THE country's pension funds need to relook their investment strategies to save the industry from extinction, Zimbabwe Association of Pension Funds director general Sandra Musevenzo has said.
The Insurance and Pensions Commission (Ipec) recently indicated that there had been a decline in the number of registered funds, accompanied by a rise in total membership and assets.
Musevenzo told this publication that the pensions sector should come up with viable measures to stay afloat.
"The industry needs to find common ground by investing together as well as engaging common or the same service provider but on a pooled basis,” she said.
"Such pooling of funds on certain investments should make sure the pension funds invest sub sets or sub portfolios of the age and demographic profiles, which are similar in order to match investment horizons and liability profiles.”
By aligning their investment horizons and liability profiles, Musevenzo said pension funds can avoid the pitfalls of the past, where "some pension funds may be forced divest at a loss or with huge costs thereby prejudicing some members of potential gains and income."
According to the latest pensions industry report, the number of registered occupational pension funds decreased from 978 in March 2023 to 966 in March 2024. This decline was primarily driven by fund dissolutions and the consolidation of smaller funds into larger umbrella funds.
Out of the 966 registered funds, the report revealed that only 481 were actively operational, representing just under 50% of the total. The remaining 485 funds were inactive, with 372 of them earmarked for dissolution.
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Despite the shrinking number of funds, Ipec noted that the total membership in the industry increased by 2%, from 957 544 in March 2023 to 979 563 in March 2024, as new members joined existing funds.
However, the industry regulator said that the pensions industry's total assets have seen significant changes with a 1,772% increase in nominal terms from ZiG1,95 trillion to ZiG36,51 trillion, but a 21,06% decrease in US dollar terms from US$2,1 billion to US$1,66 billion due to exchange rate fluctuations.
The pensions report stated that the composition of the industry's assets also underwent a shift, with investment properties making up a smaller portion of the total, declining from 47,38% in March 2023 to 41,42% in March 2024.
The report saw a remarkable surge on equity investments of 1 085% in nominal terms, reaching ZW$11,95 trillion. Prescribed assets also grew significantly, by 3 035% in nominal terms, to ZW$3,6 trillion.
“This was mainly attributable to fair value gains and additional investments in equities from the contributions received by pension funds,” it said.
“The commission continues to enforce industry compliance with the approved value preserving instruments to ensure full compliance with the 20% regulatory threshold,” the report said.
Despite the challenges, Ipec noted that the industry's performance in the first quarter of 2024 was relatively strong with the total income for the quarter standing at ZiG19,27 trillion, a nominal increase of 176,17% in greenback terms, even as inflation reached 55,3%.
According to the International Monetary Fund, the implications of consolidation and volatility in the pension fund industry include increased risk concentration, challenges to asset-liability management, and pressure on investment strategies as a result of market volatility.
This may necessitate strong regulatory frameworks and governance procedures to maintain stability.
The issues may shift risks and costs to younger generations, raising questions about the pension system's fairness.
Furthermore, this may result in reduced retirement benefits for plan participants.
