Pension funds arrears rise

Pupurai Togarepi

Tinashe Makichi Business Reporter

Arrears to pension funds are rising at alarming levels as some employers have failed to remit since
dollarisation, Insurance and Pension Commission head of prudential supervision Pupurai Togarepi has

Self-­administered pension funds contributions in the first quarter grew 60 percent to $351 million in
the first quarter this year, but 85 percent of that amount was in arrears.

According to the IPEC report for March, arrears rose to $297 million, 85 percent of contributions. At
the same time the National Social Security Authority was owed $217,58 million by employers at the
end of 2015.

“Outstanding contributions to pension funds are rising at alarming levels as some employers have
been failing to remit since dollarisation and even prior dollarisation. The other issues behind this have
been indirect investment into the business of the sponsoring employer accruing no interest or return
lower than inflation.

“Lost investment opportunities and income haves also been an issue behind the struggles of several
pension funds,” said Mr Togarepi.

As at March 31, 2016 the pension industry had approximately 1 608 pension schemes split as 1 438
insurer administered schemes and 170 self administered. Due to the prevailing harsh economic
conditions, the pension industry experienced a huge drop in membership for pension funds. For the
period ending March 31, 2016, total fund membership for fund administrators was 73 700, a 7
percent decline from 79 000 membership reported the same period last year.

The population for active members for the quarter under review declined 12 percent to 45 100 from
51 460 of the same comparative period. The decline in active membership across the whole pension
industry between the two periods had been a result of the retrenchments that occurred after the June
27, 2015 Court judgment.

On prescribed assets in the pension industry, Mr Togarepi said the primary objective is to get an
almost risk­free return above inflation for the scheme members that is a form of insurance for pension

“Secondarily, the assets are a way of mobilising funds for infrastructural development for example
roads, energy, housing among others. A number of projects have already been financed through
prescribed assets,” said Mr Togarepi.

“Not all projects receive prescribed asset status, but those of national interest and which give returns
above inflation to the scheme membership are considered for approval,” he said.

Mr Togarepi said most pension schemes have collapsed due to corporate governance deficiencies,
poor investment strategies and philosophies while mismanagement and high expenditure than real
income has also been a challenge.

He said the ultimate aim of pension fund investing is to meet the fund’s obligations to its members
and their beneficiaries.

“Pension funds should therefore look to manage their investments accordingly. This is usually referred
to as ‘Liability Driven Investment’. Funds should adopt an overall liability based benchmark,” said Mr

Going forward he advised pension funds to take investment risk when they expect to be rewarded for
doing so as a principle.

“Pension funds should look to diversify their investments. Successful diversification strategies should
be ‘dynamic’, reacting to changes in the economic environment. Pension funds are very long­term
investors. They should therefore look to exploit this by investing in assets with time based premiums
such as the illiquidity premium (that is receiving a premium for locking up capital for a period of time).
Matching assets with future liabilities,” he said.

Mr Togarepi said pension funds should avoid focusing on short term performance excessively because
they are long­term investors. The Herald


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