IPEC initiates legal action against pension funds

Business Reporter

THE Insurance and Pensions Commission (IPEC) has initiated legal action against approximately 50 pension funds for failing to submit their proposed pre-2009 compensation schemes, the regulator’s commissioner, Dr Grace Muradzikwa, has revealed.

In an interview last week, Dr Muradzikwa said the criminal proceedings against non-compliant entities were in accordance with Statutory Instrument (SI) 162 of 2023.

“We are taking legal action against about 50 pension funds that have not submitted at all and it will be up to the courts (to make a determination),” said Dr Muradzikwa.

The decision to provide compensation follows years of pressure from pensioners and policyholders, who argued that they were unfairly disadvantaged by the currency conversion.

In 2009, the country abandoned the Zimbabwe dollar and adopted a basket of foreign currencies, including the US dollar, which became the anchor unit.

However, the conversion resulted in significant losses for many pensioners and policyholders, some of whom have since died while waiting for compensation.

Pension fund values were badly eroded due to the hyperinflation.

The Government-appointed commission of inquiry, chaired by retired judge Justice George Smith, confirmed a “huge” loss of value and recommended compensation.

Some of the pensioners got zero values owing to the lack of benefit inflation-indexation and currency debasing. This left many people, after years of hard work, poorer.

Dr Muradzikwa said IPEC reviewed 1 194 pension schemes and recommended areas for improvement.

Following resubmissions, the pension funds will have 60 days to comply with the recommended changes.

With the process now expected to take longer than originally expected, Dr Muradzikwa appealed for patience, describing the compensation process as very challenging.

IPEC had initially targeted the first quarter of this year to begin compensation payouts.

“It is highly technical and it has been difficult to unlock the value,” she said.

Out of the accessed schemes, only Mimosa Pension Fund has been approved, with the rest going back to the drawing board.

Mr Martin Tarusenga, the general manager of the Zimbabwe Pensions and Insurance Rights Trusts, however, argued that the compliance parameters outlined by the SI are impractical, hindering compliance efforts by pension funds and insurance companies.

“We believe that it is unimplementable and only serves to prejudice the pensioners,” said Mr Tarusenga.

“I think it is an undeclared policy of not paying anyone.”

While the decision to compensate pensioners for losses suffered due to currency conversion is a welcome step after years of struggle, the erosion of the pension fund value has had a lasting impact on many Zimbabweans’ retirement security.

The loss of confidence in traditional pension schemes has led to a shift in saving behaviour.

Many individuals are increasingly turning to alternative investment options to secure their future.

Property, in particular, has become a popular choice.

Unlike pensions that can be susceptible to economic fluctuations, real estate offers a tangible asset with the potential for appreciation over time.

Similarly, the insurance penetration ratio in Zimbabwe has been less than 3,6 percent, according to a 2022 report by the Insurance Institute of Zimbabwe, having reached the highest rate of 5,7 percent in 2004 and the lowest of 1,5 percent in 2016.

“The erosion of pension fund value due to hyperinflation and currency conversion has undoubtedly shaken public confidence in these schemes,” says Mr Sylvester Nyika, a Harare-based financial analyst.

“This has led to a surge in alternative investments, particularly property.”

While property offers a level of security, Mr Nyika said, it “can be less liquid than pensions and comes with its own set of risks”.

“A diversified approach is key. The Government’s compensation efforts are a positive step, but rebuilding trust
and strengthening the pension sector as a whole will be crucial to ensure a secure retirement for future generations,” Mr Nyika added.