The Sunday Mail
Tawanda Musarurwa
Pensioners are set to start receiving inflation-adjusted pay-outs, as the National Social Security Authority (NSSA) starts reviewing the compensation framework.
The latest recorded year-on-year inflation rate stood at 97,85 percent as at May 2019, and near-term projections are that it could maintain an upward trajectory.
All things being equal, pension pay-outs are typically fixed amounts and are not adjusted monthly, hence rising inflation tends to have a detrimental effect on pensioners’ purchasing power.
Asked to spell out what initiatives or strategies NSSA have in place to protect pensioners from loss of value caused by inflation, NSSA marketing and communications executive Tendai Mutseyekwa said Government is aware of pensioners’ concerns in view of the rising cost of living.
“The Minister of Public Service, Labour and Social Welfare is seized with the issue of NSSA benefits and will soon be making an announcement to that effect.”
In terms of the current compensation framework for NSSA, pension pay-outs depend on contributions, but the majority are receiving pay-outs of between $40 and $200, although for the very few who retired on good salaries could be earning between $500 and $1 500 (but those are just a handful).
The majority of pensioners fear another round of value loss in terms of their current pay-outs (similar to those experienced at dollarisation in 2009) after the latest round of currency reforms. Last month, Treasury effectively ended the long-standing multi-currency system through the promulgation of Statutory Instrument 142 of 2019, which also re-introduced the “Zimbabwe dollar” as the sole legal tender for local transactions.
A pensioner who spoke to The Sunday Mail this week said:
“Our pay-outs are already low, and now we are struggling to buy even basic groceries because the prices keep rising. And now with the Zimbabwe dollar, my worry is that we could experience hyperinflation that we saw around 2008. We just cannot keep up,” she said on condition of anonymity.
However, the fiscal authorities maintain that the 2008 nightmare will not recur as macro-economic measures have been put in place to protect the value of the local currency.
Secretary for Finance and Economic Development George Guvamatanga said recently that the move by the Reserve Bank of Zimbabwe to raise interest rates was also aimed at protecting value for pensioners.
“When we talk of interest rates, there are two sides of interest rates: there are the borrowers and the lenders, and the lenders are the orphans, the widows, the pensioners.
“We have been taken to task on the destruction of value for pensioners, so paying an interest rate that is not related to inflation destroys value for the savers and those are the pensioners that we are talking about,” he said.
“So we need to strike a balance between the production and well as protect the value of pensioners and also encourage savings. But if you have negative interest rates and inflation is now around 90 percent and you are paying 5 percent, no one will save. And those who have no choice like the pensioners who will already have invested their money will be losing value. So we are simply transferring that value from the pensioner to the corporate.”
There are, however, still more concerns that the SI-142 of 2019 will have a negative impact on United States dollar-denominated pension funds.
This is after the sector regulator, the Insurance and Pensions Commission (IPEC) last month directed insurance firms to discontinue issuing policies in foreign currency in line with the new Statutory Instrument.
“Following the gazetting of SI-142 of 2019, which became effective on June 24, 2019, your members are being requested to do the following while the commission engages fiscal and monetary authorities: To stop issuing new United States dollar or any foreign currency-denominated policies. To submit to the Commission, the current book of inforce policies, in Excel format, showing policy number, name of policy holder, date of commencement, premium, sum assured/insured, name of broker, term of policy and status,” said IPEC commissioner Grace Muradzikwa in a circular to insurance players.
The regulator said insurance firms should submit total premiums collected to date on the current book, total pending and outstanding claims, premium retention of the US dollar or any foreign currency-denominated premiums and where they are invested. They were also tasked to submit nostro balances for US dollar or foreign currency-denominated premium accounts as at June 24, 2019.
And to indicate the value of US dollar or foreign currency denominated premiums that have not yet been remitted to risk carriers. It effectively puts paid to the use of US dollar-denominated pension funds as a value preservation strategy for some companies.
However, experts have suggested that since most pension funds are invested in real assets such as properties, for example, such assets have a self-correcting value irrespective of the currency in use. Meanwhile, some private insurance and pension players are already coming up with innovative strategies to preserve value.
Said Zimre Holdings Limited (ZHL) chief executive officer Stanley Kudenga: “Amid fears of the re-emergence of hyperinflationary conditions in Zimbabwe and the volatile exchange rate, value preservation will remain a key focus area for the group.”
“The group is also exploring and implementing expansion into existing value chains and complementary businesses with synergistic linkages to the core operations to create new revenue lines.
“Leveraging on the strong balance sheet and regionally diversified business portfolio, as well as steps being taken to unlock value from our investments in CFI and Zupco, will be key in creating value for shareholders.”
