Pension funds default increases

HARARE - Millions of Zimbabweans who are counting on pension benefits to fund their retirements risk being severely disappointed amid indications of rising pension fund defaults.

A recent report by the Insurance and Pensions Commission (Ipec) revealed that in the six months to June this year, self-administered funds recorded contributions amounting to $448 million albeit $343 million or 77 percent was in arrears.

“Various arrear contribution amortisation and collection efforts continue in collaboration with sponsoring employers and fund administrators,” the commission said.

This was after total contributions for stand-alone funds increased by 19 percent in the 2016 first half to $316 million from $266 million recorded in the same period last year.

However, 84 percent or $263 million were arrear contributions implying that only 16 percent of contributions were collected.

“This indicates the liquidity squeeze that sponsoring employers may be facing in meeting their statutory obligations,” Ipec said adding that it continues to monitor the situation.

“However, the commission shall not write off arrear contributions under any circumstances,” the pensions regulator warned.

Following Ipec’s administrative measures to protect member values and benefits, cost management efforts have now gained traction in the industry.

The expense-to-contribution ratio closed the current review period at 21 percent from 32 percent in June last year.

Economic experts said the rise in pension defaults was a reflection of worsening economic conditions as evidenced by government’s decision to cut 25 000 jobs, or more than eight percent of civil servants, to reduce a wage bill that consumes almost 97 percent of the budget.

Treasury wants to trim the number of State workers to 273 000, which will reduce the proportion of salaries to total revenue to 75 percent by December 2017, according to a budget document.

While still high, it will be a “significant improvement on the current unsustainable situation,” the country’s purse-bearer said.

“We have started the process of auditing of civil servants so that we can identify the number of people to be retrenched,” Public service minister Priscah Mupfumira said recently.

The latest push comes after previous attempts to trim government employees were thwarted by President Robert Mugabe’s Cabinet, even as the percentage of revenue gobbled up by pay climbed from 83 percent earlier this year.

Civil servants and soldiers have repeatedly been paid late in recent months as the government struggled to meet scheduled paydays, sparking protests including a strike on July 6 that shut down much of Zimbabwe.

The southern African nation is experiencing its worst economic crisis since the hyper-inflationary period that peaked in 2008, when inflation soared to 500 billion percent, according to the International Monetary Fund.

Now, after it switched to use of the United States dollar in 2009, a shortage of currency, deflation and unemployment of about 90 percent have plunged the country back into crisis.

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