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Ipec raises red flag over surge in non-pensionable salaries

THE Insurance and Pensions Commission (Ipec) has raised concern over the increase in non-pensionable salaries in the country, a situation which may have devastating effects on the pension sector going forward. BY MTHANDAZO NYONI Speaking to journalists during a virtual 2020 insurance and pensions mentorship programme recently, Ipec commissioner of insurance, pension and provident funds, Grace Muradzikwa, said they were concerned about the increase in non-pensionable salaries like cushioning allowances. “… another issue of concern to us as a commission and I am sure the NSSA (National Social Security Authority) is also seeing the same trend, is that we have seen an increase in non-pensionable salaries,” she said. Companies have resorted to giving employees cushioning allowances to hedge against inflationary pressures and economic meltdown. Muradzikwa said: “The pensionable salary itself has not been tracking inflation and this new phenomenon of cushioning allowances which are not pensionable, is really of concern and this could be also causing this sluggish growth in pension contributions.” She said pension contributions grew by 471% from $212 million as at June 2019 to $1,2 billion as at June 2020. “Just compare with the growth that we are seeing in the short-term insurance sector. This is something which is really of concern to us because in the past, the growth of the pension sector was ahead of the short-term insurance sector, but clearly the premium contributions in the insurance sector are tracking inflation as policyholders are revaluing their assets,” she said. “But we are not seeing the same in the pension sector. The increases are yes, at 471%, but are lagging behind inflation, clearly showing salaries are not tracking inflation.” In terms of pension asset base, it grew by 123% from $29,81 billion to $66,41 billion and this increase was mainly on account of revaluation gains in equities and property. The pensions sector is currently facing a plethora of challenges such as reduced disposable incomes owing to company closures, retrenchments and lack of formal employment opportunities. It is suffering from high contribution arrears of $887 million; 153 000 members with unclaimed benefits to the tune of about $196 million, poor investment climate and low confidence owing to hyperinflationary legacy issues. Notwithstanding the macroeconomic challenges and the global COVID-19 pandemic, Muradzikwa said the industry remained resilient as it had continued to operate, paying claims and benefits even during the lockdown. For instance, the pensions sector managed to pay benefits worth $483 million from January to June 2020. Also the industry is capital intensive as opposed to labour intensity, she said. The pensions sector had a growth in asset base, an increase of 843% from June 2019 to June 2020, which is above the June annual inflation rate of 732%.

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