life insurance companies reported unclaimed benefits amounting to ZW598,400,906.91 (US$3.7 million) corresponding to 15,811 members.

To ensure that retirees are not harmed by unjustified suspensions, Ipec, according to Munjoma, has ordered that retirees be given a moratorium of up to 90 days.

“Funds and fund administrators should exhaust all possible means to verify a retiree’s status before suspending them,” he said.

The commission, however, instituted a cocktail of measures to tackle the causes of low benefits, including issuing an expense framework to regulate high administration and investment management fees, which were significantly eating away at members’ accumulations. .

Munjoma added that Ipec has been seized with the enforcement of prescribed spending limits while issuing and enforcing a guideline on risk and corporate governance for pension funds to improve governance and compliance practices. risk management in pension funds.

“Effective management and strong governance of pension funds are essential to ensure the provision of adequate benefits,” Munjoma said.

Ipec is also revising investment guidelines for pension funds to include value-preserving alternative investments, such as private equity and offshore investments to diversify sovereign risk and facilitate investment. exposure to other investment markets.

The pension and insurance regulator has also allowed full commutations to meet the health, education and mortgage obligations of retirees, while easing laws to provide for the payment of pension contributions in foreign currency. foreign currencies, investments in corresponding currencies and payment of services in foreign currencies. .

Munjoma also called on pension funds with investment assets that generate foreign currency to pay part of the benefits in foreign currency.

“We rolled out trustee outreach programs to improve pension fund oversight and prudent investment decisions and improve oversight of pension fund management information systems, as some low benefits were due to poor keeping records over the years.

“We have also issued and implemented a 2019 Currency Reforms Policy Paper to mitigate unintended consequences of recent currency reforms,” he said.

Ipec also reviewed the compensation framework recommended by Justice Smith’s commission and drafted the compensation settlement to end the 2009 impairment.

Ipec is also waiting for President Emmerson Mnangagwa to sign off on the Pension and Provident Funds Bill, which has been passed by parliament and would give the commission the power to seize defaulting employer sponsors.