Old Mutual seeks govt nod on pension compensation scheme
INSURANCE giant Old Mutual says it is in discussion with the authorities over the liability it will incur for the compensation of yesteryear payouts which were wiped out when the country ditched its own currency for a basket of multiple currencies due to unprecedented inflation.
Zimbabwe abandoned its local unit for the United States dollar in 2009 after inflation officially reached 231 million percent, wiping out savings and pensions.
After the introduction of the greenback, the government in 2017 commissioned a special inquiry to investigate the impact of the currency reform on both policyholders and the economy. The inquiry was led by retired High Court judge Justice George Smith.
In July, cabinet approved the compensation framework for value lost when insurance and pension values were converted from Zimbabwean dollars to United States dollars in 2009. The government then committed to contribute US$175 million to partly cover the loss of value suffered.
“The Insurance and Pension Commission has communicated key features of a proposed Statutory Instrument (SI) which outlines how the compensation amounts are to be calculated for pension funds and insurance products, as well as suggesting sources of funding for the potential liability. Industry players have been invited to provide input before the final SI is promulgated,” the insurance group says.
“Old Mutual has sought clarification and further guidance on certain provisions of the draft from Ipec, particularly those pertaining to the methodology and formulas to be used in determining compensation amounts. These engagements are currently underway as at the time of reporting. Due to this, we are not able to quantify the expected liability for compensation and the impact it will have on profits and the net position until the engagements are complete.”
During the inquiry, the commission received many complaints from individual members of the public, as well as from insurance and pension representative organisations.
The main concerns related to the loss of value arising from pension contribution arrears, value lost during hyperinflation, inter-generational transfer of benefits, value lost through conversions on dollarisation, forced commutations of the full pension, loss arising from de-mutualisation of Old Mutual and First Mutual and conversion of pension schemes from defined benefit funds to defined contribution funds.
The inquiry revealed complaints against the Government Pension Scheme included the absence of a funded pension scheme, outstanding one-third lumpsums for pensioners who retired just before dollarisation, delayed processing of lump sum pension benefits, delays in payment of monthly pension payouts, surviving spouses and dependents failing to access benefits, as well as the failure to access pensions by retirees of church-related hospitals and mission schools, who were not covered by the government as grant-aided workers.
Complaints relating to the National Social Security Authority (Nssa) centred on the problem of uniform and arbitrary benefit calculations, Nssa’s time limits for claiming pension benefits, the failure to access a Nssa pension by government workers on early retirement, such as former members of the police and army, lack of insurance cover for students on industrial attachment and poor record keeping.
Last December, Finance minister Mthuli Ncube told lawmakers that plans were underway to compensate policyholders this year.
“Players in the insurance and pensions sector are now in the process of equitably distributing revaluation gains on assets attributable to currency reforms undertaken in 2019 in line with the Guideline on Adjusting Insurance and Pension Values provided by Ipec (Insurance and Pensions Commission),” Ncube said during the presentation of the 2022 National Budget.
“In addition, pursuant to an allocation of US$75 million investment asset by government to Ipec, as part of compensation measures for lost value by pensioners, a dividend of US$400 000 was declared and is being disbursed to targeted beneficiaries. Subsequent disbursements will be made in 2022 and beyond, leveraging on this investment.”