Pension funds record $620m surplus

Source: Pension funds record $620m surplus | The Herald July 3, 2019

Martin Kadzere Senior Reporter

Local pension funds reported a surplus of $620 million last year, a 45 percent increase from $426 million recorded in the same period in 2017, largely driven by gains on equities and members contributions, the Insurance and Pension Commission (IPEC) has said.

Both, gains on equities and contributions, accounted for $714,88 million or 72,24 percent, of total income ($989,5 million) for the period under review, IPEC said.  Gains on equities were $379,16 million from $139,08 million for the same period in 2017.

Stocks on the Zimbabwe Stock Exchange recorded strong gains in the last quarter of 2018 on increased hedging activities by investors due to uncertainties in the economy.

The industrial index gained by 25,88 percent to 487,13 in the fourth quarter of 2018, from 386,97 in the previous quarter. The mining index rose to 227,71 from 163,76.

On a year-on-year basis, the industrial and mining indices grew by 46,28 percent and 59,91 percent, respectively.

Total expenditure was composed of pension benefits totalling $265,16 million and administration expenses (calculated as total expenditure excluding items such as expenditure on benefits, transfers to reserves and revaluation reserves) totalling $104,32 million.

The administration expenses resulted in average expense ratios of 20,49 percent and 6,95 percent to total contributions and total income respectively. The two ratios were 15, 59 percent and 8,37 percent respectively for the comparable period in 2017.

The expense ratios-as high as 20 percent imply that for every $1 of income received by pension funds, about $0,80 will be available for investment. Given that part of the $1 income may be tied up to non-investable assets such as contribution arrears, the $0,80 may fail to generate enough investment income for the fund. The asset base increased from $4,65 billion as at September 30, 2018 to $5,22 billion as at December 31, 2018, reflecting an increase of 12,26 percent. The growth in the asset base was mainly due to an increase in the values of listed equities from $1,4 billion as at December 31, 2017 to $2,46 billion as at December 31, 2018.

Quoted equities accounted for 47,07 percent of the pensions industry asset base.

Liabilities amounted to $5,28 billion, supported by total assets of $5,22 billion, indicating a mismatch of $67,09 million. The mismatch was mainly a result of defined benefit liabilities not being fully funded by the respective sponsoring employers.

Pension benefit stood at about $72,54 million up from $72,31 million in the period ending September 30, 2018. Unclaimed benefit liabilities declined from $28,03 million as at September 30, 2018 to $27,01 million as at December 31, 2018.