Source: Pension fund arrears reach $512 million | The Financial Gazette August 31, 2017
The pensions industry reported average expense ratios of 19,35 percent and 14,75 percent based on total contributions and total income, respectively, excluding benefit payouts
PENSION fund arrears unremitted contributions and unpaid rentals reached $512 million in the first quarter of 2017, putting a damper on a 95 percent jump in net income over the same period of 2016, the latest industry regulator’s report shows.
Zimbabwe’s pension funds held $3,35 billion in assets at the close of the first quarter, mostly split among both quoted and unquoted equities, investment property, money market investments and prescribed assets.
The industry is broadly divided into three categories, the first being insured funds, dominated by the country’s five largest assurers, Old Mutual, First Mutual Life, Zimnat Life, ZB Life and Zimnat Life. Insured funds are those whose contributions are used to buy assets which are registered in the name of the insurer and not the fund.
This segment’s pension arrears reached $13 million at the end of March.
The second class of funds, self-administered funds operate under administrators and insurers, with their assets being registered in their respective names, not the insurers.
These include Minerva, Marsh, Comarton, Zimbabwe Insurance Brokers and Capitol Insurance Brokers. This segment also includes four of the insured funds, minus ZB Life. Nyaradzo Life Assurance also manages some of these funds. This sub-sector’s pension arrears were $42 million at the close of the first quarter.
The last category, stand alone funds, comprises self-administered funds which own and control their administration structures, including staff, to operate the fund. These represent key economic sectors, including local authorities and the mining industry.
This sector had the biggest portion of unremitted pensions, $408 million as at March 2017.
Combined contribution arrears jumped 32 percent to $463 million at the end of March 2017, up from $350 million at the end of 2016, a report on pension funds, released by the Insurance and Pensions Commission (IPEC) this week, shows.
Rental arrears amounted to $49 million during the period.
IPEC said 74 percent of pension fund assets were made up of assets which match the funds’ liabilities – cash, investment properties, cash and money market investments, equities as well as prescribed assets.
“However, the commission noted, with concern, a significant proportion of total assets totaling 15.27 percent of the asset base that was tied up in contribution and rental arrears. These two asset classes amounted to $462.99 million and $49.41 million, respectively as at 31 March 2017,” IPEC said.
“The high level of contribution and rental arrears compromises the asset quality, especially when recoverability of the same is doubtful under the existing operating environment.”
About $400 million of the pension arrears are older than six months, according to an age analysis in the IPEC report.
The Local Authorities Pension Fund, the largest stand-alone, self-administered fund with 24 percent of total membership, also had the highest level of arrears, $168 million.
The Mining Industry Pension Fund had the second largest amount of contribution arrears, $99 million, followed by the ZESA Staff Pension Fund with $53 million.
The bulk of pension fund assets are in investment property, $801 million, quoted equities ($540 million), money market ($521 million) and prescribed assets ($460 million).
The pensions industry had 1 297 registered private pension funds with total membership of 560 528 as at the end of March 2017. Total income for pensions industry amounted to $112,53 million for the quarter.
About 94 percent of the pensions industry income was drawn from contributions, rental income and investment income. Total expenditure amounted to $89,13 million resulting in a net surplus of $30,96 million for the quarter under review.
The sector paid out $59,47 million in benefit payouts, accounting for 66,72 percent of total expenditure incurred during the quarter ended 31 March 2017.
The pensions industry reported average expense ratios of 19,35 percent and 14,75 percent based on total contributions and total income, respectively, excluding benefit payouts
“The Commission expects industry players to devise effective cost containment measures in a bid to reduce expense ratios to figures below five percent given the low investment returns in the market,” IPEC said.
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