Zim pensioners feel financial pinch

• As hordes struggle to live on just $960 a year

August 23, 2018

Phillimon Mhlanga

Thousands of Zimbabwe’s pensioners are feeling thepinch of low retirement payout which has left them wallow in abject poverty, with experts describing the country’s pension scheme payouts as a “shame”.

There are basically four main sources of pension benefits in Zimbabwe. These are government pensions for civil servants, national social security authority (NSSA) which was introduced in 1994 as a safety net for pensioners, occupational private schemes and annuities purchased from life companies.

Payouts for retirees from these schemes are currently pegged at about $80 a month on average, which translates to $960 a year to pay their bills and live in retirement. This has, however, been described as pathetic and far below the alleviation of poverty stratum.

Cash-rich NSSA, which is run on a pay –as –you go basis, a pension scheme that entails that today’s workers pay for pensions of current retirees, had projected to increase payouts to $100 a month at the beginning of this year but have now reneged on the plan saying they want an actuarial valuation to be conducted first before the compulsory scheme increase the payouts.

Experts, who spoke to Insurance 24, said the $80 a month payout, which was a 33,3 percent increase from the $60 a month payout which was obtaining until October last year, reveal the scale of the Zimbabwean saving crisis. They said the end of career payout,was barely large enough for basic comforts.

They also indicated that it was not a “liveable” payout, resulting in pensioners feeling serious consequences.

It is understood that with the average life expectancy strengthening, the total amount of pension payouts is on the rise.The demographic trend is also showing a decline in the number of premium –paying participants in public pension plans, thereby weakening the pension system’s financial footing as the savings pot is dwindling.

It is estimated that more than 90 percent of employable Zimbabweans are out of formal jobs, and are eking an honest living as vendors in the informal sector. They are largely believed, unless they have private schemes, not to be contributing to the pension industry at all.

This has left many pension funds in need of bailouts. With the current status quo, the future of pension funds in Zimbabwe is shrouded in doubt as the as the poor conditions act as dead weight for pension funds.

The Insurance 24 can report that most private sector employers have closed their defined benefit (DB) schemes, which link pensions to salaries and have switched to defined contribution (DC) schemes, which simply generate a savings pot. There are, however, investment risks regardless of whether this is DB or a DC scheme. Pension experts said the difference is on whom the risk falls. They said in a DC scheme, it does fall on the employee and the in a DB scheme, it rests largely on the employer.

Insurance and Pensions  Commission(IPEC) head of pensions, JosephatKakwere, said the retirement pensions still fall below the expectations of pensioners given that the food basket for a family of six members and the poverty datum line ranges from $500 and $575, which covers the barest of necessities per month.

He said that most pensioners have no other sources of income, meaning pensions paid out are hardly enough to make ends meet.

“When you talk about pensioners in Zimbabwe, at times you get depressed,” Kakwererecently told Insurance 24.

“Pension values are very low, and it’s disheartening because of the many complains that we get from pensioners. The payouts are not at the level where they are supposed to be.”

“The answer to the question whether pensioners  in Zimbabwe get a payoutthat sustain them or  that is enough to survive or live on is simple. With the food basket for a family of six membersand total poverty datum line ranging between $500 and $575, the obvious answer is no.

“The average monthly pension benefits accounts for between 24,70 and 28,40 percent  of the monthly bread basket range  for the year 2017.

“The next fundamental questions are why is it not enough and how can this disparity be remedied?he asked.

“Some of the causes of low pension benefits are low salaries and contribution rates. There is this old adage which says what you put in is what you get out, which is very true when it comes to pension benefits,” Kakwere added.

He indicated that pension funds in Zimbabwe were in a mess, with more than $600 million in pension arrears and high expense ratios.

Contribution arrears to pension funds rose by nine percent to $600 million in the four months to June this year, from $550 million recorded in February, threatening the stability of the sector.The latest contribution arrears accounts for 14,89 percent of  total assets as at end of last December.The pensions industry in Zimbabwe had total assets amounting to $4,03 billion at the end of December 2017.

The asset base was attributable to a total of 578 801 members excluding beneficiaries.

The asset base translated to average capital accumulations of about $6,967 per member, according to official data obtained from IPEC last week.

Membership of pension funds is characterized by several classes.Of the 578 801 members, 343 193 were active members. Pensioners and deferred pensioners, that is those not actively contributing to the fund and whose employer contributions are preserved until retirement age stood at 30 096 and 123 251 respectively.

Suspended pensioners whose membership status is in doubt due to incomplete records were 16713, while unclaimed benefits and new entrance stood at 52664 and 12884 respectively.

The huge number of pensioners that have not claimed their critical benefits they are entitled to has resulted in close to $30 million worth of vital pension benefits which has gone unclaimed at the country’s pension funds, according to IPEC, which attributed this to lack of knowledge on the part of pension scheme members.

IPEC said the situation was worrisome.

Non-remittance of pension contributions by companies hasalso deprived members and their families of their entitlements in the event of retirement, death or other developments. These benefits can only be paid to beneficiaries whose contributions and premiums are up to date.

“There are also low investment returns and loss of value due to dollarization of the economy and high expense ratios,” Kakwere added.

Another pensions expert SikanyisoMoyowho spoke to Insurance 24last week said: “Pensions are deferred pay. But, they (pensioners) are struggling to afford a decent pension even after years of saving.

“Many pensioners in Zimbabwe live in poverty and it’s a shame as rates are so poor, and generally offer no protection against inflation. This is a big issue, and has resulted in them failing to have a decent lifestyle.”

JaphetMboweni, a pension expert said: “Pensioners in Zimbabwe are being paid pittance by NSSA while the authority invests money in property development. Managers at NSSA drive top of the range vehicles while workers and pensioners who are the owners of the money wallow in miserable poverty. The authority (NSSA) should seriously rethink on the issue of pension payouts and workout how best workers and pensioners can also benefit from millions of dollars invested in property.”

Experts who spoke to Insurance 24 urged workers to prepare for their old age by saving into a private pension to top up their money. They said failure to save enough into a pension scheme means poverty in older age was a sad inevitability.

They indicated that the number of retired people who had no other source of income other than pension was rising.

It is important saving a modest amount every month, which will grow into a decent pot over the years, because inflation is rising. Paying into a preferably index-linked pension should help to offset the ravages of inflation, experts said.

Reliance on State pension on its own, they said, will never give the vast majority of people in Zimbabwe anywhere near the standard of living most would aspire to in their later years.

They added that it was vitally important for everyone of working age to take steps to obtain a private pension wherever possible.

“This is a serious warning to those who have not made enough pension provision for later life that this is the time to prepare for later life,”Kakwere said.

“This also means there is need for higher contribution rates, seek for higher investment returns through proactive investments, inflation indexed investments, hybrid schemes once the Zimbabwe economy recuperates, consolidation of pensions industry to achieve economies of scale and the commission holistic pension industry reforms,” he told Insurance 24.

Moyo warned that government was not prepared to payout a pension that allows “many comforts”. He, however, encouraged workers to back up their public pensions with savings on private pension schemes.

“Generally, newly retired people rely less on the pension than the older pensioners but as they age these younger pensioners become more dependent on it too as inflation bites into incomes and any paid work stops,” Moyo said.

He added: “The State will never provide a retirement income that allows many comforts.

“These figures ($80 a month) show we need to encourage people to save and plan for their retirements. Workers are automatically enrolled in a company pension unless they choose to opt out. But, they should probably invest in private pension schemes as well.”

Some pensioners who spoke to Insurance 24 said payouts should rise in line with inflation.

“I have been contributing to NSSA since I started working long back. I am retired now for more than five years and the cost of living is going up,” said a 70 year old Harare based pensioner, ThabaniSithole, adding: “The $80 I am getting is not enough to get by until the end of the month. NSSA should increase this.”

The insurance and pension industry lost more than $3 billion, according the Commission of Inquiry chaired by Retired Justice Smith, as almost the entire pension contributions were wiped out overnight as Zimbabwe switched over to multi-currency regime after inflation soared to a record 231 million percent in 2008. The international Monetary Fund estimates inflation reached 500 billion percent. Government wiped out the hyperinflation figures in 2009 when it abandoned its own currency due hyperinflationary pressures.

Government commissioned the investigation in 2015 into how pensions and insurance benefits were paid out following a big outcry from pensioners and policyholders.