The Sunday Mail
Tawanda Musarurwa
Senior Business Reporter
Companies could be setting themselves up for huge liabilities in future by underfunding occupational pension funds because guarantees to employees are often irrevocable.
The combined effects of inflationary pressures (from last year) and Covid-19 (from the end of the first quarter this year) have pushed a number of companies to offer their workers temporary, non-deductible allowances.
Although employees may be happy with such developments, they are bound to suffer in the long run, as this has largely weakened financing of local pension funds.
National Social Security Authority (NSSA) acting director (collections) Ms Agnes Masiiwa recently highlighted this anomaly.
“The biggest challenge (for NSSA) is the connivance between employees and employers in the evasion of payment of contributions to NSSA.
“We have noticed an increased incidence of non-review of the pensionable income in a way to evade payment of a higher pension contribution.
“During this time, it is only allowances that are being reviewed and the basic salary, which is the pensionable income, is left stagnant. This is a misnomer and it is actually disadvantaging the employee more because when it comes to retirement, it means it is the employee who suffers, and not the employer.”
NSSA administers the Pensions and Other Benefits Scheme (POBS), which is a defined benefit scheme (DB).
A DB is a promised benefit that guarantees payment of benefits usually based on a formula that takes into account the individual number of insurance years (contributions credits) and the amount of earnings over the same period.
The formula-based benefit level is guaranteed to everyone meeting the entitlement conditions.
While NSSA bears the weight of the POBS, companies can be liable for underfunded occupational pension funds in the long term. Official figures show that at the beginning of the year there were 1 067 registered occupational pension funds in the country.
In a recent research note, global consultancy firm Ernst & Young highlighted the impact of the pandemic on pension funds.
“The financial impact mainly affects defined benefit plans, because these plans guarantee a specified payment amount when the employee retires.
“This means the employer is responsible for bridging the gap, if necessary, between the returns realised on the investment and the fixed pension commitments made to the employee.”
A continued weakening contribution base will further constrain the effectiveness of local pension funds, which have already been struggling due to high operating costs.
According to Insurance and Pensions Commission (IPEC) director for pensions Mr Cuthbert Munjoma, pension administration expenses are currently high, averaging 28 percent of contributions and 1,1 percent of income.
The sector is facing high contribution arrears, with official numbers at around $887 million as at June 30, 2020.
But the biggest losers are likely to be future pensioners.
This is not difficult to determine, as the majority of pension benefits already “do not meet reasonable expenses — averaging $451 per month at as June 2020,” said Mr Munjoma.
To put this $451 into proper context, the Zimbabwe National Statistical Agency put the Total Consumption Poverty Line (TCPL) for an average family of five at $11 333 as at June 2020. Zimbabwe Association of Pension Funds (ZAPF) director-general Ms Sandra Musevenzo believes future pensioners will bear the brunt of these non-deductible allowances, suggesting that the pensionable salary should be based on total income.
“The long-term impact on pensions is that a person’s pension will be reduced at the time of retirement.
“A member will then complain 15 to 20 years from now, highlighting that they worked for X years and how come my pension is low yet I was earning X amount, yet they are forgetting there was a period in the past whereby their income constituted more of allowances and the basic was not being adjusted in line with the allowances.
“A solution is to ensure that pensionable salary is based on total income,” she said.
As a way to cover their employees, many firms have been giving non-pensionable cost of living allowances.
