IPEC halts pension fund dissolutions 

Nelson Gahadza

THE Insurance and Pensions Commission (IPEC) has halted the dissolution of pension funds pending the conclusion of pre-2009 compensations to members who lost value when the country switched currencies.

The Justice George Smith-led Commission of Inquiry constituted in 2015 discovered that some policyholders and pension scheme members were prejudiced by the conversion process during dollarisation and recommended that they be compensated.

The commission blamed the value erosion largely on poor regulatory enforcement and the demonetisation process for the local currency.

According to the IPEC Pensions Report for the quarter to March 31, 2024, 372 funds were earmarked for dissolution this year, with 15 of them dissolved during the period under review.

“Meanwhile, the commission has put the dissolutions on hold pending the conclusion of the pre-2009 compensation to ensure fairness among members,” reads the report.

Compensation is one of the initiatives by the Government aimed at restoring confidence within the pensions and financial services sectors.

As a result, the Government set aside US$175 million towards that effort and pension funds were asked to come up with their frameworks and payment plans.

The Pensions and Provident Funds (Compensation for Loss of Pre-2009 Value of Pension Benefits) Regulations, 2023, were gazetted on September 29, 2023, through Statutory Instrument (SI) 162 of 2023.

According to IPEC’s pensions report, there were 966 registered occupational pension funds as of March 31, 2024, compared to 978 in 2023, during the same period, with the decline mainly attributed to 15 dissolutions that were finalised during the year.

But during the period under review, there were eight transfers and six new funds that were registered.

“Of the 966 funds, 481 were active, accounting for 49,79 percent of the industry’s funds. The remaining 485 funds were inactive as they were either paid up or earmarked for dissolution,” reads the report.

IPEC noted that, of the total funds, 40 were defined as benefit schemes, while the remainder were defined as contribution schemes.

Only 14 of the 966 registered funds conduct in-house fund administration, and the remainder, which are insured (800) and self-administered funds (152), outsource the services from fund administrators.

Speaking on the sidelines of the International Organisation of Pension Supervisors Global Forum hosted by IPEC in December last year in Victoria Falls, Finance, Economic Development and Investment Promotion Deputy Minister Kudakwashe Mnangagwa said compensation for the 2009 loss of pension values will go a long way in restoring confidence in pensions.

He said the Government should also take a leading role in ensuring that people have confidence in pension plans.

IPEC has only approved the Mimosa Pension Fund’s pre-2009 compensation scheme, after it complied with all the requirements of SI 162 of 2023 (pre-2009 pension compensation regulations).

In a statement, IPEC said the approval paved the way for the fund to commence the compensation exercise.

“Once a compensation scheme is approved, the pension fund will directly communicate with eligible members regarding the payment modalities,” IPEC said.

However, the regulator said it was working closely with other funds that are close to complying with the requirements of the compensation regulations.

This is aimed at facilitating their compliance so that their compensation schemes can also be approved.

“The commission is in the process of instituting criminal proceedings against non-compliant entities, in line with Statutory Instrument 162 of 2023,” reads part of the statement.

In February this year, IPEC flagged insufficient disclosures in 2009 compensation actuarial reports. It said it had noted inadequate disclosures in actuarial reports submitted as part of the 2009 compensation schemes.

The inadequate disclosures, according to IPEC, were inhibiting the commission from making an informed decision on the compensation schemes.

Meanwhile, according to the pension report, the industry has remained resilient, safe and sound despite challenges relating to the operating environment, particularly inflation and exchange rate distortions.

IPEC said more needed to be done on product reforms and the introduction of new products that meet customer expectations as a way of reviving the long-term savings industry.

“The commission remains committed to working with industry players and the Government to ensure an inclusive, stable, sustainable, and growing industry,” reads the IPEC pensions report.

In United States dollar terms, the industry’s total assets decreased from US$2,1 billion to US$1,66 billion during the period under review, mainly due to exchange rate distortion.

The IPEC report said the assets were concentrated in investment properties and quoted equities. These constituted a combined position of 72 percent of the industry’s total asset portfolio.

Investment property constituted 41 percent of total assets, compared to 47 percent for the prior year.

“The decrease in the share of investment property is largely on account of investment in other asset classes,” IPEC said.

It further said pension funds are encouraged to invest in such value-preserving instruments, which can facilitate person-to-person and person-to-business transactions.

It said the gold-backed investments are regarded as a stable and secure option for Zimbabwe.