Ultimatum for troubled pension funds

GOVERNMENT has sounded alarm bells on pension funds that are in an unsound financial position, in part caused by their failure to collect contributions from the country’s troubled corporate sector. The Insurance and Pensions Commission (IPEC), which superintends over the pensions and insurance sector, has written to industry players threatening to dissolve those found to be breaching the law. Close to US$200 million in pension contributions was estimated to be in arrears during the first quarter of this year.

The figure might have shot up by now as the liquidity crisis rattling businesses took a turn for the worst between March and July, resulting in more employers failing to remit their pension contributions. In a circular dated August 4, the commissioner of insurance, Manette Mpofu, said IPEC had observed a number of challenges faced by pension funds which included poor or non remittance of contributions by sponsoring employers to the fund since the adoption of the multi-currency regime in February 2009 and high administration expenses vis-a-vis low investment returns.

“In terms of section 19(3) of the Pension and Provident Funds Act read in conjunction with section 10 of the same Act, the Insurance and Pension Fund may dissolve/wind up pension funds which are in unsound financial position if it is satisfied that it is not possible or practical to bring the fund into a financially sound condition within reasonable time,” said Mpofu.

The circular said all line offices, pension funds administrators and self administered pension funds were requested to submit a list of all pension fund(s) whose sponsoring employer(s) have not remitted pension contributions since 2009 by September 15. IPEC is also requesting a list of all pension fund(s) whose sponsoring employers had permanently shut down operations and are considered unviable by the same deadline.

Names of other funds still considered to be unviable by the life office pension fund administrator or trustee of self administered funds for reason are also requested. “Fund administrators, life offices or trustees of self administered funds must recommend the dissolution of the fund or some other appropriate action giving reasons why such a recommendation is being made,” Mpofu said.

In cases where there are no trustees for whatever reason, Mpofu said there should be attached supporting evidence indicating efforts to locate the trustee. “Key indicators of the poor financial position of the fund include continuous shrinkage of total assets emanating from high administration expenses and/or other cost relative to income. Increasing liabilities without matching assets and staggered pension benefits pay-outs. Significant amounts in unpaid benefits and none or low pension increase since dollarisation,” reads the circular.

Experts said pensioners would remain vulnerable as long as the cash crunch continues to bite the few companies that are still operational.  A number of companies have closed shop since the beginning of the recession more than a decade ago owing to a cocktail of challenges among them high utility bills, high interest rates, lack of competitiveness and the shortage of working capital.

Several companies are unable to remit pension contributions because of cash-flow challenges. The chief culprits have been local authorities which are said to be deducting pension contributions from employees’ salaries and converting the funds to other uses. The practice is now widespread as companies try to juggle critical payments.  As a result, a number of pensioners are facing delays in receiving their money, as pension funds claim they have no money and pass the buck to employers, whom they blame for delaying with remittances.

IPEC has been warning companies that failure to remit pensions was illegal and the commission may be forced to intervene to stop the rot. The commission said failure to remit contributions deprives the pension funds investment income and further depletes their coffers. – Staff Reporter