Zim to introduce new pension reforms

HARARE - Zimbabwe is set to introduce a raft of measures aimed at improving the country’s pension industry in line with international standards in the next few month, the sector’s regulator has said.

This comes as the country’s pension industry is in dire straits emanating from low confidence after the multiple-currency system in 2009 saw pension funds liabilities had their values eroded by decade-long hyperinflation and low activity in the economy.

Insurance and Pensions Commission (Ipec) acting commissioner Blessmore Kazengura, last Friday said it was crucial to establish and implement the new reforms, which are aimed at improving sustainability, affordability, adequacy and the coverage of the pension.

“The reforms are also meant to improve welfare of pensioners, harness long-term domestic savings for economic development, as well as improving the legal and regulatory framework for pensions,” he said at a consultative workshop in the capital.

“In addition, the proposed reforms are targeted at strengthening the governance, management and efficiency in the delivery of pension services within the country’s pension system.”

Over the past few years Zimbabwe has been hit by a spat of company closures and the few remaining operating firms have been accused of  “cheating pensioners by failing to own up on their monthly pay-outs.”

According to Ipec, pension arrears have now reached over $600 million.

Firms are citing a cocktail of challenges among them high utility bills, high interest rates, lack of competitiveness and the shortage of working capital as close their businesses.

This is painting a gloomy picture for pensioners who are anticipating living out the remainder of their lives in relative comfort from their pensions.

As such, Kazengura emphasised the need for various stakeholders to engage in constructive engagement in order to chat the future for the pension industry.

“Remember, we are all going to be pensioners, hence the need to influence our future as individuals and business leaders and citizens of Zimbabwe,” he said.

A recent Commission of Inquiry into the Conversion of Insurance and Pension values identified a myriad of challenges beleaguering both the public and private pension sectors.

Prominent among those challenges were lack of transparency in the conversion of liabilities accrued during the Zimbabwean dollar era, perennial problem of contribution arrears, high administration expenses, poor corporate governance and record-keeping in many pension funds, and insufficiency or absence of retirement benefits coverage.

The report of the inquiry also recommended holistic pension reforms in order to refocus the primary role of the sector in mitigating old age poverty and promote the secondary role of long-term savings mobilisation for deployment into the productive sectors of the economy.

As part of the post-inquiry reforms, Ipec came up with the draft policy advice paper that contains a raft of measures, which are aimed at ameliorating challenges bedevilling the sector.

The industry regulator is proposing the adoption of a three-tier pension system that is meant to improve adequacy and coverage of pension, promote the coexistence of the national pension administered by National Social Security Authority (Nssa) and the private administered occupational schemes as well as enhance collection of contributions.

The three-tier recommendation borrows from the pension reforms adopted in Ghana.

The essence of the first-tier system will be the current compulsory scheme under the administration of Nssa. This is the basic national pension scheme that is mandatory for all formal sector public and private employees.

It is also recommended that the first tier be an available option to the self-employed and informal-sector workers.

It is proposed the tier should operate partially as a defined benefit pay-as-you-go scheme targeting to replace annual incomes of participants to a minimum of 50 percent or an agreed actuarially determined replacement ratio of their pensionable income.

In addition, the tier should guarantee a minimum monthly pension to all pensioners who would have contributed for a minimum number of years. The minimum years of contribution to qualify for the minimum monthly pension should also be actuarially determined.

The first tier should be supported by the government if funding levels fall below predefined levels.

The proposed second tier of the pension system should be defined contribution pensions schemes that are privately managed and have a component of mandatory contributions up to a certain level for all formally employed workers, who will also be contributing to Nssa.

It is proposed that this mandatory programme is financed by a total minimum contribution of pensionable income shared equally between the employer and employee.

However, individual participating employers are allowed to have higher contributions rates if they have the capacity to do so. The management of second tier should be based on market principles, with fund managers competing.

It is recommended that as defined contribution schemes, this tier should have the option of paying lump-sum benefits (full commutation) calculated on the basis of accumulated contributions plus added interest minus administration fees upon retirement of member.

However, where certain employers desire and can afford to provide defined benefit or hybrid schemes for their employees, this should be permissible and encouraged under the system.

It is further proposed that this second tier should be used as security for mortgage loans in respect of residential property acquisition by fund members. This will enable members of the fund to be house owners before they get to retirement.

The proposed third tier is meant to be voluntary. It should be able to cater for the informal sector and even those in the formal sector requiring supplementary retirement income over and above what can accrue from the first and second tiers.

— Financial Gazette


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