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Martin Tarusenga
The Herald Business report of June 3, 2015 reports that the Pension and Provident Fund Bill is in place. An examination of the Bill shows that it remains essentially the same as the current Pension and Provident Fund Act that it seeks to repeal, in structure and thrust.

Just like the current Act, the Bill vests unfettered powers with the Insurance and Pension Commission (IPEC) providing that IPEC relies, in its operations, exclusively on the advice of actuaries trained by institutions based in the UK.

Avoiding all specificity, as such legislation and best practices would require, Section 29 of the Bill, in particular discretionarily provides for the investigation of the financial soundness of a given pension fund “. . . by a valuator . . . in such manner as may be prescribed . . .”, while Section 30 on Investments, does not even touch on specificities of pension fund investment management objectives for a given pension fund, and the established investment management practices that must be engaged in order to achieve the objectives.

The effect of allowing IPEC to prescribe the valuation method of pension funds is to give discretion to the UK-trained actuaries over the valuation methods.

In the absence of actuarial expertise at IPEC, and an absence of national actuarial oversight of high standards, actuarial valuations can be haphazard, incomparable and misleading, as has happened in Zimbabwe leading to the current nationwide complaints against benefits entitled by insurance companies.

Without any pension fund investment management crafted in accordance with best practices, pension funds will be invested haphazardly without any investment performance targets set to meet pension fund objectives of meeting promised benefits, again as has happened in Zimbabwe.

Section 47 of the Bill goes further within this IPEC-based discretion theme to provide for calculation methods used by insurance companies, at the advice of the UK trained actuaries, to entitle benefits that pensioners are now unhappy with, and contesting.

In this same strand, the Bill provides in details for arbitrary “minimum” benefits, directly going against the established principle and practice that members of pension funds choose the pension benefits that they need as expressed in the rules of the pension fund.

There are other provisions in the Bill whose object appear to maintain loopholes in the current Act that have allowed other irregularities such as the subversion of pension funds by employers and insurance companies.

The uncalled for definition of employee in the Bill, seeking to recognise employer directors within the distinct institution of a pension fund, is one such provision seeking to entrench subversion of pension funds by employers.

Readers of this paper will recall the Finance Minister bringing together stakeholders to pension and insurance service provision in July 2014, to review legislation governing these services such as to close loopholes used by insurance companies to prejudice pensioners.

The underpinning principles of revision, as promulgated by the Finance Minister in a “Memorandum to Cabinet Committee on Legislation” were to “. . . align Zimbabwe’s legislation with international best practices”.

International best practices aim to align such legislation with good governance, and aim for specificity in their legislation provisions, in all areas of pension operations, technically and otherwise, and avoid discretionary provisions for functionaries, as far as is possible.

Core principles of Occupational Pension Regulation as recommended by the OECD Council, for instance, cover several principles including the following principles; the principle of establishing Pension Plans, Pension Funds, and Pension Fund Managing Companies; the principle on Pension Plan Liabilities, Funding Rules, Winding Up, and Insurance; the principle on Asset Management; the principle on Rights of Members and Beneficiaries and Adequacy of Benefits; principle on Governance.

The principle on establishing the plans requires that an “. . . institutional and functional system of adequate legal, accounting, technical, financial, and managerial criteria should apply to pension funds and plans, jointly or separately, but without excessive administrative burden.

“The pension fund must be legally separated from the sponsor (or at least such separation must be irrevocably guaranteed through appropriate mechanisms)”.

The principle recommends several implementing guidelines among them risk control, reporting and auditing mechanisms; funding policy; investment policy; capital requirements; governance; business plan by the insurance company or other service provider; licence withdrawal from the insurance company.

The principle on liabilities recommends explicit implementing guidelines including funding of occupational pension plans; measurement of occupational pension plan liabilities; funding rules for occupational defined benefit plans.

These implementing guidelines provide for legal provisions to be in place “. . . requiring the determination of occupational pension plan liabilities corresponding to the financial commitments or obligations which arise out of the pension arrangement.

“The ongoing liability to be succinctly defined.

“The termination liability to account for pension benefits accrued if the plan were to be terminated at the time of the valuation.

“Definitions of ongoing and termination liability to reflect purchasing power benefit preservation.

“These legal provisions should require the use of appropriate calculation methods, including actuarial techniques and amortisation rules that are consistent with generally recognised actuarial standards and methods . . .”

The principle on asset management recommends implementing guidelines including retirement income objective and prudential principles; prudent person standard; investment policy; portfolio limits; valuation of pension assets. The principle on members’ rights cover implementing guidelines including access to plan participation, equal treatment and entitlements under the pension plan; benefit accrual and vesting rights; pension portability and rights of early leavers; disclosure and availability of information; entitlement process and rights of redress; and the principle on governance cover implementing guidelines including identification of responsibilities; governing body; accountability.

The implementing guidelines can only be set in place effectively if there adequate checks and balances for the valuator and IPEC, as the Finance Minister pronounced in the stakeholder meetings.

A risk management council of Zimbabwe and financial ombudsman should, respectively, serve to provide the checks and balances to actuarial, accounting and audit functions and to IPEC regulation of pension funds. The “Risk Management Council of Zimbabwe” shall be an independent body responsible for promoting high quality corporate governance and reporting.

It should foster investment in Zimbabwe by supporting the goal of the investor, by instilling public confidence in the financial governance of business organisations and by providing assurance that professional bodies are properly setting standards and enforcing discipline for their members, in accordance with established standards.

It must thus be the body that issues accounting standards in Zimbabwe, ensure that the provision of financial information by public and large private companies complies with relevant accounting standards; carry out investigations into the conduct of actuarial and professional bodies, and to discipline them accordingly; set standards of auditing to enhance public confidence in the audit process, quality and relevance of audit services in the public interest.

It must partly be funded by Government, with its Board of Directors ideally appointed by Minister of Industry and Commerce

The “financial ombudsman” shall be the public advocate appointed by Government or by Parliament, but with a significant degree of independence, charged with representing the interests of the public by investigating and addressing complaints of maladministration or a violation of rights.

• Disclaimer: Opinions expressed herein are those of the author and do not represent those of the organisations that the author represents or the Herald Business.
• Martin Tarusenga is General Manager of Zimbabwe Pensions and Insurance Rights. Email: [email protected] <mailto:[email protected]>; telephone: +263 (0)4 797020; Mobile: +263 (0)772 889 716.