News Column

Pension Funds Miss Prescribed Asset Ratios

May 23, 2014



PENSION funds last year invested only two percent of their assets on prescribed paper due to insufficient investments that require prescribed assets status, the Insurance and Pension Commission has said.

By law, pension funds must purchase prescribed papers. The money raised is normally used to support Government projects but there were few projects with such status, IPEC said in its latest report.

According to the law, 10 percent is the prescribed assets ratio for pension funds.

Assets for pension funds grew to $1,8 billion last year from $1,5 billion a year earlier.

This implies that as much as $180 million could have been invested on prescribed papers, but pension funds invested $33 million last year -- though this was up from $21,8 million in 2012.

Life companies are required to buy prescribed papers at asset ratios of five percent for short-term insurers and 7,5 percent for long-term insurers.

Life industry's total assets grew to about $2 billion in 2013.

Last year, some of the papers that had prescribed assets status include Old Mutual's$27 million funding for distressed companies, CBZ Bank's$15 million AMA Bills to finance soya beans production, NMB's $50 million facility for SMEs and FBC Bank/Agribank's $15 millionAgro Bills to finance soya beans.

"The (pension) industry's compliance level on statutory paper was 2 percent," said IPEC. "Players are required to participate as (paper) availability improves to avoid statutory penalties."

The world over, pension funds are increasingly playing an important role in the national economies and if properly invested, they provide a mechanism for stimulating economic development.

In addition, pension funds across the globe are also increasingly looking at infrastructure investment with some investors actively pursuing opportunities in the sector.

In 2013, Russia proposed to use its pension reserves for loans of up to $43,5 billion for three big infrastructure projects and other investments.

The Russian government proposed to distribute at least $14 billion from the reserves as loans to modernise the Trans-Siberian Railway, construct a 500-mile high-speed rail line between Moscow and Kazan, and build a superhighway ringing Moscow.

Implementation is yet to begin but it is clear what the Russian government expects of pension funds.

Zimbabwe intends to tap into pension fund assets as a potential source of financing infrastructural projects, particularly for the energy sector, and is considering coming up with a financial instrument to mobilise funds from retirement savings.

First Mutual Life chief executive Mr Douglas Hoto said Zimbabwe was in serious need of investment into critical infrastructure projects such as housing, road and railways, energy and life and pension funds could be a source of long term finance.

"These projects require long term funds through local funders, FDI and external lines of credit," said Mr Hoto. "Government is operating on a cash budget and does not have free cash.

"The country thus requires stable financing with long term profile to finance capital projects at fair cost."

Meanwhile, self-administered funds reported a 38 percent growth in contributions in 2013 to $392 million, but about $170 million of the contributions were in arrears. This was due to prevailing liquidity constraints that most companies are facing.

The fund administrators received contributions amounting to $222 million and total expenditure (net of benefits) of $51 million reflected a 23 percent contribution to expense ratio.

Total costs were 1,11 times bigger than total benefits paid.


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Source: AllAfrica


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