Zimbabwe: Retirement Planning Depresses Pensions Industry

Gerald (not his real name) was a chief executive officer of a leading manufacturing company in the country almost half of his life but is now dying a poor man.

He tendered his resignation at the company on his 65th birthday. However, he feels like he has lost a piece of himself by leaving the company.

Now as he lies on a hospital bed, he reminisces about the once flashy life he lived before he retired five years ago. It all now seems like a dream. He is struggling to pay medical bills from the little he is receiving.

What is worse for him is that his children are not helping with his upkeep.He remembers the holidays he enjoyed as he travelled across the globe. None of it had prepared him for this. He has come to a conclusion that he failed to plan for his future after retirement.

Gerald's situation is similar to the one faced by many other senior managers in Zimbabwe who are failing to cope with the paltry pension payouts they receive after retirement, leading to early death as a result of stress.

In Zimbabwe, however for many pensioners, the monthly stipend is woefully inadequate as it is heavily eroded by runaway inflation. Many pension beneficiaries bear the brunt of loss of value of their benefits.

This issue of target replacement ratio was widely discussed at the Zimbabwe Association of Pension Funds (ZAPF) principal officers and chairpersons convention held recently in Nyanga where it was revealled that many senior executives were failing to live beyond five years post retirement.

The target replacement ratio (TRR) seeks to provide a pension benefit that, when added to social security and other benefits, is a percentage of the income one earned before retirement. It speaks to the portion of the pension that one has to survive on when the salary stops coming.

Director of Insurance and Pension Commissions (Ipec) pensions' department, Josphat Kakwere said this was an issue of concern as research has shown that most if not all pension funds do not have any target replacement ratio.

Kakwere said there was need to educate the working class especially the senior executives on how to plan for life after retirement.

"When you have been working all your life and on retirement start earning ZW$20 then your investment ratio is 20%. We have moved around the country and most said they did not have any target replacement ratio . It is a cause of concern," he said

"The issue is actually worse for those in senior management. They have huge salaries made up of benefits and their pensionable salary is actually a very small fraction. At the end of the day their target replacement ratio is very low."

"You see them having very big cars that get serviced by (expensive workships) unlike most of us but when they retire all bills now become their personal responsibility. They do not easily integrate into the community and most of them die just five years after retirement. They are not dying because of anything else but stress because they did not plan for their retirement. You need to educate them," he added

Kakwere said most of them were not willing to contribute to pension funds because they think pension money is cheap finance for their performance targets for the results they want, so they would rather go to borrow to banks on high interest rates.

This leaves them worse off than most of their retired colleagues.He, however, said the employer also has a critical role to play in TRR.

"What has happened over time under defined benefit schemes, the employer would actually target on average of about 50% and on average 60%, so they will be simply saying on retirement I want to replace your income up to 60% so under the DB scheme it now depends how much the pension is made," Kakwere said.

A defined benefit pension plan is a type of pension plan in which an employer or sponsor promises a specified pension payment, lump-sum or combination thereof on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns.

Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.

In Zimbabwe, we have two major phases of a pension, one which is accumulation normally referred to as the saving period which then goes into de-saving or de-accumulation where one is seen as having built a pot from which he will draw from on retirement.

In other words one would have postponed consumption until he gets to retirement.Head client relations and business development, Minerva Risk advisors, Noel Zvareva said it was curricula for any employee to plan for their retirement as much as they plan for their day to day live whilst they working.

He called for member engagement on the issue as well as retirement counselling to avoid surprises upon retirement as well as early deaths that comes with failure to cope with woes of retiring on poor savings.

The other delegates, however, argued that it was difficult under the economic circumstances given the fact that even the salary itself was not sufficient. They moved a motion to have early access to their pensions benefits, saying it will aid their efforts for planning for retirement.

Speaking from his hospital bed, Gerald said: "If only I can survive the stress and the trauma that I'm going through due to lack of proper planning for my retirement I will start classes to educate people on why its important to plan for retirement. No one should go through what I have gone through. Come to think of it, the doctors say I have no terminal illness, but here I am."

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