Michael Tome and Fradreck Gorwe
The pensions industry must consider diverse investment alternatives to preserve the value of pension funds in the face of increasing inflationary pressures and the negative impact of policy interventions by authorities to stabilise the economy.
Current economic reforms being instituted by the Government have led to a spike in inflation, which has led to massive erosion of pension fund values and consequently, investment managers continue to struggle to maintain the value of pensions.
Major investments by pension funds have largely been confined to land and buildings at the expense of other viable options.
Value preservation of pension funds formed the core of discussions at the Zimbabwe Association of Pension Funds (ZAPF) meeting on Friday last week; titled “Unpacking Statutory Instrument SI 142 of 2019 to The Pensions Industry”.
Statutory Instrument 142 of 2019 and de-dollarisation are some of the stabilisation measures taken by Government recently.
Institute of Chartered Accountants of Zimbabwe chief executive Gloria Zvaravanhu called upon relevant authorities to come up with innovative ways to preserve the value of pensioners hard earned funds.
Mrs Zvaravanhu said authorities should work on ways to rebuild confidence to pension contributors as the pension schemes were fast losing credibility given what has almost become a norm where pensions are losing value at a 10 year interval.
“The question is how do we make pensions relevant; this is a critical issue that needs to be looked at.
“Because in the recent past people were contributing in US dollars and we are now talking about a different currency where value has been eroded and we are not sure what it is going to be like as we go forward,” said Mrs Zvaravanhu.
Speaking at the same meeting, Attorney of the High Court and Supreme Court of Zimbabwe, Norbert Musa Phiri, boldly suggested that authorities should find alternative ways to preserve the value of pension funds other than traditional methods.
He said that the portfolio of prescribed assets in Zimbabwe ought to change in nature to encompass intellectual property.
The strategy was adopted in other advanced economies to preserve value of the securities.
He suggested investments into patented (an exclusive right that is granted by scheme of an invention) products, which can unlock huge fortunes for the industry and the country.
“Let us all agree that currency is a problem, when it comes to pensions every 10 years we appear to lose value, so now if we appreciate that currency is a problem we need to look elsewhere. If you ask me, our investment strategies should look forward.
“Indeed, if we are looking at a patent, imagine if that invention or technology is a drug, a pension fund is invested in the adoption of a drug which tomorrow will make billions (of dollars) and which will contribute to our own community.
“Malaysia has taken the approach where they have used intellectual property, which are assets and creations of the mind, they have been valued and are now securitised.
“Intellectual assets should be made prescribed assets, there is a valuation method that is available,” said Mr Phiri.
Chairman of the Association of Investment Managers, Jubelah Magutakuona lamented a number of risks that arise with high inflationary environment prevailing in Zimbabwe in as far as investments in the pension industry is concerned.
He alluded that the risks debar efforts to preserve value of pension funds and that these entail, inflation risks, compliance risks, currency risks, liquidity and credit risks and price risks amongst other risks.
“Our proposition is that perhaps through the Reserve Bank we can have some inflation protection instrument.
“For us it is an issue and perhaps the regulator should expand their qualifying criteria for prescribed assets,” proposed Mr Magutakuona.