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Tapiwa Maswera
In 1654, two Frenchmen, Blaise Pascal and Pierre Fermat, solved a mathematical problem that was almost 200 years old.
The now famous “problem of points” had been presented to Blaise Pascal by the Chevalier de Méré, a fellow Frenchman who used Mathematics to model gambling odds.
de Méré was not the inventor of the problem of points as such.
History kindly remembers him as the man who introduced the problem to Blaise Pascal.
Luca Paccioli, the Italian monk who first documented the problem almost two hundred years earlier, a tutor to the more famous Leonardo da Vinci and the inventor of double-entry bookkeeping is long lost in the sands of time.
The problem of points is about finding a fair and equitable way to distribute a pot of money between two gamblers, when their game has been interrupted and can no longer continue.
In Zimbabwe, executives contribute to a pot of money called a pension fund, jointly with other employees.
The objective is to accumulate enough economic value in the assets of the pension fund to pay pensions in retirement.
The accumulation of the economic value is interrupted from time to time, by inflation, currency crashes, removal of zeroes and/or redenomination of the currency.
There is a need to ensure a fair and equitable allocation of the assets of the pension fund after such an interruption.
The doctrine of probability and the science of risk management
If two gamblers contribute equal amounts to a pot and then take turns to toss a coin in a race to reach six heads or six tails in a game of match-penny (Chabuta), but are interrupted after five tosses of the coin and one of the players is leading four to one, how should the players share the pot of money?
Pascal realised that it was unfair for the leading player to take all the money, because the other player could come from behind and win.
The players could not share the pot equally because the leading player was closer to winning than his counterpart.
Pascal, therefore, set out to find a solution that apportions the pot fairly and equitably between the two.
He solved the problem using what is now called Pascal’s triangle, thus inventing a new branch of mathematics: the doctrine of probability and a new science: the science of risk management.
The problem of executive pensions in Zimbabwe
Executives contribute and have more money contributed to the fund on their behalf than any other stakeholder, because they earn more money per month in their individual capacities than other members of the fund.
Executives are also usually the longest-serving members and oldest members of any pension fund.
They therefore contribute for longer than any other members.
A typical Zimbabwean executive and his employer will contribute at least US$300 000 in economic value into their pension funds during their working lifetime.
With very modest investment returns, this can easily be accumulated to US$450 000 with investment returns.
They can therefore retire with a pension of around US$4 000 per month.
Two years after retiring, a family member, a former executive who was on a pension fund for 35 years has a pension that cannot meet a day’s needs.
I shudder when I imagine that this could be a national problem! No class of people loses more!
No class of people can do more to ensure reasonable benefit outcomes!
It is not about the money, it is about the economic value
The problem of executive pensions in Zimbabwe is not about money.
It is about the relationship between the economic value contributed to the pension fund and the economic value of the assets, which support benefit payment.
Reasonable benefit outcomes are about ensuring that the economic value contributed to pension funds finds its way into the assets backing pension payment.
It is about ensuring that the assets have the property of being able to maintain their economic value and grow over long periods of time.
It is about ensuring that they are fairly and equitably allocated at member level.
Blaise Pascal’s quest for fairness in the distribution of a gambling pot when the game has been interrupted echoes the need for redistribution of assets in pension fund when accumulations have been interrupted by inflation, currency crashes, removal of zeroes or redenomination of the currency.
Conclusion
With his solution to the problem of the points, Baise Pascal opened a door that every Zimbabwean executive must walk through on his own.
It is a door that challenges every Zimbabwean executive to use their smartness to guide the economic value that they contribute to their pension fund towards a reasonable benefit outcome.
No one can do it for them.
They must identify the numerous interruptions that cause leakage of economic value and plug them. They have the intelligence, financial, legal, risk management and accounting knowledge, economic and political muscle to ensure accountability, good governance, financial soundness and reasonable benefit outcomes.
But above all, they will be rewarded handsomely for their effort!
Tapiwa Maswera is an actuary, a former commissioner in the Justice Smith led commission of Inquiry into loss of insurance and pension values and the founder of the Financial Services Institute. He can be contacted on [email protected] or WhatsApp on +263785757215
Online Reporter