The pension industry has had a lot of issues to deal with from hyperinflation, high contribution arrears, prescribed assets performance and many others.
This week Insurance 24 (I24) was privileged to get in touch with a seasoned pensions expert, Peter Shoniwa (PS) who ,in his own capacity shared his thoughts on these issues.
Below are the excerpts of the interview
I24: A number of pensioners are wallowing in poverty yet they are eligible of pension Payout but are failing due to lack of knowledge of the existence of their pensions. What critical knowledge investments should the sector invest in for the benefit of pensioners?
PS: It is vitally important that the whole of the pensions industry invests in information dissemination for the benefit of the pensioners. Admittedly there is quite a significant amount of unclaimed pensions due to lack of knowledge and this is confirmed in the reports from IPEC These benefits may be for pensioners who are currently wallowing in poverty, lacking medical care and may ultimately die without accessing their benefits due to lack of knowledge.
Pensioners may also be unaware that they can commute their pensions in full if the pension falls below certain prescribed limits. There should be a concerted effort to educate not just pensioners but the public in general on the operation of pension.
It is however acknowledged that on their part some of the pension administrators have gone to the extent of advertising the names of beneficiaries in the print media providing details of where the pensioners should go to access their benefits. However responses have been very disappointing but efforts continue to be made to reach out to the pensioners. The process of reaching out to individual pensioners is hampered by lack of basic information such as addresses. This problem related mainly to pensioners who retired before the advent of the mobile phone. However subsequent proliferation of mobile phones enables the pension administrator to send bulk sms messages to pensioners. Every administrator should insist on having details of the pensioner’s mobile phone number as one of the basic details. Pensioners must also help administrators to help them(pensioners) by providing accurate information.
I24: Several pension funds have dissolved for one reason or the other. What could be your comment on whether there has been enough recourse for workers or contributors?(if any).
PS: Admittedly a number of pension funds have wound up usually because sponsoring employers can no longer afford to pay contributions. In some cases employers make pension deductions from employees’ salaries but fail to remit these to the respective pension funds . The workers who are members of the pension funds have a right to demand proof that the contributions being deducted from their salaries are indeed being remitted to the pension funds. This is why it is important to have a board of trustees representing both the members’ and the employers’ interests. One of the trustees’ key responsibilities is ensuring that contributions are paid to the pension fund. Trustees have the right to report to IPEC if pension contributions are not being remitted or are being abused. Communication to all members is very important and member meetings should be held at least once a year whilst trustees meetings should be held more frequently like once every quarter.
I24: What loopholes exists in the pension industry that is promoting the suffering of pensioners today?
PS: It is not expected that there is a deliberate strategy by any of the stakeholders to impoverish pensioners. The law is usually set with good intensions but there may be unintended consequences which could take time and a considerable level of willingness to change. The industry has a reputation to protect and quite obviously some of the players are themselves members of pension funds from which they will retire. They have a vested interest in ensuring that the assets of pension funds are managed properly.
Pensions must have provision for future increases in order to offset in part the effects of inflation.. The bulk of the pension funds operate on the basis of Defined Contributions and these make no specific provision for pension increases. Pensioners are attracted by a higher initial pension at the time of retirement but this is soon eroded and leaves the pensioner inordinately exposed to the ravages of inflation.
It is recommended that pension houses should not offer level pensions to retirees. This means that during the preretirement counselling sessions, discussion on level pensions should be minimized or avoided. There must always be provision for increases in the future albeit that such provision will result in a lower initial pension.
I24: Looking at the current economic decay that has had impact on the pension and insurance industry. There have been arguments as to whether pensions is still necessary in this hyperinflationary environment . Whats your comment?
PS: There is nothing wrong with the institution called a pension fund and it continues to provide the most significant layer of social protection for workers. Pension funds themselves remain the only vehicles for disciplined retirement provision.
Accepted that pension funds are not delivering value as per the members reasonable benefit expectations The economy as it is at present seems to be contributing significantly towards value destruction for pension funds rather than preservation and growth. This needs to be addressed if confidence in pension funds is to be restored. The integrity of the whole pensions industry has been seriously eroded. Perhaps what may need to be addressed is accessibility of pension benefits. Should workers wait until retiring age to access their pension benefits? In a normal environment the very quick answer is yes but in our own environment we would need to rethink.
I24: How best should pension custodians preserve value for the pensioners as well as their balance sheets.
PS: It is recommended that pension funds be allowed to invest off-shore on some basis. Regional counterparts are allowed to invest outside of their jurisdictions sometimes as much as 25% of their assets. Whilst there is no guarantee of a good return on such investments, it may just be sufficient to preserve values in United Sates Dollars rather than lose almost everything to inflation.
As indicated earlier in this write up, it would be an idea to have inflation indexed Prescribed Assets (partly or wholly). This of course costs the borrower more.
Investment in property is another option for value preservation and each pension fund should be exposed directly or indirectly to property investment
I24: IPEC advised that the matter of penalties on arrear contributions was under consideration with the IPEC legal team. Do you think persuasion of payment plans is the best mechanism to use. If not why?
PS: The issue of arrear contributions is a big challenge to the industry including the regulator. Most employers wish to pay pension contributions but they are incapacitated by cash-flow problems.
Payment plans are the only option for a lot of the employers as this gives time to pay the arrear contributions. What should be highlighted is that it is optional for an employer to operate a pension fund. If the conditions are too onerous an employer may decide to discontinue the pension fund and trustees usually find themselves in an invidious position where they may be forced to support the employer because they know the employer’s circumstances. They may also weigh this against job preservation.
I24: What is your comment on the performance of prescribed assets in Zimbabwe. How best do think they can be aligned to perform well in this current environment?
PS: Zimbabwean pensions law requires that a certain proportion of the assets (currently 20%) of any pension fund must be invested in certain approved securities known as Prescribed Assets. The intention is noble as pension funds mobilize huge amounts of assets part of which could be used in public sector developments. Unfortunately such investments, whilst deemed secure, are no longer attractive in an inflationary environment like the one we are experiencing unless there is some form of indexation. Indexation appears to have been resisted as it would unwittingly increase the government debt.
On the contrary the prescribed asset ratio has actually been increased exposing a larger portion of the pension fund assets to the full effects of inflation and decimation of pensions for the ultimate recipients. Past experience speaks for itself.
