Regulator mulls pension drawdown products
With product relevance in the insurance and pensions sector a key goal for the Insurance and Pensions Commission (IPEC) going forward, the regulator has developed a framework that will guide the introduction of income drawdown products.
Currently, local retirees’ options are limited to purchasing annuities from a pension fund or an insurance company.
Income drawdown provides a flexible option for pensioners, for instance, to access their savings. Basically it works by allowing the pensioner to leave their pension invested, while being able to draw down some as taxable income.
In the past few decades, the Zimbabwean economy has experienced inflation cycles and policy changes, some of which significantly eroded long-term savings including insurance policies and pension savings.
The Justice Smith Commission of Inquiry, which was appointed in 2015 to probe the conversion process, came to the conclusion that “there was a huge loss of value to insurance policyholders and pensioners owing to failure by Government, the Insurance and Pensions Commission (IPEC) and the industry to set up a fair and equitable process of converting insurance and pension values from Zimbabwe dollars to US dollars.”
An income drawdown product will likely help restore the public’s confidence in the sector, which is fundamentally underpinned by the concept of long-term savings.
“The need for this guideline has been further necessitated by the need to mitigate the weaknesses of level guaranteed annuities in this current inflationary environment which has resulted in level annuities not fully serving the intended purposes,” reads part of the draft framework.
The insurance and pensions regulator is currently taking feedback from players in the industry on the proposed framework.
“The commission has a draft income drawdown framework with a view to broaden retirement options for those retiring from active employment,” said IPEC commissioner Dr Grace Muradzikwa in a letter to players in the industry dated February 25, 2021.
“The framework is meant to provide guidance and key principles to be adhered to in the development and marketing of income drawdown products in the insurance and pensions industry.”
Some key highlights of the draft proposal include: any provider of the income drawdown shall ensure that the product is designed in such a way that a member can draw down their retirement pot up to a minimum age of 80 years; no provider of income drawdown arrangement will be authorised to offer uncapped drawdowns to reduce the risk that people may run out of their retirement pots immediately after retiring; and Individuals shall withdraw an income from their drawdown fund subject to a maximum of 15 percent per annum (withdrawal percentage) of each individual member’s outstanding account balance at the beginning of the withdrawal year.
It is also proposed that the minimum drawdown period allowable is 10 years from the date of commencement of the drawdown.
The move to push for income drawdown products in the sector is part of broader initiatives by IPEC to ensure that product offerings on the market are relevant.
“We are actually researching on alternative products to level annuities. But of course the industry should drive this process,” said Dr Muradzikwa earlier this year.
“We will not hesitate to cause product termination, particularly those we view as irrelevant.”-hrald.cl.zw
