Insurance Regulator Reveals Faulty System: Profits Soaring, Payouts Stagnant, Pre-2009 Hardships Disclosed by Zim's Watchdog
In Zimbabwe, the pension system is facing challenges despite a profitable insurance and pensions sector. A primary concern is that asset income is not sufficient to meet the needs of pensioners, leaving many struggling to make ends meet.
The root of these issues can be traced back to the hyperinflation era before 2009, which resulted in significant losses in pension values. Although Statutory Instrument 162 of 2023 was introduced last year to offer compensation, the process is slow due to missing data and insufficient funds.
Moreover, the pace of reforms to improve the sector is slow. While reforms are ongoing to ensure fairer rules and improve benefit levels, these changes are medium to long-term, meaning pensioners face delays in seeing improvements.
Challenges in asset management also contribute to the low pension payouts. Issues such as unclear separation between pension and company assets complicate the management and valuation of pension funds.
To address these issues, holistic pension reforms are being implemented. The government is working towards a comprehensive overhaul of the pension system to ensure sustainability and fairness. This includes better reporting and sustainable payout mechanisms.
The government is also amending Statutory Instrument 162 of 2023 to expedite compensation for private sector pensioners who lost value due to hyperinflation. The goal is to complete these payouts within three years.
Additionally, efforts are being made to introduce audited financial statements and actuarial valuations to accurately assess and improve payouts.
However, the pace of these reforms is slow, leaving pensioners with limited immediate relief. Some employers are not remitting pension contributions, leading to a problem that IPEC plans to address through garnishing defaulting employers' bank accounts.
Inflation is another challenge, as it eats away at pension fund gains, even though the Zimbabwean Dollar (ZWG) is stable. There's a mismatch between the types of assets held and the payouts needed, with most pension assets tied up in real estate and other physical assets, potentially causing liquidity issues.
Despite these challenges, the pension business model may be shaky and unable to sustain increased benefits. IPEC acknowledges that the current pension system is failing pensioners and needs significant improvements.
Insurance penetration in Zimbabwe is also low, with most coverage being funeral policies. Only two funds have been approved under Statutory Instrument 162 of 2023, with a total disbursement of US$522,000.
The lack of effective savings products like micropensions, despite their potential benefits for the informal sector, further compounds the problem.
As the government works to implement reforms and address these challenges, pensioners in Zimbabwe continue to face difficulties in meeting their financial needs.
- The sluggish pace of reforms in the finance sector, particularly in wealth-management and business regulations, hinders the immediate relief of pensioners, as demonstrated by the slow process of compensating them for losses incurred during the hyperinflation era.
- In the world of general-news and politics, the ongoing efforts to reform the pension system in Zimbabwe involve addressing crime-and-justice issues such as employers who fail to remit pension contributions, a problem that organizations like IPEC are looking to solve by garnishing the bank accounts of defaulting employers.
- As the government strives to overhaul the pension system for sustainability and fairness, a key focus lies in the introduction of audited financial statements and actuarial valuations to improve the management and valuation of pension funds, aiming to bridge the gap between the types of assets held and the payouts needed, especially in the face of inflation.
