PRESERVATION of value for pension savings has come under spotlight amid concerns over low public confidence facing the insurance and pensions industry owing to prevailing inflationary pressures.
While the Government has attributed the weakening of the local currency against the greenback to speculative exchange volatility and global market shocks induced by the Russia-Ukraine conflict and Covid-19 supply chain disruptions, economic experts are worried about the adverse impact this has on incomes and loss of purchasing power.
This has been compounded by the unintended historic consequences of the 2009 losses and the 2019 currency reforms, which restored the local dollar, ending the multiple currency regime.
The Insurance and Pensions Commission (IPEC) admits the above monetary challenges have adversely affected the viability of the pensions sector, prompting adoption of key measures to preserve pensioners’ value.
“The commission is aware that restoration of confidence is key to the sustainability of the insurance and pensions industry. This is why this is a focus area for the commission,” Dr Grace Muradzikwa, IPEC’s Commissioner of Insurance, Pension and Provident Funds, said.
In a latest consumer education update, she said proactive measures were being taken to ensure pensioners get adequate value for their savings.
“To achieve this, the commission is implementing various initiatives, which include; review of existing legislation used to regulate the insurance and pensions industry − the Insurance and Pensions Commission Act, the Insurance Act and the Pension and Provident Funds Act,” said Dr Muradzikwa.
“The commission is also issuing directives, circulars and frameworks to the insurance and pensions industry in line with its mandate of protecting the interests of policyholders and pension scheme members.
“In addition, the commission is implementing projects that are specially designed to help restore confidence in the industry as well as facilitate market development.
“The projects include; Zimbabwe Integrated Capital and Risk Programme Framework (ZICARP), feasibility study on agricultural index-based insurance, insurance lab, the asset separation exercise, development of Zimbabwe-specific mortality tables, and compensation for the 2009 and 2019 losses of insurance and pension values.”
ZICARP is an integrated risk-based supervisory framework whose objective is to create a sound insurance regulatory and supervisory system to enhance policyholder protection and stability of the insurance industry, said Dr Muradzikwa.
She further clarified that the asset separation exercise was a condition precedent to the compensation for the 2009 losses.
This is meant to ensure that there is no transfer of assets from policyholders to shareholders, and vice versa. “Zimbabwe has for a long time relied on either outdated country mortality tables or those developed in other countries such as South Africa and the United Kingdom,” said the commissioner.
“For this reason, the commission is spearheading the development of Zimbabwe-specific tables, which will provide a sound basis for the development of appropriate insurance and pension products/services, pricing and reserving for the same.”
Dr Muradzikwa said a consultant has been appointed to develop the mortality tables and that IPEC expects to launch the new mortality tables before the end of 2022.
With respect to compensation for the 2019 loss of value, she said the commission has already started disbursing US$100 to the first tranche of beneficiaries after receiving US$400 000 from Kuvimba Mining House.
“On the 2009 compensation, we are at the tail end of the compensation framework exercise. The commission will continue with initiatives that ensure the protection of policy holders and pension scheme members and a safe, vibrant, and sustainable industry,” she said.
Meanwhile, IPEC said it was working closely with pension funds to implement various measures to mitigate the inflation risks.
The measures include hedging against losses through property and equities investments, which account for 80 percent of the pension sector’s assets.
In addition, the commission said it was enforcing compliance with the guideline for the insurance and pensions industry on adjusting insurance and pension values in response to currency reforms.
“The guideline provides for regular review of pension benefits. The commission is also enforcing asset separation to ensure that fund members’ assets are clearly distinct,” said the regulator.
“This helps ensure that fund members’ assets are not transferred to shareholders and vice versa. The commission has also increased the threshold for alternative investments to 15 percent from 10 percent of a fund’s total assets.
“This covers private equity investments in sectors such as renewable energy, agriculture, mining, tourism and other ventures run by private entities.”
As a result, IPEC said pension funds can invest in private equity in order to diversify their investments.
“Some of the private equity investments conferred with prescribed asset status are foreign currency-denominated, making it possible to get better returns while at the same time preserving value,” said the commission.
“To diversify investment options, the commission has also allowed offshore investments, where pension funds can invest at most 15 percent of their assets offshore.
“The authorisation for the payment of contributions and related benefits in foreign currency through Statutory Instrument 280 of 2020, is another measure that will help preserve value for pension funds.
“The commission has also issued an expenses framework, which sets maximum limits for administration and investment management expenses to ensure that these do not erode pensioners’ funds.”