Local pension funds may find it increasingly difficult to remain afloat due to the business and cash flow disruptions brought about by the Covid-19 pandemic.
The majority of pension funds in the country are structured on a defined contribution (DC) plan model, which is a type of retirement plan in which the employer, employee, or both make contributions regularly.
With most businesses’ operations and cashflows significantly affected by the Covid-19 necessitated lockdown, employers have been struggling to meet their obligations on behalf of their workers.
And in defined contribution plans, future benefits tend to fluctuate based on investment earnings.
With most pension funds predominantly invested on the Zimbabwe Stock Exchange (ZSE) and in property, the performance of these investment assets has also been dragged down by the pandemic.
“The Covid-19 pandemic has led to a global health and economic crisis that will have drastic short- and long-term impacts on organisations’ business models,” says Ernst & Young Africa, India, and Middle East partner Nqaba Mkwananzi.
Covid-19 has worsened the risk profile of pension funds, some of which had been struggling to survive even before the emergence of the pandemic.
Official figures from the country’s insurance and pensions sector regulator — the Insurance and Pensions Commission (IPEC) — show that as at the end of last year, registered occupational pension funds stood at 1 067, with a total membership of 809 176.
And of the 1 067 pension funds, only 760 were active, constituting 71.2 percent of the total pension funds.
IPEC numbers also show that last year, a total of 26 occupational pension funds were undergoing dissolution. And of the 26 cases, four dissolutions were finalised during the year. A difficult economic climate was one of the major contributors to some of these private pension funds seeking dissolution.
Notwithstanding other key macro-economic challenges, 2019 was typified by increased inflationary pressures and rapid depreciation of the Zimbabwe dollar.
By the close of 2019, contribution arrears within the pension funds sector had risen to $621,7 million as employer contributions were largely considered to be sub-optimal during the period.