Kuda Chikwanda
13 July 2007
WHILE insurance companies are raking in huge profits, workers and pensioners have been handed a raw deal and are left with little to look forward to on their pensions.
Most employees can no longer afford to pay monthly premiums that will guarantee them adequate returns upon retirement. Some pensioners on the other hand are earning as little as $100 000 per month.
Zimbabwe's hyperinflationary environment has pushed up insurance costs but insurance premiums, which have risen sharply, have failed to keep pace with inflation.
The number of people subscribing to pension funds has gone down, while most of the remaining policy holders are now undersubscribed.
Investigations this week revealed that teachers and most members of the civil service are paying between $200 000 and $400 000 a month as pensions.
This is far below the minimum required to assure them of real value monthly pension payments in tandem with the Poverty Datum Line (PDL) of $5,5 million for May 2007.
An official with a leading life assurance company said while it was his job to sell pensions plans to the current workforce, he was finding it difficult to convince workers to subscribe to pensions.
"Frankly I would not encourage one to take on a pension. The hyperinflationary environment has made it difficult for workers who are earning far below the poverty datum line. Trying to convince them to take on a pension is almost impossible," he said.
The revealed that the largest premium his company was receiving was $50 million a month while teachers paid the lowest average premium of $200 000 a month.
"To try and protect our market against inflation, if someone is contributing $5 million a month, we usually find it necessary to increase the premium to $10 million two months down the line. At the rate inflation is rising the next two months will see the premium raised to about $25 million," he added.
A 49-year old business executive recently took out a pension plan which will guarantee her $1,8 trillion upon attainment of 69-years.
Her current contribution is $1 million a month but will automatically be reviewed upwards to hedge against inflation.
If the inflation trend continues unabated, her $1,8 trillion retirement nest egg will have had most of its value eroded. While official inflation is 4 530%, unofficial estimates say it is over 10 000%.
Most insurance companies replaced policies that attracted low and unsustainable contributions with new ones matching prevailing rates of inflation.
At the same time insurance companies have played the stock market ruthlessly where returns have been much higher than interest rates which have been maintained at around 500% by the central bank.
The industrial index has gone up by 7 400% since the start of this year and has offered more returns than the parallel market rate for the greenback which has been 5 862%.
But there have been concerns amongst workers and pensioners alike that while the premiums match the CPI, the returns are far below that.
The National Social Security Authority (NSSA) recently claimed it paid better benefits than any other pension scheme in the country, including state pension schemes.
NSSA said pensioners would have been getting much less than they had bargained for had it not invested in several high rise buildings, shopping centres, the stock market and the money market.
The minimum invalidity pension was increased from $5 700 in January this year to $110 000 a month. However, NSSA only reviews all benefits twice a year -- in January and July.
At the same time, month on month inflation has been increasing by over 100% in the past two months.
AON general manager for pensions Emmanuel Matina said workers should take pensions despite all their shortfalls.
"Pension funds are benefiting because they offer returns above inflation rate and the US dollar on the parallel market," said Matina.
"Pensions remain the only form of saving. They are the only benefit one looks forward to on retirement."
Matina also said the value of a pension on retirement depended on the pension fund and whether it was being actively managed.
An official with Old Mutual said while pensions still made economic sense for workers and pensioners alike, public perception based on political and economic factors.
"We have noticed that when one gets money, they tend to think that in this environment it is a lot better to buy a bar of soap or tangible asset to preserve the value of their money. They don't realise that pension funds can store their value for them," he said.
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