The Sunday Mail
Darlington Musarurwa and Livingstone Marufu —
THE Government-appointed Commission of Inquiry probing the conversion process of pension and insurance benefits after dollarisation in 2009 has wound up its work and will have a comprehensive report by month end.
Although details of the investigation are still to be made public, independently sourced information suggests policyholders and beneficiaries were heavily prejudiced through insignificant payouts.
Commission chair Justice George Smith said, “We have wound up our tenure on December 31, 2016 and we have decided not to extend it further as we want to bring finality to the whole process.
“As we speak, we are working flat out to release the full report of the commission by the end of this month. That’s our goal … But given the amount of work at our disposal, we may give it up to February 28, but we don’t want to go that far.
“We can’t really say we have faced some difficulties in bringing out the report; besides the volumes of work, we have nothing to complain about. We are on track to finish off the task. Everything is in place and set to release the report,” said Justice Smith.
There are some members of the eight-member commission — which was sworn in on August 19, 2015 — who believe that a six-month extension would have helped to fully exhaust investigations.
In some instances, the commission’s work faced dogged resistance from companies that were reluctant to submit crucial data.
In August 2016, companies like Old Mutual, First Mutual, Cormaton, Marsh and other non-complying firms had to be subpoenaed to appear before the commission.
Commissioners had to comb through data from more than 20 insurance firms, 15 brokerages, self-administered pension funds, the Public Service Pension Fund, the National Social Security Authority Pension Fund and other benefits schemes.
Extent of the prejudice
Perhaps the most damaging submissions made to the commission are based on a report by the Zimbabwe Pensions and Insurance Rights Trust (ZimPIRT), which represents some aggrieved members of the schemes.
The report concludes that pensioners, pension fund members in general and insurance policyholders were credited with less than their full rightful benefits as a result of flawed calculation methods.
There were also several irregularities in the management and regulation of pension and insurance contracts.
ZimPIRT argues that the “asset allocation method” used to convert Zimbabwe dollar-originated pension and insurance contracts into US dollar-denominated contracts was flawed.
Through this method, money due to a policyholder was considered to be the proportion of “asset share” allocated from the total US dollar assets held by the insurance company or service provider.
The value of the US-dollar assets, especially after the conversion process, was calculated from the implied value of the Zimbabwe dollar at the time.
But the Zimbabwe dollar, as opposed to other asset holdings, was the asset that suffered the most as a result of the hyperinflation. This is why it is believed entitlements (money credited to policyholders) were markedly discounted.
“The Zimbabwe dollar liability firstly caused the inconsistencies by making the tacit assumption that it had a US dollar value translation, and that the Zimbabwe dollar benefit would actually continue to be a reference point or to be quoted, as long as benefit payment was in force in the future.
“At the time of dollarisation in early 2009 when the conversion to US values was then called for, and by the end of 20008, the Zimbabwe dollar had lost all value to be of practical use as a medium of exchange.
“The use therefore of the Zimbabwe dollar in a valuation such as conversion to the US dollar, which valuation assumed the Zimbabwe dollar would, in the future, translate to some value, was flawed, rendering US dollar denominated benefits entitled there from incorrect, as full rightful benefits,” reads part of the report.
Also, there are inconsistencies that are observed in conversion of policies, especially for contracts signed before 2006, as the Zimbabwe dollar was rebased in July 2006, August 2008 and January 2009.
In addition, part of the general miscalculations in the sector, the report alleges, can be attributed to some investment management practices outside established practices, misleading actuarial advice, overcharging of pension and insurance funds, governance of the funds outside good corporate governance and a flawed framework.
A ZimPIRT trustee, Mr Martin Tarusenga, is a member of the commission.
What is even more curious is the apparent shrinkage in asset values for the pensions and insurance sector.
Annual reports from the former Registrar of Pension and Provident Funds, which has since evolved into the Insurance and Pension Commission, show that the value of pension fund assets under the administration of insurance companies fell 30 percent from US$3 billion to US$800 million in the 17-year period from 1992.
In essence, the US$800 million value recorded in 2009 represents the total value of funds held by the ten life insurers operating in Zimbabwe at the time.
The figure is considered to be suspicious since pension contributions for 2012 alone stood at US$175 million.
Also, pension fund membership rose from 720 000 in 1987 to 1,2 million by 2001; while the schemes that these members belonged to rose from 1 500 to 2 700 over the same period.
ZimPIRT says the value of pension fund assets should have grown significantly to well over US$10 billion considering that the contributions made by members of various schemes averaged US$230 million yearly between 1987 and 1998.
It is also believed that more than 80 percent of the contributing members were well below retirement during the period, while withdrawals were insignificant.
Added ZimPIRT: “An asset reconciliation taking into account asset values carried over from the 1980s, contributions made into the funds each year, taking into account investment returns received by the funds over the years, benefit payments and charges levied, should result in an asset base over 30 years at well over US$10 billion, using a conservative annual investment return of 5 percent.”
The report also indicates that the malpractices that have led to wholesale prejudice of policyholders are continuing.
There currently exists an active lobby to reform the laws governing administration of these funds and to make the various insurance companies compensate policyholders.
Though the independent trust that carried out the investigations did not make an assessment of funeral assurance policies and short-term insurers, it did look into complaints raised by clients who had contracts with Old Mutual Life Assurance, First Mutual Life Assurance, Fidelity Life, ZB Life, Zimnat Life Assurance and Foundation Mutual Society.
First Mutual Life Assurance took over liabilities and assets issued by Colonial Mutual, Prudential, Pearl Assurance, Norwich Union and Manual Life. ZB Life swallowed Southampton, while Fidelity Life bought Legal and General.
Other insurance companies could not be traced. There is long-standing suspicion that pension and insurance companies short-changed clients, especially during the hyperinflationary era, by claiming pension values have been totally eroded.
One of the commission’s major tasks is to recommend if there is a case for compensating those who were prejudiced.
The recommendations could result in a sea change particularly in the way the funds are governed, including retrospective revaluations of pension entitlements.
Commission chair Justice Smith was assisted by Dr Godfrey Kanyenze, Mr Anesu Daka, Mr Tarusenga, Mr Brains Muchemwa, Mr Itai Chirume, Mrs Violet Mutandwa and Mr George Dikinya.