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Fidelis Munyoro Chief Reporter
Pensioners are set to get better benefits following a directive by the Insurance and Pensions Commission (IPEC) for pension funds and insurance funds to revalue their assets twice a year to reflect actual values following inflation driven by currency changes and the switches in currencies used locally.
The directive comes as policyholders, pensioners and those getting lump sums were seeing their payments fall far behind inflation, even though underlying property and equity assets were keeping pace with inflation or were at least close to that and holdings in interest bearing financial instruments, which do not change much in value, were not a large percentage of held assets.
According to a report by IPEC, the recent currency reforms prompted a rise in the inflation rate and instability in the exchange rate that has produced extraordinary gains, referred to as “Revaluation Gains,” for most insurance companies and pension funds.
In a bid to fulfil its mandate of protecting the interests of policyholders and pension scheme members, the commission has issued a guideline framework on the determination and treatment of these revaluation gains.
The guideline will, therefore, provide the designed principles to be adhered to by all insurance companies and pension funds when determining and allocating the revaluation gains that arose as a result of the inflation following currency reforms.
In the guideline, references to values in United State dollars’ era shall be read as anything denominated in that currency or any of the other currencies that were legal tender under the multi-currency regime from February 1, 2009, through to February 22, 2019.
“The measures have specifically been informed by lessons drawn from the 2008-2009 experience, which saw the industry employing its own strategies in the absence of standardised guidelines from monetary, fiscal and the supervisory authorities on how best to manage the currency changeover,” said IPEC in its voluminous report.
“In many instances, this resulted in small pay-outs to policyholders and pension fund members that were viewed as unfair to policyholders and pension funds members.”
The objectives of this guideline include to ensure fair and equitable treatment of insurance policyholders and pension fund participants by insurance companies and pension funds following the recent currency reforms.
It also seeks to provide standards to be adhered to by the industry on treatment of revaluation gains emanating from the recent currency reforms. This will enhance uniformity and comparability of industry results on treatment of revaluation gains.
Also it is aimed at trying to avoid a repeat of the 2008-2009 challenges that arose from lack of sufficient guidance from relevant authorities and professional bodies.
The guideline shall apply to all insurance companies, pension and provident funds and fund administrators, and shall cover adjustment of values due to the 2019 currency reforms for all in-force insurance contracts, pension and provident fund benefits effective February 1, 2009, through to February 22, 2019, upon satisfaction that distribution of available assets for preceding years since dollarisation was carried out in a fair and equitable manner.
The effective date of this guideline will be December 31 2018.
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