By Melody Chikono
THE Reserve Bank of Zimbabwe governor John Mangudya says the newly-introduced gold coin is going to solve the prescribed asset conundrum for the pensions industry which has been struggling to comply with the minimum regulatory requirements.
This has been caused by inflationary pressures and industry has been proposing the issuance of foreign currency bonds with the same status to improve compliance.
Prescribed assets are bonds or securities issued by the government, local government, quasi-government organisations or any other bond that may be accorded the prescribed asset status.
Mangudya told NewsDay Business last week that the performance of prescribed assets has been impacted by loss in value and the gold coin will go a long way to preserve value.
“If pension funds buy these gold coins, they are able to take a solid position. Remember it has a liquid asset status as well and can be easily converted to cash. It means that the 20% that they are allowed to purchase in government bond paper can be met. The gold coin is part of that paper that they are supposed to get,” he said.
“You are aware that they have been saying the available projects have been losing value because of inflation, this gold coin is going to stabilise prices. This also means that the money that they have in the bank is going to have a store of value. They now have the choice of either keeping the cash or the gold coin. Definitely, the gold coin is going to suck all the excess liquidity in the market.”
In Zimbabwe, pension funds are required at law to invest at least 20% of their investment portfolio in prescribed assets while life assurers are compelled to invest a minimum regulatory threshold of 15% of their assets in prescribed securities.
Short-term life assurers and pensions are required to invest 10% in prescribed assets.
Mangudya said the gold coin had a prescribed asset and liquid asset statuses.
According to Ipec’s Q1 industry report compliance with prescribed assets by the industry was still lagging.
During the period, despite prescribed assets by short-term insurers increasing by 49,82% from $354,72 million, none of the short-term insurers was compliant with the minimum prescribed asset ratio of 10%.
Nine out of the 11 life assurance players, which submitted returns, reported prescribed asset ratios that were below the minimum required threshold of 15% of total assets.
For funeral assures, all of them were not compliant with the minimum prescribed asset ratio of 10%, with prescribed asset investments accounting for an average of only 0,11% of the total asset portfolio.
Pension funds registered the second biggest jump of 235% since March 2021 through investing in prescribed assets but the compliance ratio was still far below the prescribed minimum of 20% despite approval of a number of instruments in the market with prescribed asset status.
Mangudya said the gold coin also presented business opportunities for industry and banks in the form of gold unit trusts.
The industry has been blaming the inflationary environment and consistent revaluation of assets which new cash flows are failing to match for their struggle to comply with prescribed asset regulations.
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