USD, Zimdollar and shares for pension loss

The Insurance and Pensions Commission (IPEC) has announced that pensioners and policyholders who suffered losses when Zimbabwe adopted the multi-currency system in 2009 will have the option to receive their compensation in one of three forms namely US dollars, Zimbabwean dollars, or unitised assets such as shares.

Individuals affected by the impact of hyperinflation and the currency switch in 2009 will be compensated for value lost between 2008 and 2009.

The decision to provide compensation follows years of pressure from pensioners and policyholders, who have argued they were unfairly disadvantaged by the currency conversion. Some active employees who also lost their savings due to the currency transition are also eligible for compensation, IPEC said.

In 2009, Zimbabwe abandoned its hyperinflation-plagued Zimbabwean dollar and adopted a basket of foreign currencies, including the US dollar. However, the conversion process resulted in significant losses for many pensioners and policyholders.

Pension fund values were badly eroded due to devastating impact of hyperinflation, which soared to a record 500 billion percent in 2008, according to the International Monetary Fund.

The Government eliminated hyperinflation in 2009 when it abandoned the Zimbabwe dollar for a basket of foreign currencies, dominated by the United States dollar, leading to what was generally called dollarisation.

The Government appointed commission of inquiry, chaired by retired Justice Smith which confirmed a “huge” loss of value and recommended compensation for the loss suffered.

Some of the pensioners got zero values owing to a lack of benefit inflation-indexation and currency de-basing. That left many people, after years of hard work, poor.

IPEC pension and life assurance director Cuthbert Munjoma said, during a Star FM current affairs radio programme last week, while the initial compensation payout will be made in local currency, the commission recognised that pension funds hold assets that generate foreign currency. In the event that these assets are sold in forex, the pension funds were flexible to disburse compensation in hard currency.

Pensioners and policyholders can also choose to receive their compensation in the form of divisible assets, such as shares on the stock exchange, at the current market value.

“Compensation will be done in local currency, but I must hasten to acknowledge that pension funds do have the assets generating foreign currency . . . like commercial real estates; so should there be disposal of these assets in foreign currency, the pension funds can be made in foreign currency,” Munjoma said.

“It is important to know that there is an option to receive payments in assets where the assets are divisible such as the shares on the stock exchange (at the current market value.

IPEC has already given pension funds and insurers up to December 31, 2023 to submit compensation schemes, in a significant step towards resolving the long-standing issue.

Every compensation scheme shall at a minimum include, in the case of a life insurer, an asset separation report covering the investigative period between 1996 and 2014.

The report shall include a clear split of the policyholder and shareholder funds for each year of the investigative period, a separation of insurance and pensions assets and a clear split of assets between different product lines and a list of assets backing the policyholder and shareholder accounts during the inquiry period.

It should be backed by an actuarial report clearly showing the members to be compensated, the compensation amount for individual, methodology, any assumptions made and the proposed sources of funding of the prejudice suffered.

The scheme should also include a detailed schedule of affected members, along with their respective compensation payouts. In addition, the report should contain a resolution signed by the board of the fund or insurer adopting the compensation scheme.

This resolution should also outline the method by which affected members will be informed of the compensation scheme and the manner and extent of their compensation. The documents as attachments to the scheme as the commission may reasonably require by notice in writing to the fund or insurer concerned, said IPEC.

Munjoma said pension funds have a deadline of December to establish compensation schemes that accurately quantify the losses incurred, determine individual payments, and outline the compensation process. Upon completion, IPEC will have a month to review and validate the schemes before formalising them into regulations.

(The should) “prepare compensation schemes which determine the losses suffered, place the figures to say this is what was lost and individual payments to be made.

“Once that is done, IPEC will have at most a month to validate the schemes and come up with regulations so that they become a legal requirement.

“So, (by the) end of February, people should start getting their payments,” Munjoma said, adding the Government has set aside US$175 million that will go towards compensation for its pensioners.

A comprehensive outreach programme will be conducted to inform intended beneficiaries about the programme.-ebusinessweekly