Employers risk losing assets over pension arrears

Pension Fund Trustees must take stringent measures against sponsoring employers failing to pay pension contributions as non-payment will have a negative impact on the adequacy, sustainability, and security of pension schemes, industry regulator the Insurance and Pension Commission (IPEC) has said.

Although continued non-payment of pension contributions by employers are “due to viability challenges”, IPEC is concerned this will have a negative impact on the adequacy, sustainability, and security of pension schemes.

For the last couple of years, the pension industry has battled with growing pension arrears resulting in the loss of value for members.

Contribution arrears increased to $1,28 billion during the three months to end of September 2020 from $0,62 billion as at September 30, 2019.

The increase in absolute value of contribution, arrears is on account of two main factors including treatment of interest on arrears as per requirements of the Guidance Paper on Currency Reforms which require funds to adjust arrears in line with prevailing returns in the market.

While in the past, arrears would be left at their nominal values, the new guidelines require pension funds to adjust them in line with prevailing rate of return in the market.

However, whilst there was a nominal increase in contribution arrears, the proportion of contribution arrears to total assets declined from 6,52 percent as at September 30, 2019 to 1,18 percent as at September 30, 2020.

This reveals the extent to which members are losing value should employers not make good the arrears and in time.

“Trustees are, therefore, being urged to do everything in their capacity to recover the arrears, including imposing liens on assets, seizing and selling assets, initiating bankruptcy procedures, and negotiating Certified Repayment Agreements,” IPEC said in its latest report covering the three months to September 2020.

Of the 961 registered funds, 592 were active, which constituted 61,60 percent of the total number of funds.

The decline in active funds was as a result of viability challenges which sponsoring employers are facing, which include Covid-19 induced effects, according to IPEC.

Meanwhile an increase in the values of investment properties and quoted equities helped the industry grow its asset base.

In nominal terms, the industry asset base increased by 1 043,39 percent from $9,45 billion as at September 30, 2019 to $108,05 billion as at September 30, 2020.

The asset base also grew by 62,70 percent from $66,41 billion reported as at June 30, 2020.

In real terms, the asset base grew by 14,59 percent from US$1,16 billion as at 30 June 2020 to US$1,33 billion as at September 30, 2020.

Investment properties and quoted equities accounted for 77,99 percent of the industry’s assets.

Investment property increased to $54,35 billion as at September 30, 2020 from $3,42 billion as at September 30, 2019.

The increase is mainly driven by the need to preserve value for pension scheme members given the prevailing inflationary environment.

The value of investments in quoted equities increased by 706,47 percent from $3,71 billion as at September 30, 2019, to $29,92 billion as at September 30, 2020 notwithstanding suspension of trades of some major counters on Zimbabwe Stock Exchange.

However, the values of investments in quoted equities was not a true reflection of the underlying potential on account of the continued suspension of trades on Old Mutual and PPC counters in which most insurers and pension funds are invested.

The value of investments in the suspended counters were informed by the last traded share prices prior to the suspension date.

Total income for the industry during the 9 months to September 2020 was $58,97 billion compared to $2,69 billion for the same period in 2019. The income was driven by fair value gains and interest on investments which constituted 54,76 percent and 31,59 percent of total income respectively.

Total industry expenditures for the period under review amounted to $2,18 billion, of which $1,30 billion was for pension benefit payments.-ebusinessweekly.co.zw