Zim employees urged to prioritise pensions

HARARE - Zimbabwean employees should prioritise pension contributions to safeguard their lives during retirement, industry experts have said.

Most employees in the southern African nation are sceptical to contribute towards private pension funds after claim contributions were wiped by inflation during the Zimbabwe dollar era, which reached an unbelievable 213 million percent inflation at its peak in 2008.

Since 2009, some pensioners, who have worked up to 50 years and are insurance policyholders, have been receiving as little as $60 per month from the compulsory pension scheme administered by the National Social Security Authority.

Tassius Chigariro, the managing director of Old Mutual Life Company (Omlac), said despite what happened in the past, it was important for people to start planning for their future.

“Yes, we had a bad experience but that doesn’t stop us from investing so that we don’t become destitute when we retire,” he said.

Chigariro noted that the wiping away of lifetime savings in 2008 was a “financial tsunami which is likely to happen again in 200 years’ time”.

Zimbabwe has one of the lowest pension’s penetration rates in the world at 23 percent, while national coverage ratio is at 21 percent compared to other regional countries which have an average penetration rate of 60 percent.

This comes as a recent Commission of Inquiry into the Conversion of Insurance and Pension Values from the Zimbabwe Dollar to the United States Dollar — appointed by former president Robert Mugabe in August 2015 to investigate the sector and quantify possible prejudice to policyholders — recommended that government should establish an independent body to revisit the de-monetisation process and establish fair compensation for losses incurred by policyholders.

It also noted that Nssa and other corporates needed to stop paying a flat pension benefit to retired contributors regardless of their salary level or years of participation in the fund.

Part of the commission’s findings highlights that funeral policyholders should be compensated for alteration of benefits or cancellation of policies following dollarisation.

The report, now before Cabinet, covered the period 1996 to 2014, and looked into the operations of life insurance companies, pension fund administrators, stand-alone pension funds, funeral assurance companies, the Guardians Fund, government’s pension system and Nssa.

“Notwithstanding the unsound practices in the industry, the commission is of the view that a fair and just compensation framework can be implemented to compensate for the loss of value suffered by policy-holders and pension fund members over the investigation period.

“In the recommended compensation framework, the commission assessed the asset and capital structure of the industry in evaluating its capacity to compensate for loss of value. The commission was satisfied that the industry has reasonable capacity to make good and compensate policy-holders and pension fund members for loss of value,” the commission said.

Meanwhile, Josphat Kakwere head of pensions at the Insurance and Pensions Commission (Ipec) said the regulator will soon introduce a raft of measures to change the industry’s landscape so that what happened a decade ago would not be repeated in the future.

“There are about 1,23 million active contributors under the National Social Security Authority and about 80 percent of the working class when they get to retirement they will be condemned to old age poverty because of lack of remitting by companies, and corruption,” he said.

Kakwere indicated that the “good old days” of having indexed pensions from Defined Benefit plans where the employer has the responsibility of ensuring that there are sufficient assets in the pension fund to pay guaranteed pensions are fast disappearing and are being replaced by Defined Contribution plans.

In these schemes, fixed contributions by both employee and employer are invested and the pension, good, bad or indifferent, is based on whatever the individual’s fund can purchase.

Basically, the members in these schemes are now bearing all the investment and longevity risks previously handled by employers through Defined Benefit plans.

Industry experts said it was critical for employees to guard against financial and medical uncertainties in old age.

“Retirement can also bring medical issues where treatment has become increasingly more expensive due to advances in medical technology. Without a sufficient pension and, or additional savings, pensioners can face severe financial hardships in meeting these costs,” said a risk analyst with a local financial institution.

— The Financial Gazette

Comments (1)

What a stupid thing to say! 1. Most people have too much month at the end of their money and pension contributions will be the last thing on their mind 2. 'Insurance organisations' big time betrayed the people of Zimbabwe with the Zim dollar days and cannot be trusted

Incredulous - 7 September 2018

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