US$175m for compensation of pensioners, policyholders
Government has set aside US$175 million to compensate pensioners and insurance policyholders for value that was lost during the pre-2009 hyperinflation era.
Finance and Economic Development Minister, Mthuli Ncube, however emphasised that the funds are only in addition to what the local pensions and insurance industry should put on the table.
“Government (has) committed a supplementary US$175 million towards compensation for the pre-2009 loss of value.
“We will be working with IPEC (Insurance and Pensions Commission) to come up with the necessary modalities on how these funds will be utilised,” said Professor Ncube on Friday.
“I am therefore, challenging you as an industry to do your part, and account to your policyholders and pension fund members on how you managed their assets and liabilities and compensate them in line with the guidance that will be provided by IPEC.”
This comes as the Insurance and Pensions Commission (IPEC) has announced a set of guidelines for the compensation.
According to the compensation framework announced on Friday, insurance firms and pension funds will be required to submit their compensation schemes 90 days from the date the regulations become operational.
IPEC should approve the compensation schemes within 30 days of submission.
And compensation payments should be made within 30 days of approval.
Between 2007-2009, Zimbabwe experienced its first major hyperinflationary period, which eroded the value of most savings (including insurance and pensions policies).
Poor regulatory enforcement and demonetisation of the local currency were largely blamed for value erosion by the Justice Smith Commission of Inquiry, which was appointed in 2015 to probe the conversion process.
The Justice Smith Commission of Inquiry came to the conclusion that “there was a huge loss of value to insurance policyholders and pensioners owing to failure by Government, the IPEC and the industry to set up a fair and equitable process of converting insurance and pension values from Zimbabwe dollars to US dollars”.
Players in the insurance and pensions sector were accused of poor corporate governance, arbitrary benefit calculations, shambolic record-keeping, including unsustainable and unjustifiable expenses.
Effective compensation, especially on the part of the firms and pension funds, will help restore public confidence in the sector.
Low confidence in the sector has stalled the deepening of insurance penetration in Zimbabwe.
Notwithstanding the importance of insurance in an economy, Zimbabwe has a 34 percent uptake of insurance products.
And to give that figure better context, about 75 percent of that uptake is accounted for by funeral assurance products.
Said IPEC Commissioner, Dr Grace Muradzikwa:
“Our industry is not where it should be, both in terms of size and growth. There is no doubt that the industry would have been better positioned, had we resolved the compensation issue.
“We cannot go forward as an industry without addressing our past.”
She also pointed out current low pension pay-outs as another albatross on the industry’s neck.
“We cannot justify our relevance when the average pension as at March is $14 929,” she said.-ebusinessweekly
