IPEC concerned over few forex investment portfolios
Despite growing significantly, the foreign currency denominated income being generated by the pension industry is still relatively low, amid concerns by the regulator that there are few US dollars denominated investment options in the market.
Regulations that allow pension funds to carry out business in foreign currency were promulgated end of November 2020 through Statutory Instrument 280 of 2020.
The move was meant to help pension funds to hedge contributions, investments, and assets against inflationary pressures.
As a result, total income received by the pensions industry as at December 31, 2021 was USD$25,17 million while total expenditure amounted to USD$1,70 million, resulting in a total surplus of USD$23,46 million.
According to the latest Pension Report for the year-ended December 31, 2021 released by the Insurance and Pensions Commission (IPEC), contributions and interest from investments were the major drivers of income on foreign business constituting 65,20 percent and 33,76 percent, respectively.
Of the total income for the industry, forex business written by stand-alone pensions funds amounted to USD$5,5 million in contributions with interest from investments at USD$8,49 million.
While the forex income numbers are a positive start, IPEC believes more forex income could be generated if the market offered more investment options.
Given that SI 280 requires pension funds to “invest the contributions in investment instruments denominated in the same currency the contributions are made,” and also pay member benefits “in the currency in which the contribution has been paid,” limited investment options would mean pension funds would not be aggressive in collecting foreigncurrency denominated premiums.
“More effort is still needed to develop the financial and capital markets for foreign currency investments such that there will be more investment options available for the industry to invest in foreign denominated instruments,” IPEC noted in part in the Pensions Report.
It added that the other option of fixed term deposits offered by the Reserve Bank of Zimbabwe were unattractive as interest rates remained low.
“Currently, apart from the Victoria Falls Exchange where SeedCo International, Caledonia Mining, Bindura Nickel and Padenga are currently trading, the other option available is the fixed term deposits being offered by the RBZ though interest rates remain very low.
Meanwhile the pensions industry had a total USD-denominated asset base of USD$95,6 million as at the reporting date, which was mainly concentrated in quoted equities, prescribed assets and money market.
With limited investment options locally, pension funds are now looking to invest offshore and government has since given the industry the go ahead. Investing offshore will diversify sovereign risk across countries, currencies, and markets.
It will also give pension funds exposure to opportunities in high-growth and tax efficient jurisdictions and structures, according to a presentation by IPEC Director Pensions Cuthbert Munjoma.
Giving a regulatory perspective at a Webinar discussing how to navigate the offshore markets, the presentation by Munjoma showed that there is need to take advantage of global investment opportunities as earning returns in foreign currencies provides additional flexibility.
Munjoma revealed that IPEC has partnered with RBZ and SECZ to put in place administrative framework for approval of applications while at the same time working on a customised exchange control framework.
“First application for offshore investment approved,” reads the presentation in part. Munjoma, however, said offshore investments also come with a considerable level of risk meaning trustees must closely monitor performance and take corrective measures should the need be.
“Trustees need to consider benefits and challenges of investing offshore.” Munjoma said the the industry will get all the necessary support to ensure smooth cross boarder supervision including collaboration in offshore investment monitoring. “Waivers may be granted in line with IPS of respective funds and fund demographics.”-eBusiness Weekly
