The Sunday Mail
Business Reporter
For quite a while now, Zimbabwe has suffered from the existence of anaemic regulatory frameworks, or perhaps just outdated ones.
There was a time when moral suasion was used as a strategy to regulate institutions, but that is past. Following the pensions erosion that took place around 2008 due to hyperinflation, Government appointed the Justice Smith Commission of Inquiry to look into the matter.
And one of the key highlights of the report was that the insurance and pension industry was not effectively regulated between 1996 and 2014.
The sector regulator — the Insurance and Pensions Commission (Ipec) — was accused of failure to intervene in order to correct market failures and guide the industry. It was thus found culpable of failing to ensure financially sound systems and procedures.
Reads part of the report: “The industry players trampled on reasonable benefit expectations of its customers, leading to loss of value. Poor corporate governance, arbitrary benefit calculations, shambolic record-keeping and unsustainable expense ratios, among other ills became prevalent in the industry, with policyholders and pension fund members bearing the brunt of such excesses.”
But there has been progress in respect to legal reforms that seek to empower Ipec, with the Pensions and Provident Funds Bill being published earlier this year.
This week, Ipec Commissioner Dr Grace Muradzikwa (pictured) said the legal reform, particularly with regards to the Pensions and Provident Bill, will empower the regulator to implement recommendations of the Justice Smith report.
“As far as legal reform is concerned, the Pensions and Provident Funds Bill was published, finally. And currently, it is open to members of the public to comment on. That Bill is going to give the commission the legal powers needed for us to be able to do some of things that we need to do around the (Justice) Smith Commission report,” she said.
Among the proposed amendments to the current Pensions and Provident Act, the Bill seeks to address problems ranging from the lack of operational independence in some of these funds, poor board structures and board appointments, failure to deal with conflict of interest at board level, capacity limitations of the regulator, absence of policy on troubled institutions, capital adequacy determination criteria, absence of disclosure measures and accountability, and transparency in the industry as a whole.
Clause 13 of the Bill is particularly critical for Ipec as it (a) empowers the commission to revoke a certificate of registration of a fund if it discovers that the applicant willingly and knowingly made a false statement in the application, or the fund breaches the conditions of registration or contravenes the Pensions and Provident Funds Act or regulations made in terms of the Act, or the fund is merged, wound up or dissolved. However, it also requires Ipec to observe principles of natural justice when revoking licences.
Other critical parts of the Bill include Clauses 40, 41 and 42, which deal with investigation into affairs of a fund, where the commission considers that an investigation is necessary for the purpose of protecting the interests of fund members; preventing or detecting a contravention of the Pensions and Provident Funds Act or any other law; procedure on completion of investigation; and action by commission following investigation.
Value loss as a result of currency conversion was the major talking point around 2008, and it has emerged again as a major talking point within the industry, but also more broadly.
To this extent, Clause 49 of the Pensions and Provident Funds Bill provides that the board of every existing fund that is classified as a defined benefit fund shall, as soon as possible after a currency conversion date, cause the fund’s actuary to calculate the fund’s liabilities in the former currency towards its members, beneficiaries and other stakeholders.
The actuary would also apportion the fair value of the fund’s assets in the new currency between the members, beneficiaries and other stakeholder so as to establish the fund’s liability in the new currency to each of those classes of persons.
Dr Muradzikwa, however, said for the commission to be fully empowered, there needed to be similar progress on reforms of the Insurance Act and the Insurance and Pensions Commissions Act.
“We are not happy with the progress of the other two Bills, but I can assure you that in the meetings that the industry has had with the Minister (of Finance and Economic Development), he has given a commitment that we should be able to see some traction this year,” she said.
Some players in the pensions industry have gone through the Pensions and Provident Funds Bill, and although they say it is a “step in the right direction’” they believe it requires more specificity on some of the stated new principles.
Said Zimbabwe Association of Pension Funds (ZAPF) director-general Sandra Sevenzo in comments sent to Parliament this week: “Overall, the Bill is a response to what Justice Smith’s Commission of Inquiry advocated for as a step towards ensuring the financial crisis of 2008/2009 does not prejudice policyholders.
“The Bill is progressive in certain respects such as the corporate governance requirements for funds, fit and proper requirements and fiduciary duties. However, there are areas which require attention, particularly the roles of the commission and the commissioner, new principles that have been incorporated include fair value, actuarial surplus, that require further understanding which must concern the pension fund industry.”
