Pension industry posts $48.72 million surplus for Q1 2019
HARARE, The Insurance and Pensions Commission (IPEC) released its 2019 first quarter report on the pensions industry. The sector faces growing challenges in value erosion prompted by the currency devaluation and the effects of the adverse economic environment.
The inflationary impact on disposable income looks to be affecting the uptake from the public as membership has declined while contribution arrears rose. This also reflects the low confidence in the sector following a second wave of pension value erosion in the last ten years. In response, IPEC is reportedly working on reforms for the sector aimed at improving fund management under the uncertain economic environment.
Arguably, given that both of the recent major value destroying events have been as a result of economic policy, it is difficult to see industry level reforms alone improving local confidence in the sector. Outside of a significant and sustained improvement in the economic outlook the sentiment on pension policies will more than likely remain low.
In the meantime, the pension industry has to adapt its investment strategy to the current economic environment. Currently, the asset allocation of the sector is significantly exposed to listed equities at 45% of the industry. The quarter under review saw revaluations to property assets prop up earnings following a subdued performance on the ZSE. It is worth noting that the property revaluations represent a rationalization of value after the currency devaluation, not value creation.
Looking ahead, the second quarter should see improved investment income after a more bullish ZSE which gained 68% in the three-month period. However, further ahead, with the ZSE on a downward trend, the funds may have to consider exploring alternative investment options, which can at least preserve value. More so considering the asset allocation to equities is significantly above the 15% maximum threshold prescribed by IPEC.
Depending on the extent of industry’s property revaluations, there could be scope for the industry to increase investment in property and infrastructure by up to 50% or into prescribed assets. The well-established gaps in infrastructure and the property market provide opportunities, with rising interest noted in development projects in tourism while some market observers have identified the possibilities for projects relating to medical services, education and retail. On a related note, some observers have pointed to the prospect of pension funds pushing for the introduction of Real Estate Investment Trusts (REITs), which could improve the liquidity of the asset class to lessen the associated risk. Outside of that, the government looks to be pushing the pension industry to invest more in prescribed assets after the minimum allocation was raised from 10% to 20%.
According to the IPEC report, the pensions industry reported a surplus of $48.72 million for the 3 months ended 31 March 2019, improving from $9.45 million reported for the same period in 2018. The funds reported total income of $214.40 million for the period with contributions totaling $90.85 million and investment income totaling $98.80 million.
Insured schemes reported a surplus of $71.26 million for the quarter, driven by a total income of $92.26 million following fair value gains of $63.06 million, Self-administered funds reported a deficit of $39.40 million due to fair value losses totaling $69.80 million and benefit payments of $20.90 million respectively. The standalone pension funds reported total income and total expenditure amounting to $62.48 million and $45.62 million respectively, resulting in net income of $16.86 million for the quarter.
Pension benefits paid out totaled $66.64 million for the quarter, increasing from $61.42 million while administrative expenses totaled $20.98 million. The administration expenses resulted in average expense ratios of 23.09% and 9.78% to total contributions and total income respectively, compared to 18.27% and 16.14% respectively for the comparable period in 2018.
The industry had an asset base of $5.38 billion as at 31 March 2019, from $5.22 billion as at 31 December 2018, an increase of 3.07%. Equities investments of $2.40 billion accounted for 44.62% of the total assets with the value falling from $2.52 billion at 31 December 2018 after a bearish turn in the market during the quarter.
Investment property valued at $1.27 billion accounted for 23.58% of assets held by the industry. The value of the properties held increased from $1.10 billion at 31 December 2018 mainly due to the revaluations. Contribution arrears totaling $603.08 million accounted for 11.21% of the total asset base for the industry, increasing from $596.24 million as at 31 December 2018. The prescribed asset ratio increased from 6.24% as at 31 December 2018 to 7.32% as at 31 March 2019 with the amount invested in prescribed assets rising from $325.65 to $393.91 million as at 31 March 2019.
Insured funds reported assets totaling $1.51 billion as at 31 March 2019, constituting 27.98% of the industry’s total assets. Self-administered funds had an asset base of $1.97 billion as at 31 March 2019, the same value as the asset base as at 31 December 2018. Stand-alone pension funds reported total assets amounting to $1.90 billion as at 31 March 2019 which was marginally lower than the $1.92 billion reported as at 31 December 2018.
The industry’s total liabilities amounted to $5.49 billion, indicating a mismatch of $109.70 million with the assets as at 31 March 2019. Pension benefit arrears totaled $74.91 million as at 31 March 2019, marginally increasing from $72.54 million reported as at 31 December 2018. The arrears were mainly attributable to funds with high contribution arrears as well as those with liquidity challenges. The unclaimed benefit liabilities declined from $27.01 million as at 31 December 2018 to $24.94 million as at 31 March 2019.
At the end of the 1st quarter the industry had 1,088 registered occupational pension funds as at 31 March 2019, decreasing from the 1,102 funds as at 31 December 2018. Of those, there were 1,036 defined contribution schemes and 52 defined benefit schemes, 615 were active. Of the 473 inactive funds, 431 were insured funds, which were deemed to be in paid-up status or undergoing dissolution. There were 900 insured pension funds as at 31 March 2019, 172 registered self-administered funds and 16 stand-alone pension funds as at 31 March 2019.
Total membership for registered occupational schemes was 793,391 as at 31 March 2019, decreasing from 795,444 members at 31 December 2018 as 10,074 exited during the quarter. Membership for insured pension funds declined to 339,660 as at 31 March 2019 from 345,094 due to dissolution of some funds as well as exits totaling 6,849 for the quarter under review. Total membership for self-administered funds decreased from 119,217 as at 31 December 2018 to 118,564 members as at 31 March 2019. Meanwhile membership for stand-alone pension funds increased from 334,616 as at 31 December 2018 to 335,394 members as at 31 March 2019. FinX
