Pensions asset base grows 198pc to $198 billion
THE pensions industry asset base grew 198 percent in nominal terms to $198 billion in the period to June 31, 2021, from $66 billion recorded in the same period last year largely as a result of revaluation of investment property and quoted equities, which constituted 78,9 percent of total industry assets.
The Insurance and Pensions Commission (IPEC), in its pensions report for the half year period to June 2021, said the sector’s asset base also grew 100 percent in US dollar terms to US$2,2 billion in June 2021, from US$1,6 billion in 2020 same period, pointing to price discovery on real assets following the 2019 currency reforms.
“The increase in the asset base was mainly driven by investment properties, quoted and unquoted equities which had a combined share of 86,70 percent of the industry’s total assets,” read part of the report.
IPEC noted that the industry’s asset base of $198 billion translates to a pension penetration rate of 18,53 percent, expressed as a percentage of the gross domestic product (GDP), indicating the size of the industry relative to the national output.
“In addition, the pensions industry’s share of Zimbabwe Stock Exchange’s (ZSE) market capitalisation as at June 30, 2021 was 11,06 percent implying that the industry remains critical to the development of the country’s stock market.”
During the period under review, total income for the industry grew 84 percent to $54,59 billion compared to $29,55 billion reported in the same period in 2020 mainly driven by fair value gains, interest from investments and contributions which respectively constituted 44 percent, 19 percent and 10 percent of total income.
“The income for the period under review was mainly driven by fair value gains, interest from investments and total contributions amounting to $48,94 billion and the three income streams constituted a combined 89,64 percent of the industry’s total income,” said the report.
During the six months period under review, investment property grew by 164 percent to $74 billion from $27 billion as at June 30, 2020.
“However, its contribution to the industry’s total assets declined from 42 percent to 37 percent as the industry invested in other financial instruments, which include quoted and unquoted equities, to diversify their portfolios.
Quoted and unquoted equities increased by 259,29 percent and 503,10 percent respectively, with the quoted equities increasing to $82 billion from $22 billion while unquoted equities increased to $15,56 billion from $2,58 billion during the period under review.
“The increased proportions of both quoted and unquoted equities to total assets indicate preference for these asset classes by the industry as they seek to preserve value for pension scheme members,” read part of the report.
IPEC noted that whilst there was transparency in the valuation of quoted equities, unquoted equities valuation was relatively opaque, hence the need for the industry to adopt valuation methodologies which are objective.
“To increase transparency, the commission is working with other regulators and professionals to come up with valuation guidelines on unquoted equities investments,” it said.
The report noted that contribution arrears increased by 242 percent to $3,05 billion from $0,89 billion reported as at June 30,2020 with the increase attributed to continued non-remittance of contributions by some sponsoring employers as well as interest penalties on contribution arrears as required. The total amount invested in prescribed assets increased by 52,33 percent to $7,9 billion from $4,72 billion reported in June 2020.
IPEC said that notwithstanding the increase in the absolute amount invested by the pensions industry in prescribed assets, compliance level remained below the minimum prescribed ratio of 20 percent.
During the period under review, the number of registered funds in the pensions industry stood at 976 compared to 960 funds reported as at June 30, 2020 with the increase due to new funds registered during the period under review.
“The Commission is still concerned with the high number of inactive funds which constitute 37 percent of the total funds. As such, work is underway to resolve them in line with the Framework for Resolution of Troubled Entities,” IPEC said.
Total expenditure increased by 471,74 percent from $0,92 billion for the period ended March 31, 2020 to $5,26 billion mainly driven by total benefits paid, investment management expenses and administration expenses, which accounted for 64,12 percent, 8,37 percent and 7,67 percent, respectively.
Expenses to contributions ratio was 27,5 percent, whilst the expenses to total income ratio was 2,81 percent for the year ended June 30, 2021, compared to 27,98 percent and 1,13 percent in 2020, respectively. IPEC said the Commission is working on a legal framework to regulate expenses.
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