The Insurance and Pensions Commission (IPEC) says it is not convinced with life and pension funds’ explanation that pre-dollarisation schemes and policies lost value to inflation and wants the actuarial valuations revisited and contributors compensated “fairly”, possibly through the liquidation of property portfolios.
The re-opening of the Pandora’s box comes as legal and corporate governance experts have also begun to urge those prejudiced of retirement savings to collectively sue pension funds for fraud.
Pupurai Togarepi, an official with IPEC, recently told insurance and pension funds that the valuations were “unfair”, “dishonest”, “insincere” and suicidal in terms of undermining “confidence” in the industry, admonishing them to consider offering a more acceptable and confidence-building compensatory mechanism.
“The conversion of values to the US dollar has been completed but left many wondering whether pension funds and life offices were sincere in their estimates,” Togarepi said.
“Many pensioners have been relegated to abject poverty while organisations’ (shareholdings), buildings and other infrastructure established out of their contributions are decorating the cities and towns of Zimbabwe. Was it totally true that such institutions had nothing to give to pensioners because, as they claim, all was eroded by inflation or is this just a scapegoat?”
Pensions are an annuity set up to secure the future by transferring income over the life of a career, from the period of active employment to retirement, a process managed by an investment company known as a pension fund, which pools individual contributions into a portfolio of managed investments.
Pension funds traditionally invest in properties, equities and bond and money market instruments and constantly review their portfolio mixes in line with changing market conditions to maximise returns for policy-holders.
In February last year, every life policy and pension scheme had to be converted to the United States dollar, Zimbabwe’s new base currency, because with effect from that month the country officially abandoned the Zimbabwe dollar as the national functional currency and adopted a multi-currency regime.
However, the conversions put an adverse discount factor to the actuarial model and yielded policy balances that were for the most part an insignificant fraction of the total retirement savings contributions made, regardless of how long a policy or scheme had run, sparking a valuation dispute.
Analysts say life and pension companies took advantage of the absence of a credible official exchange rate and put together an arbitrary but grossly flawed implied rate to transfer value and purchasing power from contributors to themselves.
The Reserve Bank of Zimbabwe (RBZ) insisted on an official exchange rate unanimously discredited by the market, while the Central Statistical Office (now Zimstat) last produced Z$ inflation data in July 2008.
But pension funds and life assurers deny any wrongdoing and blame the loss on hyperinflation and consequent systemic failure, which they say cannot be collapsed to the individual actions of the pensions funds and those managing them.
The last pre-dollarisation inflation data on record shows annual inflation reached 231 000 000% in July 2008.
“I totally agree that this subject needs to be extensively discussed in public but there are no simple answers to the causes for loss of value and as a nation we must avoid finding easy targets and simplistic explanations about what happened and who caused it,” Paul Razunguzwa, Fidelity Life Assurance operations director, said.
“I know for a fact that all the value that had accrued to pension funds did not find its way into anyone’s pockets. Many of these pension funds had trustees drawn from the employee contributors as well as representing the sponsoring employer.
“Suing the pension funds means suing these trustees and they will testify they did not do anything untoward in bringing about the losses incurred. The public’s anger is understood, particularly those who belonged to pension funds and contributed significant amounts, which cannot matched by what they are now getting.”
However, contributors, IPEC and corporate governance expert Alex Magaisa strongly contend that not everything in the pool of individual contributions was lost, and argue that policies and schemes that had run for at least 10 years actually accumulated significant value gains.
IPEC insists life assurers and pension funds should revalue policies and schemes fairly and settle compensations from present gains.
“Why didn’t we sell some of the buildings for pensioners to share if ever the investments were long-term investments for policy holders?” Togarepi asked?
“Or better still, pay through instalments or phases as this was going to help return confidence back to the industry?
“The Commission still feels, like many of your pensioners and policyholders, that some honest conversion was possible.
“While everyone in Zimbabwe agrees that hyperinflation was responsible for the challenges the country faced, a reasonable conversion could have protected the integrity of the pension and life industry.
“It is still possible for organisations (pensions and insurance companies) to share their present gains with policyholders and pensions funds in order to mitigate against past losses due to economic challenges.”
But Magaisa doesn’t think moral suasion will yield results and has urged workers to recover their retirement benefits and other annuities through litigation.
“I think there are strong grounds to litigate,” Magaisa said.
“It shows there is no culture of litigation in Zimbabwe because that would not have happened in the UK and other developed countries.
“But there’s still potential for private action.”