Treat pensioners with dignity and respect

Clemence Machadu Insight
Howdy folks! I feel for our pensioners, some of whom lost their pensions during the Great Conversion — that period when we migrated from using the Zimbabwe dollar to the multi-currency system. Most pensioners used to get meaningful pension payouts on a monthly basis to help them cater for their basics. But when we dollarised they started facing challenges.

Many of them now pay more for bus fare to collect their pensions than their actual payouts. There is no incentive for them to collect pensions. Folks, pensioners deserve to be treated with dignity and respect.

The reason people subscribe to pension schemes is to eliminate the risk that they may outlive their resources after retirement. The purpose of the regular pension payout is, therefore, to provide them with the means by which they can maintain a reasonable living standard after they retire.

This will ensure they do not fall back on Government or other people in their final years. We have a situation in Zimbabwe whereby, after the Great Conversion, many pensioners started to raise concerns that their pensions and insurance benefits were undervalued.

Here, we are talking about a calibre of people that does not normally complain; and when you hear them starting to complain, then whatever their grievances are, they are worth probing.

This is why President Mugabe, last year, set up a commission of inquiry to probe the process used to convert pensions and insurance benefits following dollarisation.

President Mugabe highlighted that the commission would identify appropriate criteria for assessing whether any pension fund members have been prejudiced and ascertain the extent of the prejudice, if any.

Where it is established that pension fund members have been materially prejudiced, an appropriate basis for compensating such pension fund members will be established.

It is indispensable that this issue is solved so as to breathe confidence in the pension insurance sector that is sufficient to encourage full uptake of insurance products. This commission is chaired by retired High Court judge, Justice George Smith.

It should have long finished its task in March this year, at the earliest, and in June at latest.

I was, however, saddened to read in last week’s issue of The Sunday Mail Business that the commission is facing resistance from some companies that are reluctant to submit crucial data it needs to complete its work, which, in itself, somehow validates the pensioners’ skepticism.

Justice Smith is on record saying: “Let me also reiterate that the commission is accountable to the President . . . its findings and recommendations will be furnished to the President for consideration and possible implementation.”

For pension funds to then choose to deliberately ignore this commission is akin to undermining the person to whom it is accountable to, which is President Mugabe himself.

It is also sending a message to pensioners that they only cared about getting their contributions and now don’t care about fulfilling the fundamental goal of those schemes.

Granted, the hyper-inflationary era was a difficult one for insurers to maintain liquidity levels and preserve the value of investments.

In the interest of fairness, I am going to look at the pension funds’ side of the coin, before concluding this matter.

Folks, the hyper-inflationary era resulted in significant increases in incidents of under-insurance, cover reductions, cancellations and lapses of insurance policies.

By the end of December 2008, money supply growth had accelerated to 431 quintillion percent and an unpublished 3,2 quintillion percent inflation during the same period.

Cumulatively, 25 zeros were slashed off the Zimdollar in the monetary authorities’ relentless efforts to tame inflation.

The official exchange rate was US$1:Z$22 in January 2009, while the parallel market rate was US$1:Z$2 trillion.

The above give a quick glimpse into how bad the situation was.

At the close of 2008, at least 40 percent of insurance companies’ investment portfolios were held in equities, about 50 percent in properties and the balance in money markets and Government bonds.

Stoppage of trading on the Zimbabwe Stock Exchange in the last quarter of 2008 affected the performance of insurance companies’ investments; and the money markets were also offering below inflation returns.

And when the multi-currency system was adopted, it triggered a cash crunch in the insurance sector as most pension funds were heavily invested in properties, meaning they were largely relying on rental incomes for their cashflows.

The period after dollarisation was marked by high levels of rental defaults, which made it difficult for pension funds to make pension payouts in foreign currency.

Against this background, some pension funds resorted to finding actuarial methodologies that produce lower payouts upon conversion and adopted those in perpetuity, while ignoring the ideal scenarios.

Now, we are faced with a trust situation in the pension funds sector, in particular, and the insurance sector at large.

And it might be difficult to restore full confidence in this sector without addressing this issue.

Pension funds must, therefore, not shoot themselves in the foot by not assisting this commission to complete its task.

The insurance sector is very sensitive, and transparency is one of the key ingredients that brew confidence in this sector.

What is important is restoring the dignity and respect of our pensioners, and not to continue to give them twumari twunoperera mubhazi on the basis of flawed calculations that are not in line with best practices.

As a means to move on, Government might have to consider making provisions for amnesty on prosecution or penalties in connection with irregularities that might be raised by this commission, especially for the early periods after dollarisation.

The Zimbabwe Revenue Authority has already granted companies amnesty with respect to non-compliance over some unfortunate episodes of the past.

The central bank has also brought closure to the issue of Zimdollar account balances as at December 31, 2008 using the November 2008 United Nations exchange rate of US$1:Z$35 quadrillion, even though the official exchange rate for December 2008 was US$1:Z$4,9 million.

What is important is to redress the past anomalies, ensuring correct actuarial methodologies are adopted going forward, without soiling confidence in this sector.

Players in the insurance sector are currently battling to meet the increased minimum capital thresholds in the face of the looming December 31 deadline.

Insurance companies are required to top up their minimum capital thresholds by up to 150 percent; in a move said to be critical for confidence building in the sector and underwriting meaningful business.

Pension funds should also be supported with robust regulations that ensure bring meaningful returns on their investments so that they can give decent payouts to pensioners, the majority of whom no longer have other streams of income.

For example, why not amend the regulations to allow the National Social Security Authority to invest abroad where there are higher returns as opposed to losing US$30 million of public money in failed Capital Bank, US$15 million in Interfin Banking Corporation and US$750 000 in Genesis Bank?

Our pension schemes should be dynamically structured to ensure folks like Mbuya vaHekita get meaningful payouts to sustain them with a decent quality of life.

Later folks!