The Sunday Mail
Tawanda Musarurwa
Pension funds are extremely complex entities that deal with members’ subscriptions and investments that run into billions of dollars.
For instance, as at the close of June 2021, official numbers show that the total asset base for Zimbabwe’s pensions industry amounted $198,38 billion.
This simple verity necessitates that everyone directly or indirectly involved in handling these significant monies be persons of integrity.
The importance of integrity in pension funds management is even more important, given that Government, through the regulator – the Insurance and Pensions Commission – has widened (and continues to widen) the scope of prescribed assets (PAs) to include private equity. Private equity, unlike the public investments that pension funds have traditionally piled into, do not typically have comparable reporting standards and public accountability mechanisms.
The industry has also made additional calls for the broadening of the sector’s investment guidelines.
“A low hanging fruit in my view in the quest for PAs that preserve value, is to allow pension funds to invest directly in minerals and commodities, which are abundant in Zimbabwe. “This has been done in South Africa with great success,” said Zimbabwe Association of Pension Fund (ZAPF) councillor, Mrs Patience Dhliwayo, recently.
“Related to the above is the issue of revising the investment guidelines (which IPEC is currently engaged in) so that they speak to the current economic climate and emerging investment opportunities.
“It is also pleasing to note that an offshore investments guideline is also in the pipeline. This asset class, if done right, has the potential of hedging against the many risks associated with concentrating investments in a single geographical territory.”
Integrity will ensure that such ‘alternative’ investments are implemented in an ethical and equitable manner.
However, integrity, despite its irrefutable value, is a rather abstract concept.
Standard definitions of integrity further point to concepts of ‘incorruptibility’, ‘soundness’ and ‘completeness’.
These are vital attributes for pension fund stakeholders, not least, trustees and board members who have key oversight roles.
It is therefore a huge move by IPEC to be developing draft regulations on ‘Standards for the pension industry on payment and receipt of gifts and other items of value’.
The regulator is currently taking input from players in the sector on the proposed regulations.
Although it might be, that the new rules will be difficult to monitor and impose, their existence is important insofar as enticements – in either direction – can have a huge impact on the how pensioners’ monies are used or misused.
Actuaries Mr Gandy Gandidzanwa and Mr Itai Mukadira say integrity is vital to the pensions industry.
“Integrity is doing what is right even when no one is watching. It is the practice of showing a consistent and uncompromising adherence to strong ethical principles and values,” they said.
“Absence of integrity, or just the perception of its absence, is directly costly for (pension fund) members as it demands a magnified and increased frequency of monitoring. Indirectly, it creates an unhealthy union between members and the industry.”
Can integrity be regulated?
Yes and no.
As a concept, integrity cannot be regulated, but society or entities can devise mechanisms for compliance to set standards.
What IPEC is doing with the draft regulations is to put in place measures that will push stakeholders in the industry to toe certain ethical lines.
This comes as there has been an increase in unethical behavior by players in the industry.
The move by the regulator is in line with the Organisation for Economic Co-operation and
Development (OECD)’s recommendations on core principles of occupational pension
regulation, part of which reads:
“Pension supervisory authorities should be pro-active, seeking to avoid significant problems before they occur and intervening, in a proportionate way, at as early a stage as possible and searching for those supervisory instruments which add most value to the desired supervisory result.”
Said IPEC Commissioner Dr Grace Muradzikwa:
“The Commission has noted a practice where funds or individual trustees receive gifts or monetary incentives from service providers, including fund administrators paying inducements or bribes under the banner of retention fees or gifts.
“Such conduct is unethical and impacts negatively on the levels of integrity and credibility of the processes that result in the identification and appointment of service providers.”
According to the draft regulations (Circular 36 of 2021), dated November 29, 2021, IPEC is empowered by the Pension and Provident Fund Regulations to disqualify trustees, principal officers and fund administrators or insurers that behave in a wayward manner.
The proposed regulations delineate a ‘gift’ as “means or property of whatsoever nature and any benefit, direct or indirect, which has a financial value, but does not include agreed remuneration for services to the fund.”
