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Business Reporter

The Government issued prescribed assets status to projects and financial instruments worth approximately US$550 million during the last quarter of 2022, but uptake by pension funds remains below the minimum regulatory threshold, a report shows.

In its 2022 fourth-quarter report on the pension industry, the regulator of the pension and insurance sectors, the Insurance and Pensions Commission (IPEC), said the projects issued with prescribed asset status were mainly in the construction, agriculture, and energy sectors.

At law, pension funds and insurance firms are required to invest at least 20 percent of their investment portfolio in prescribed assets.

The projects and instruments, which were given the status of the prescribed asset include AFC Holdings’ US$154,63 facility for agriculture, Frontier Real Estate’s US$10 to finance the development of commercial real estate properties, the US$42 million Heka Bond for rehabilitation of Harare-Kanyemba road, Par Value (US$46 million) solar energy project and Fairview (US$292,5 million) for servicing of stands and construction of housing units, according to the report.

During the first half of 2022, IPEC issued prescribed asset status to projects worth nearly US$120 million. “The industry is urged to invest in projects or financial instruments that suit their investment objectives in order for them to comply with the prescribed asset threshold,” said IPEC. “Furthermore, the above array of approved prescribed assets presents an opportunity for the industry to diversify its portfolio.”

Prescribed assets constituted 7 percent of the industry’s total assets during the period under review.

“Notwithstanding the 468 percent increase in the amount invested in prescribed assets, the prescribed asset ratio is still below the regulatory minimum of 20 percent.”

Local pension funds are the stewards of billions worth of retirement savings, which can be deployed to finance various projects.

While there is a need to comply with the laws, pension funds are critical stakeholders in developing infrastructure and investing in productive sectors such as agriculture.

Analysts say it was also critical for pension funds to seriously consider committing their members’ funds to impact investments to ensure the income received during retirement enables retirees to have access to affordable public goods and services.

Impact investment is an approach to investment in which, financial assets are invested with two objectives in mind. The first objective is to achieve a financial return while the second is to achieve a specific or deliberate, positive and measurable impact on society or the natural environment. This measurable impact is usually in the form of developmental outcomes, which communities and greater society can benefit from.

Examples of such outcomes include food security, access to affordable housing, electricity, water, and sanitation, health-care as well infrastructure (social and economic) which will improve the standards of living for those who are underserved or have limited access to these services. This is known as the double dividend of impact investment. It’s an opportunity to achieve investment returns while solving social as well as environmental challenges faced by pension members in society.

Meanwhile, the value of the pension industry’s assets was $1,11 trillion, a nominal increase of 248 percent from $318,96 billion reported in the prior year, the report said.

The nominal increase in the asset base was mainly driven by investment property and quoted equities. Investment property had a nominal increase of 401 percent, to $486,23 billion from $96,74 billion in the same period the previous year.

The nominal value of quoted equities increased by 99,6 percent from $158,27 billion as at December 31, 2021 to $315.90 billion. The overall income for the year was $705,36 billion, up from $174,57 billion recorded in the previous year.

Total Income was primarily driven by fair value gains on investments, interest on investments and contributions, which accounted for 44 percent, 31 percent and 11 percent of total income, respectively.

Total expenditure was $89,52 billion, with 76 percent of the total amount going towards benefits payments. Total expenditure growth reflected a nominal increase of 404 percent from $17,77 billion for the same period ending December 31, 2021.