The Sunday Mail
Fatima Bulla
Gender & Community Editor
PENSIONERS receiving annual pay- outs of less than 6 000 Zimbabwean dollars can salvage their earnings’ value by applying for lump sums, the Insurance and Pension Commission (IPEC) has said.
In a circular released to stakeholders in the pension fund industry, IPEC acknowledged that the prevailing hyperinflationary environment posed a threat to the preservation of pension values.
“The trustees, upon application by the member, shall be empowered to commute the whole pension for a lump sum where the total pension payable to a member does not exceed six thousand Zimbabwean dollars per annum,” states the circular, which was signed by IIPEC Commissioner Dr Grace Muradzikwa.
In the 2020 National Budget, Finance and Economic Development Minister Professor Mthuli Ncube highlighted that pension fund members whose additional benefit was less than ZWL6 000 at the time they left employment, or cannot buy a pension exceeding ZWL6 000, can apply for a lump sum payout.
The move might be welcomed by pensioners who are contending with the continuous loss of their benefits’ values, while the cost of living continues to increase.
However, independent consulting actuary Mr Davison Mureriwa raised concern over the lack of guidelines on how the amounts should be calculated.
“It is very difficult to set long-term assumptions in a hyperinflation market. If markets are depressed, commutations are unlikely to lead to value preservations as the lump sum amounts to be paid may be lower than the true underlying value of the assets, leading to commuting pensioners being paid low lump sums,” he revealed.
He also highlighted that commutations may result in a run-down on the assets of the pension funds, leading to liquidity challenges.
“For example, it’s not clear how $500 per month can be considered trivial given that the current average pensions being received are $184 per month, according to the third quarter IPEC report. NSSA’s pension is also at $300 per month.
“Commutations are likely to exacerbate the low confidence in the pensions industry as trivialising pensions may reinforce the outcry that, after all, there is no basis for saving for retirement.
“Also, most life insurers or pension administrators are unlikely to encourage pensioners to apply as this will lead to a depletion of the assets under management considering that most pensioners are receiving pensions below $500 per month,” Mr Mureriwa said.
But Zimbabwe Association of Pension Funds director general Ms Sandra Musevenzo applauded this move, saying getting benefits when they still had purchasing power could be a form of reprieve to pensioners.
However, she posited that the general view in the market is that the assets backing pension funds’ liabilities are currently undervalued due to low investor confidence.
“If this view is correct and the assets’ values revert to their correct values in future, it means that those members who are cashing in the pension now will lose out on their share of future gains had they not exited their respective pension funds,” she pointed.
Another challenge is the possible loss of value incurred during the process of disposing of illiquid assets such as the properties or equities for the pension fund intending to fulfil commutation payments.
“For example, the real value of a property at the point of agreeing the purchase price and the point of receipt of funds from the purchaser is different in an inflationary environment, particularly if there is a long period of time between agreement of sale and the actual transfer of title and money.
“It is clear that the economy is undergoing a transitional phase. It is, therefore, important to ensure that decisions provide relief while at the same time ensuring that everyone involved benefits in the long term,” she added.
Pensioners suffered heavy losses following the conversion of their benefits post dollarisation.
And with the prevailing liquidity challenges, many are spending long hours in bank queues in a bid to access their payments.
