Incompetent, unprofessional pension administration

One of the key roles of pension scheme administration is to regularly inform and/or update pension scheme members about the amount of pension and other benefits that have accumulated in the fund to their account.

This demonstrates and reassures members insurance companies are on target to meeting benefits specified in the rules of the respective pension schemes, and as per various contracts set up to meet these benefits.

Apart from achieving this key objective to members, it allows problems to be identified, and to be resolved early before getting out of hand.

Taking into account the very long periods that members typically have to wait to draw on benefits from their pension schemes, and members’ reasonable expectations, this reporting has over time made so much sense that best practice pension fund regulation and supervision have made the practice a legal requirement.

Indeed the Pension and Provident Fund, and the Insurance Acts of Zimbabwe require insurance companies to satisfy IPEC companies are on target to meet pension benefits, and publicly report to pension fund members and insurance policyholders.

This regular demonstration and reporting must competently and professionally report on how incumbent insurance companies anticipate potential mishaps that can befall pension schemes (and policy contracts) over long-term benefit maturity periods and what measures they have put in place to mitigate the adverse effects of these mishaps whenever they materialise.

Inflation, foreign currency exchange rate risks, among others, are only some of the long-known mishaps that can befall pension funds. There are well-established measures to control these mishaps.

The said best practice pension scheme and insurance business administration, regulation and supervision, the world over, expressly require insurance companies to maintain the insurance pool of member contributions and policyholder premiums at explicitly specified exacting levels.

The prescribed level of these pools, typically referred to as the pension and insurance funds, must categorically take into account the potential the said mishaps can materialise.

Further the pension and insurance must be held in specified asset classes, whose underlying credit rating guarantees benefits will be met.

At the very least, the administration and regulatory practices outlined above, have the effect of preventing insurance companies from helping themselves to member and policyholder funds via frivolous administration expenses for instance.

Further, regulations have the effect of setting up broad pension fund investment controls and minimum investment performance by attendant investment managers.

In Europe such best practices are evolving into the so-called Solvency II and Institutions for Occupational Retirement Provisions, for insurance companies and pension funds, respectively. The United States has the Employee Retirement Income Security Act.

The Pension and Provident Fund Act, the Insurance Act and the Insurance and Pensions Commissions Act of Zimbabwe collectively do require insurance companies to maintain adequate funds that can meet pension scheme and insurance policy benefits.

The Acts have, however, not evolved to catch up with sophisticated vagaries of pensions and insurance service provision.

In particular they do not explicitly require insurance companies in Zimbabwe to categorically, competently and professionally take account of potential occurrence of mishaps, and to be accountable for bad outcomes. The Acts allow for several other loopholes.

These deficiencies in the Acts have the effect of not requiring any exacting and effective competencies, professionalism and accountability on the part of IPEC (the regulator and supervisor) and on the part of insurance executives and their management teams.

Insurance executives have over the years seen opportunity to influence, exclusively, the regulation, supervision and administration of pension and insurance services in Zimbabwe — they administer pension and insurance funds almost autonomously without any due regard to the real owners of these funds.

The absence of a public stance by the IPEC and insurance companies regarding the widespread pensioner disgruntlement and the alleged frauds perpetrated by insurance companies, the autonomous deregistration of some pension funds last year by IPEC, among other malpractices, are only part evidence of the extent of the autonomy.

Under best practices implemented elsewhere in the world, IPEC and insurance executives would have to think twice before taking on these roles – otherwise they would be taken to the cleaners.

Here is hoping noises made so far made by the bodies like the Zimbabwe Congress of Trade Unions, the Consumer Council of Zimbabwe, among other bodies, will come to the aid of pensioners sooner rather than later.

It is advisable for pension fund board of trustees and corporate affairs executives to force insurance company administrators of pension schemes that they sponsor, to honour full benefit entitlements.

Martin Tarusenga is a board member of Zimbabwe Pensions & Insurance Rights.

Email, martin@zimpirt.com; telephone; +263 (0)4 883057; Mobile; +263 (0)772 889 716
Opinions expressed herein are those of the author and do not represent those of the organisations the author represents.

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