The Sunday Mail
Arrears to local pension funds have soared to more than US$635 million, a development that is having an adverse effect on economic growth.
Globally, pension funds are increasingly utilised to promote and protect local industries and develop the country’s infrastructure, thus playing a critical role in macro-economic performance.
But the rising arrears to various pension funds is increasingly constraining the economic role of pension funds.
This is reflected in official statistics, which show that the insurance and pension industry contributed on average 2,5 percent of Zimbabwe’s gross domestic product (GDP) between 1996 and 2000.
However, the sector’s share of GDP declined to an average 0,5 percent during the period of economic downturn and hyper-inflation, between 2001 and 2008.
According to executive assistant of the Insurance and Pensions Commission (IPEC), Commissioner Cuthbert Munjoma said:
“Whilst the sector has been playing a critical role (in the economy), I don’t think it is actually playing its optimal role, because there is a big gap between the performance of the sector and the broader macro-economy.
“There are issues like contribution arrears; this is a serious issue in the local pensions sector. Employers are making paper deductions on pay-slips, but they don’t remit to the respective pension funds and the amounts are growing.
“Post-dollarisation pension contribution arrears are now in excess of US$635 million as of September 2018. And now with the floating of the exchange rate it will be more than that.”
In the period of 2009 to 2015, the arrears amounted to a cumulative US$328 million, which means since then they have increased by at least 93,6 percent.
But prior to dollarisation, there was a deeper pensions arrears problem that has hardly been talked about.
Circa late 2008 and early 2009, Government authorised transactions in foreign currencies, while payments of taxes were made mandatory in foreign exchange, and the exchange system was liberalised.
Official recognition of the demise of the Zimbabwe dollar took place in February 2009, when the monetary authorities introduced a multicurrency system that was largely underpinned by the United States dollar.
However, the transition was not a smooth one for all as pension arrears that had accrued in the years prior to 2008/9 were written off.
“This problem dates back to 1996 and most of the arrears were written off at dollarisation because of the absence of guidance on how to treat such liabilities. This would have a (negative) bearing on the pensions pay-outs and investment,” said Munjoma.
“The opportunity cost of such huge chunks of resources to investment in projects of national status is very high.”
Notwithstanding these challenges, the pensions sector is still critical for economic development with pension funds remaining as some of the biggest institutional investors on the local equities market.
“Post-dollarisation pension contribution arrears are now in excess of US$635 million as of September 2018.”