THE Insurance and Pensions Commission (Ipec) says many companies in Zimbabwe have, since 2009, not been remitting contributions to their respective pension funds, thereby condemning their former employees to poverty post-retirement.
When companies deduct pension contributions from employees, they are required by law to remit the money to pension funds.
But according to Ipec, the companies are failing to remit the contributions despite the penalties associated with non-remittance of pension contributions.
So serious is the situation that Ipec has come up with a Pension and Provident Funds Bill to force employers to remit contributions.
“There are some sponsoring employers who have also not remitted contributions to their respective pension funds since 2009. This has condemned their former employees to poverty post-retirement. Those workers would have retired confident that they had secured their future, only to find out that they have no income,” Ipec said in its latest report.
It also revealed that some pension contributions arrears date back to the 1990s and some of these contributions were written off in 2009 when the country adopted the multi-currency system.
According to the proposed Bill, chief executive officers and finance directors who deduct pension contributions, but do not remit the same to pension funds will face civil and criminal penalties in their personal capacities if the law is promulgated.
Ipec said pension contribution arrears among the biggest challenges facing the pension sector with about $890 million in unremitted contributions recorded as at 30 June 2020. When companies are not remitting the contributions, it affects employees as they sometimes end up receiving reduced benefits or no benefits at all when they retire.
Penalties for non-remittance of pension contributions are provided for in the pension regulations. However, they are not deterrent enough since they are limited to a level six fine or imprisonment for one year, or both such fine and such imprisonment.
To address this gap, Ipec has proposed strengthening the Pension and Provident Funds Bill to force sponsoring employers to remit contributions. The Bill, whose objectives include protection of fund members’ and beneficiaries’ interests, is currently before Parliament.
Clause 17 of the Bill states that sponsoring employers shall be required to remit pension contributions within 14 days after the end of the month in respect of which the contributions were payable.
For example, pension contributions for August should have been remitted to the pension fund by 14 September. Sponsoring employers who fail to remit contributions within the specified period shall be guilty of an offence and liable to a stiffer category 1 civil penalty.
The pension fund’s principal officer shall be required to report to Ipec within seven days after the end of the 14 days.
A principal officer who fails to report this to Ipec shall be guilty of an offence and liable to a category 1 civil penalty. This will only not apply if it is proved that he or she took no part in the commission of the offence.
Thousands of pensioners lost their benefits during the switch-over from the Zimbabwean dollar to the multi-currency system in 2009 and were currently living in abject poverty.
In response to this, Ipec commissioner of insurance, pension and provident funds Grace Muradzikwa said the 2009 experience gave them a lot of lessons about how to deal with currency reforms, particularly for their sector.
“We have been very proactive in terms of our response in guiding the industry on how to respond to the 2019 currency reforms and their impact on the insurance and pension industry. Most importantly, the Commission gave proper guidance around the determination and distribution of any revaluation gains that arose because of the currency reforms and the subsequent impact of inflation,” she said.
“Though the Commission was leading in terms of the development of this guidance, the process itself was very consultative and feedback from our key stakeholders was taken into account. We are also grateful to the World Bank for the support they gave us in this exercise.”
In addition, Muradzikwa said the commission had also enhanced its collaboration with the Reserve Bank of Zimbabwe and the ministry of Finance to ensure that fiscal and monetary policy pronouncements do not have unintended adverse effects on policyholders and pension scheme members.
“The Commission has also increased its skills to enhance oversight on the operations of insurance companies and pension funds especially in light of the obtaining macro-economic environment,” she said.
She said one of the major causes of the loss of value for policyholders and pension scheme members during previous currency conversions has been the lack of separation between policyholders’ and shareholders’ funds.
“To close this gap, we have enforced the separation of assets and engaged a consultant to assist with reviewing the separation of assets done by insurers. By doing this, we will be able to validate if it was done correctly,” she said.