Zimbabweans seek to shelter savings


Aljazeera

 “I no longer trust pension people.  [A] pension is supposed to help secure your financial future when you don't work any more.  Without it, retirement after life would be a mess. "

 Salome Makani, a 45-year-old procurement officer in Harare, is currently poised to experience that mess, but not through any fault of his own.  A habitual saver, she saw her pension wiped out while she was in her mid-30s, at the height of Zimbabwe's economic crisis a decade ago.

 "My experience has not been a good one," Makani told Al Jazeera.  "I know better now."

 Makani's road to disillusionment with Zimbabwe's pensions system dates back to 2009, when hyperinflation forced the government to abandon its sovereign currency and adopt the United States dollar.

 Like many Zimbabweans, Makani left her job - a position she held for 13 years, with one of the country's top insurance companies - to seek better opportunities beyond Zimbabwe's borders.  But the pension she had tucked away during that time soon became worthless, thanks to hyperinflation.

 "When you resign, you get a withdrawal benefit from your pension," she explained.  "I left the country in that period and the company I worked for gave my husband a cheque.  In the process of cashing it, hyperinflation eroded its value. ”

 Zimbabweans now fear history could repeat itself after the country outlawed the US dollar as a legal tender in June to stop speculative attacks on its fledgling interim sovereign currency, the Real Time Gross Settlement Dollar, or Zimdollar.

 According to the International Monetary Fund, Zimbabwe's annual inflation rate from August 2018 through August 2019 was at 300 percent, the highest in the world.

 With hyperinflation looming large over the troubled South African nation, pensioners are fearful that their savings could be gutted once again.  But fund managers have gotten savvier this time around.

 Savings decimated

 Archford Vheremu, a 67-year-old pensioner, says he received a meager pension payout when he retired 12 years ago.

 "I got about $ 1.8 million in Zimbabwean dollars in 2007 as my pension payout," he told Al Jazeera.  "The following year, all that money lost its value," he says.

 His savings decimated, Vheremu believes he is unlikely to ever retire, despite his advancing years.  "I still have to work to survive at my age," he said.

 But hyperinflation is not the only menace to future financial security for Zimbabweans who are trying to save for retirement.  The government compels all pension funds to invest a minimum of 20 percent of their assets - known as "prescribed assets" - in government-approved bonds.  These fixed-income instruments pay periodic interest payments and then return the full amount originally invested (also known as principal) when the bond matures.

 Provide fixed-income assets with a constant rate of payment, which is beneficial when prices are stable.  But when there is runaway inflation, as there is in Zimbabwe, the interest paid on a fixed-income instrument can fall far behind falling prices.

 "Normal prescribed assets that have been issued by the government, if they are fixed-income securities, will work in a hyperinflation environment," said Raymond Manhika, chief of the Motor Industry Pension Fund.  "They just erode value."

 "It's like putting your money in the bank for a rate of five percent when there is a hyperinflation," Manhika told Al Jazeera.  “It's a negative real return.  That is precisely how the prescribed assets issued by [the] government were structured. ”

 Manika pointed to an example of a housing bond with a 12-year maturity that he says all pension funds were required to buy.

 "We invested in that bond for a fixed interest rate for 12 years," he said.  “Now look at it.  The rate [of interest it pays] is 7.5 percent ”- a pittance considering that Zimbabwe has soared to 70 percent overnight lending rates.

 As of June, the country's insurance regulator, the Insurance and Pensions Commission, said a total of 510 million Zimbabwean dollars (worth $ 25m US dollars, commonly used black-market exchange rates) had been invested in prescribed assets.  That figure is less than half of the compulsory 20 percent minimum mandated by the government.

 The pension industry asset base increased by more than 30 percent between March and June 30 to reach 7.04 billion Zimdollars ($ 350m), thanks largely to rising investment properties and equities - both of which are attractive to investors and fund managers looking to hedge.  against a falling currency.

 Following public outrage over eroded pension values ​​during Zimbabwe's last economic crisis - which ended with dollarisation in 2009 - former finance minister Patrick Chinamasa reported to the parliament on the devastating impact of hyperinflation on retirement savings.  "Most complainants indicated that their pensions were reduced from several hundreds or thousands of dollars to a few United States-dollar cents," he said.  "One pensioner showed $ 0.08 of a pension check sent to him by a life insurance company in 2014 as a settlement policy, and no explanation was offered on how such a figure was reached."

 Once beaten, twice shy

 With Zimbabwe's economy declining in crisis again, some fund managers are flaunting the controversial investment regulations this time around.

 Even ordinary Zimbabweans with funds under the care of large asset management firms are withdrawing their money and investing in asset classes such as real estate that they will feel will preserve the value of their retirement savings.

 Jonas Mushosho, the former chief executive of pension management firm Old Mutual Zimbabwe, told analysts and journalists in Harare last month that a number of investors are now withdrawing funds, rather than seeing them eroded by fixed-income investments that fail to keep pace.  regard inflation.

 "A lot of our customers who had parked money with usdrew their money in order to buy foreign currency on the interbank market," said Mushosho, who left his position shortly after making this pronouncement.

 Speaking beside Mushosho, Old Mutual chief investment officer Marjorie Mayida said her company - one of Zimbabwe's largest pension managers - was investing heavily in stocks and properties as well.