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Grace Muradzikwa, IPEC Commissioner

Business

Pension funds record jump in income

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ZIMBABWE’S pensions industry last year recorded a 256% increase in income to ZW$79.21 billion, mainly driven by fair value gains, interest on investments, profit on disposal investments and contributions, a new report reveals.

DUMISANI NYONI
According to the Insurance and Pensions Commission (Ipec)’s pensions industry report for the year ended December 2020, the total income for the sector last year was ZW$79.21 billion compared to ZW$22.27 billion reported in the previous year.

“The income was mainly driven by fair value gains, interest on investments, profit on disposal investments and contributions which constituted a combined proportion of 93.88%,” the report reads.
The industry’s asset base increased in nominal terms by 273.06% from ZW$29.55 billion to ZW$110.24 billion.

This was against an annual inflation rate of 348.6% for December 2020, implying a decline in the industry’s assets in real terms.

Furthermore, Ipec noted that the decline in asset base is also reflected by a decrease of 23.49% to US$1.35 billion.

The industry’s asset base of ZW$110.24 billion translates to a pension penetration rate of 10.3%, expressed as a percentage of gross domestic  product. This indicates that the pension industry still plays a pivotal role in the development of the economy.

In addition, Ipec said the pensions industry’s share of Zimbabwe Stock Exchange (ZSE)’s market capitalisation as at 31 December 2020 was 34.75%, implying that industry remains critical to the development of the country’s stock market.

The local bourse’s market capitalisation as at 31 December last year stood at ZW$317.23 billion.
“The increase in asset base was mainly driven by an increase in the values of investment properties and quoted equities which accounted for 81.15% of the industry’s assets,” it said.

In the period under review, investment property increased to ZW$51.63 billion from ZW$12.65 billion.
“Furthermore, its contribution to the industry’s total assets increased from 42.8% to 46.83% between the two periods. The increase in investment property was mainly driven by revaluation of properties,” Ipec said.

Notwithstanding the suspension of trades of some major counters on the ZSE, the value of investments in quoted equities increased by 667.14% from ZW$4.93 billion to ZW$37.82 billion.
“Funds’ value of investments in equities and investment property in absolute terms has been on an upward trend,” Ipec said.

“It should be noted that values of investments in quoted equities have been growing at a decreasing rate since June 2020 on account of the suspension of trades on Old Mutual, Seed Co and PPC, counters in which most insurers and pension funds are invested. Whilst the Seed Co counter has resumed trading, the other two counters remain suspended.” 

The commission noted that there were inconsistencies in the valuations of these suspended counters and, should the counters remain suspended, guidance will be provided.

In the period under review, contribution arrears increased to ZW$1.68 billion from ZW$0.56 billion. While there was a nominal increase in contribution arrears, the proportion of contribution arrears to total assets declined from 1.89% to 1.52%. Of the ZW$1.68 billion, 78.57% (which translates to ZW$1.32 billion) is owed to stand-alone funds.

“Furthermore, two funds (Mining Industry Pension Fund and Local Authorities Pension Fund) constituted more than half of the industry’s contribution arrears,” it said.

“Notwithstanding the decline in the proportion of contribution arrears to total assets, sponsoring employers are urged to make good their arrears to reduce further loss of value by fund members.
“The continued accumulation of contribution arrears impacts negatively on the adequacy, sustainability, and security of pension schemes. Hence, the need for trustees to explore all the available options to recover the arrears,” the report said.

Ipec also said there was a nominal increase in the total amount invested in prescribed assets to ZW$7.06 billion.

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