Self-administered pension funds’ contributions jump 8pc, arrears 13pc

HARARE – Total contributions for self-administered pension funds surged 8 percent to $536.8 mln in FY2016, compared to $496.7 mln realised in the prior year. Data released in the 2016 Fourth Quarter Report of the Insurance and Pension Commission (IPEC) show that arrear contributions have also increased from $311.2 mln in 2015 to $350.7 mln last year.

Arrear contributions for fund administrators increased by 22 percent, with standalone funds also registering a 16 percent jump. Only insurer administered funds registered a decline in arrear contributions of 13 percent.

“…the major challenges for the industry continue to be arrear contributions, high expense ratios, low benefits in general”, says IPEC in the report.

The Commission said that pension funds should always seek to meet fund objectives particularly pre-targeted income replacement ratios through better investment decisions, minimum cost structures and adhering to good corporate governance practices.

“Pension funds are also encouraged to have clear and transparent service level agreements with their service providers which promote the interest of Fund members”, said the report.

In the operating period, total fund membership for stand-alone pension funds fell 24 percent from the prior year figure of 344,198, to end the year at 262,085, on the back of company closures or retrenchments that are taking place in the economy. Standalone funds however reported a 10 percent growth in contributions to close the year 2016 at $355 mln, although 77 percent of those contributions were in arrears.

Total expenses for standalone funds also declined by 11 percent from $20 mln to $18 mln for the period under review. Expense-to -contribution and expense to total income ratios, at 21 percent and 13 percent, respectively, were however above IPEC’s target limit of 10 percent as high cost ratios deplete member values and benefits. Benefit payouts for standalone funds grew by 32 percent to close the year at $110 mln, partly due to fund dissolutions and commutation applications by members.

Total membership for insurer administered also declined marginally from 27,652 in 2015 to 28,296. Employers contributed $34 mln of total contributions, with members contributing $16 million. Total income however tremendously jumped 80 percent to $80 mln, compared to $44 mln in 2015. The expense to contribution ratio also declined from 25 percent in 2015 to 16 percent last year. Expense to total income ratio also declined to 10 percent in a move commended by IPEC as it promotes and protects fund member values and benefits especially in the current challenging operating environment.

Fund administrators’ active fund members contributed $18 mln of the total contributions, with employers contributing $36 mln. The Commission said that it closely monitors the challenge of default risk on contribution remittances periodically and encouraged trustees to engage sponsoring employers with strategies to reduce arrears.

Total contributions and total income received by fund administrators amounted to $54 mln and $124 mln, respectively. There was a 3 percent growth on collected contributions and 48 percent on total income, but expenses grew by 61 percent to close the year at $17 mln. Cost to contribution ratio was also above the 10 percent target, at 32 percent. The Commission said that it continues to engage fund administrators to rationalize their costs appropriately. Benefits paid also increased to $46 mln compared to $42 mln in 2017.

Fund administrators also reported a total asset base of $568 mln, compared to $461 mln in 2015.