The indespinsable pillar: Pension funds and Zim’s economic future

Pension funds, often perceived as mere repositories of retirement savings, play a far more critical role in the broader economic landscape of Zimbabwe.

Their influence extends beyond individual security, acting as a vital catalyst for infrastructure development and national economic growth.

The figures from the Insurance and Pension Commission (IPEC) underscore this, revealing that pension funds contributed a significant US$109,7 million towards approved prescribed asset instruments, out of a total of US$371,1 million, in the nine months leading to September 2024.

This substantial contribution highlights their pivotal role in driving national progress.

These investments, strategically targeted towards infrastructure development, including student accommodation, residential stands, hotels, shopping malls, and REITs, demonstrate the tangible impact of pension funds.

They are not merely passive investors; they are active participants in building the very foundations of Zimbabwe’s future.

As IPEC aptly states, these prescribed assets offer the industry an opportunity to diversify its portfolio while simultaneously supporting projects aligned with the National Development Strategy (NDS1).

This synergy between financial prudence and national development is crucial for sustainable growth. Walter Mandeya, a prominent economic analyst, emphasises this central role, stating, “Pension funds are the lifeblood of long-term investment, providing the necessary capital for crucial infrastructure projects.

“Their ability to channel stable, longterm funds into areas like housing, energy, and transportation is essential for economic expansion and improving the quality of life for all Zimbabweans.

We must ensure they remain relevant to both the pensioners and the economy.”

The importance of infrastructure cannot be overstated.

It acts as the backbone of a thriving society, facilitating connectivity, access to essential services, and driving economic activity.

In Zimbabwe, where infrastructure gaps are significant, pension funds offer a unique solution.

Their long-term investment horizon and stable cash flows make them ideal partners for projects requiring substantial capital and extended timelines.

This symbiotic relationship creates a win-win scenario, where infrastructure development generates long-term revenue streams for pension funds while simultaneously improving the lives of citizens.

However, this potential remains contingent upon the health and stability of the pension fund sector. The recent data reveals a concerning trend: a decrease in the number of active pension funds, with a significant number earmarked for dissolution.

Of the pension 968 funds, 485 were active, accounting for 50,1 percent of the industry’s funds.

The remaining 483 funds were inactive as they were either paid up or earmarked for dissolution.

This trend, coupled with internal pressures such as funds seeking to break away from larger groupings and workforce dissatisfaction, poses a serious threat to the sector’s viability.

As Dr Grace Muradzikwa, Commissioner of IPEC in an interview last year on CapitalkFM, rightly points out, “It is in our best interest to close this legacy matter, otherwise there is no future for the industry and I wish everybody could see it this way.”

The need to address the legacy issues, particularly the compensation of pensioners affected by pre-2009 economic challenges, is paramount.

“Without restoring public trust and confidence, the sector risks collapse, leading to dire consequences for both pensioners and the nation’s infrastructure development.

The collapse of the pension fund sector would have a cascading effect, crippling infrastructure projects and hindering economic growth.

The long-term revenue streams that support future retirement payments would dry up, leaving pensioners vulnerable and eroding the foundation of social security.

Therefore, it is imperative that all stakeholders – the regulator, industry players, government, and pensioners – collaborate to ensure the sector’s stability and growth.

IPEC’s efforts to enhance trustee qualifications, introduce measures like the Bread Index, and allow offshore investments are commendable steps.

However, more needs to be done to address the root causes of the sector’s challenges. Dr Muradzikwa’s commitment to enforce compliance and address legacy issues is crucial.

As she emphasises, “We cannot go for 10 years talking about this issue.

Pensioners must be paid their money, we cannot continue to engage, engage on what?”

The regulator must be empowered to take decisive action against non-compliant players and streamline the compensation process.

Simultaneously, industry players must prioritise transparency, accountability, and the interests of pensioners.

Ultimately, the relevance and sustainability of the pension fund sector hinge on its ability to deliver on its core mandate: providing secure retirement benefits while contributing to national development. By fostering a culture of trust, collaboration, and responsible investment, Zimbabwe can ensure that its pension funds remain a vital pillar of economic progress for generations to come.-ebsinessweekl