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Martin Tarusenga
Launch of the National Code of Corporate Governance – Government departure from apparent tolerance of corruption and incompetency?

The Herald of Friday last week reports developments in the country that signal some Government commitment to good governance. The Minister of Justice, Legal and Parliamentary Affairs, at the time the Acting President of the country, set into effect the National Code on Corporate Governance.

The Code “. . .provides a framework for corporate conduct for both the public and the private sectors. . .” The Acting President announced that the Code is meant to “. . .be the national norm on corporate governance and ethical leadership. . .” and “. . .to be rooted in culture, values, morality and professionalism.”

In this latter regard, the Acting President intimated the motivations of this Code in part as the allegations of sleaze that have been made against some regulators of the various economic sectors of the country leading to loss of public confidence in these sectors.

He called for a derivative code to deal with governance of regulators in zero tolerance. And, in a seemingly unrelated development, the same Herald publication reports the conviction of two Airzim executives for defrauding the company through abuse of office.

The conviction is a rare act of this Government against high profile parastatal employees, and seems to signal Government departure from apparent tolerance to corruption and incompetency.

It is apparent from the various media reports that the country’s economic development is to a significant extent being weighed down by corruption and incompetency. When this conviction report is read together with the launch of the National Code on Corporate Governance, Zimbabweans can be excused for raising their expectations on progress about work that is not currently being done in the various economic sectors as a direct consequence of corruption and incompetency, at their detriment.

Pensioners’ expectations in particular, that the Finance Minister will take a cue from Justice Minister’s efforts to eradicate corruption and incompetency, and set the pension/insurance Commission of Inquiry in the next few weeks will be high — the Minister has not, for some reason, acted to set up this Commission almost a year after he announced this Government decision. At a macro level, much needed economic development is being stunted by apparent disintermediation or leakages of pension and insurance funds (estimated at well over $12 billion), caused by apparent corruption and incompetency in pension and insurance funds, which misappropriated funds the Commission is meant to recover.

By way of a brief background, pensioners are contesting the paltry benefits that insurance companies are entitling pensioners and other subscribers (if at all), from pension/insurance contracts that they entered into many years ago.

Apart from apparent several systemic failures in the management of these contracts working against entitlement of full rightful benefits, insurance companies are ignoring contract provisions in calculating these benefits.

Benefits you should get from Defined Benefit and Defined Contribution pension arrangements

Whereas a person, for instance, starting off their work career as a general hand in the manufacturing/industrial sectors, and began participating in the incumbent occupational pension fund some 33 years ago, contributing at 7,5 percent of their monthly earnings, with their employer contributing an equal monthly amount, would have accumulated approximately $26 958 in their pension pot, as at 1st March 2011, aged 57 years, insurance companies entitled him $3 580.

This in fact is an actual example of a ‘lucky’ member of one of the complaining pensioner groups who got something from the insurance companies — others with similar career progressions (even better), got nothing. The insurance company in question ended up paying this member off, the $3 580, citing high administrative costs for the paltry emerging regular monthly pension.

The $26 958 however would have secured a tax free cash lump sum of $8 986 and a regular monthly pension of approximately $90, payable for as long as they would be alive. The latter pension benefits are in fact obtained from what is referred to as a Defined Contribution pension arrangement (or contract). The latter member would have obtained a much higher cash lump sum and a higher regular monthly pension if they had subscribed to a Defined Benefit pension arrangement, another of the two main types of pension arrangements.

The Defined Benefit pension arrangement provides benefits stipulated as a percentage of the member’s final pre-retirement earnings for each year that the member participated in the pension fund. The design objective or intention of a Defined Benefit pension arrangement is to provide pension benefits that increase as the member’s participation period increases, and as the member’s earnings increase in real purchasing power terms, with career progression. Therefore any member subscribing to such a Defined Benefit pension arrangement is signing for this objective to be realised, without fail. Benefits under Defined Benefit schemes are secured by members and their sponsors (employers), via higher funding rates than those required to secure benefits under Defined Contribution schemes. Typically, sponsors would pay contribution rates for each member that are higher than the fixed rate that the member pays, to ensure that the Defined Benefits are fully funded. The Defined Benefit design intention requires that pension/insurance service providers such as insurance companies undertaking to underwrite and administer such pension funds have the capacity to manage any mishaps that can temper adversely with benefits promised under such contracts.

Considering that the latter member retired on a monthly salary of US$525 on 28th February 2011, he would have accumulated a full monthly pension of US$346 after 33 years participation (without the tax free lump sum cash payment), if his Defined Benefit pension arrangement stipulated a 2% percentage of the member’s final pre-retirement earnings for each year of service. If they opted for the cash lump sum payment and a reduced pension, as most pension funds will provide for, this member would have received a tax free cash lump sum of US$22,848 and a reduced monthly pension of US$231, the latter being payable for as long as they would be alive.

Martin Tarusenga is General Manager of Zimbabwe Pensions & Insurance Rights, email, [email protected] <mailto:[email protected]>; telephone; +263 (0)4 883057; Mobile; +263 (0)772 889 716

Opinions expressed herein are those of the author and do not represent those of the organisations that the author represent