ZIMBABWE’S pension industry assets grew by 76% to US$2.1 billion during the first quarter of this year compared to the corresponding period last year, largely on account of price discovery on major asset classes such as investment property and quoted equities.
According to a new report from the Insurance and Pensions Commission (Ipec), the pension industry’s asset base grew in nominal terms by 494.16% to ZW$177.12 billion from ZW$29.81 billion recorded in March 2020.
There was also a growth in the industry’s assets in US dollar terms to US$2.1 billion from US$1.19 billion, the report shows.
In addition, pension contributions made for the period under review were also a factor in the asset growth. The industry’s asset base of ZW$177.12 billion translates to a pension penetration rate of 16.54%, expressed as a percentage of the gross domestic product (GDP).
“This significant proportion of assets-to-GDP confirms the important role played by the pensions industry in the socio-economic development of the country,” the report reads in part.
In addition, the pension industry’s share of Zimbabwe Stock Exchange (ZSE)’s market capitalisation as at 31 March 2021 was 10.29%, implying that the industry remains critical to the development of the country’s stock market.
The increase in the asset base was mainly driven by an increase in the values of investment properties, quoted equities and unquoted equities, which had a combined share of 88.34% of the industry’s assets.
Investment property increased to ZW$72.55 billion from ZW$14.13 billion.
However, its contribution to the industry’s total assets declined from 47.38% to 40.94% as the industry invested in other financial instruments, which include unquoted equities, to diversify their portfolios.
Unquoted equities increased by 3 851% to ZW$29.24 billion.
“This increase is also motivated by the industry’s drive to look for value-preserving instruments. Furthermore, the significant increase in the value of investments in this asset class was due to proper classification by one standalone fund which was previously misclassifying it,” Ipec said.
However, given the challenges associated with unquoted equities, which include liquidity, valuation and corporate governance, Ipec said it will soon issue guidelines relating to investments in such an asset class.
Quoted equities increased by 459.03% to ZW$54.69 billion. Capital gains mainly account for the increase in quoted equities.
While the suspension of some major counters on the ZSE has continued, Ipec said the valuation of such counters has not been affecting the values recorded as such counters are now being valued using the Johannesburg Stock Exchange (JSE) as a reference as per the Securities and Exchange Commission of Zimbabwe’s directive number SS 28/04/21, which was effective 31 December 2020.
The income for the period under review was mainly driven by fair value gains, interest from investments and total contributions amounting to ZW$31.2 billion. These three income items constituted 91.23% of the industry’s total income.
Total expenditure increased by 470% to ZW$2.28 billion, mainly driven by total benefits paid, investment management expenses and administration expenses which accounted for 61.55%, 8.38% and 8.36%, respectively.
The expenses-to-contributions ratio was 24.1%, whilst the expenses-to-total income ratio was 2.02% compared to 26.56% and 2.02% in 2020, respectively.
While the expense-to-total income was 2.02%, the expenses to total realised income was, however, at 5.92%.
This implies that part of the industry’s income is not realisable and cannot be used to meet the expenses and other immediate obligations.
The total asset base for insured funds was US$43.85 billion, constituting 24.76% of the industry’s total assets.
This was an increase of 237.05% from US$13.01 billion, mainly due to revaluation gains on properties and equities.
Investment property increased by 152.47% to ZW$15.35 billion whilst quoted equities increased by 339.4% to ZW$20.52 billion.
