Introduction
There is no doubt the topic on post-employment benefits in the form of pension is of interest to many people. Not only to the working class but their dependents and employers as well. At some point the curtain will come down on one’s working life, for example through normal or early retirement.
It is not a secret that our economy has been experiencing high inflation, at times hyperinflation. I will not dwell on possible sources of inflation as this is not the focus of my article. However, if you ask most people, they easily link inflation and the movement in the exchange rate between the Zimbabwe dollar and major currencies such as the United States dollar.
It is an open secret that inflation has eroded or erodes disposable incomes generally for both individuals and organisations. Inflation has eroded the real value of pension amounts paid to pensioners. Not only that but inflation has also affected local currency denominated insurance, assurance and medical aid covers.
Effects of inflation on pension
For most employees in Zimbabwe pension contributions are made in local currency. Contributions by both the employer and the employee are made over time. The hope being that upon retirement the aged employee will be able to live off his or her pension.
Unfortunately, inflation is very difficult to negotiate with such that the result is known to be one – sided unless one is a net debtor. Pensioners lose out. Pensioners have lost out. I have been told of pensioners who received or receive very small amounts when converted to or measured against the United States dollars. Some of them were quite senior during their working life or they contributed over many years. I have seen some or heard of some who have really struggled after employment not because of anything else but inflation. My late uncle stopped coming to town to withdraw his pension after realising that the cost of travel was more than the monthly pension pay- out.
Effects of inflation on insurance, assurance and medical aid
Inflation results in low real pay – out or cover from insurance, assurance or medical aid. It gets worse if payment is to be received long term.
Commission of inquiry into the conversion of insurance and pension values from Zimbabwe dollar to United States dollar
Due to high inflation and significant exchange rate movements, there have been many changes around currencies in Zimbabwe. For example, multi-currencies were introduced in 2009. Starting February 2019 there were also significant changes, many through statutory instruments, around the United States dollar, RTGS and Zimbabwe dollar.
When multi-currencies were adopted in 2009 there was subsequent conversion of Zimbabwe dollar denominated pension and insurance values. There was an outcry such that a Commission of Inquiry had to be set up to look into the issues and report to Government. The report is available on the internet.
Inflation persists
Despite efforts by Government and the Reserve Bank to tame it, inflation continues to rear its ugly head with prices generally linked to the exchange rate. So pensioners continue to be exposed.
Options available to safeguard employees after they retire
For short term insurance and medical aid, it is possible to have policies in relatively stable currencies such as the United States dollar. It would be good if the same could be done for long term policies such as assurance.
As regards pension which is quite long term and mostly based on local currency contributions there appears to be some real challenges. If some companies with access to foreign currency can do it sustainably this will assist their employees. I wonder if pension funds can pay inflation linked pension from their investments such as properties whose rent may be in line with inflation.
During recent interactions I was told that in addition to pension schemes some employers are contemplating assisting their staff acquire properties such as houses, wherever possible in Zimbabwe, for investment purposes. During employment the employees can stay in the houses or rent them out if they have another. Post- employment the employees can rent the house out and live off the rent. In my view, if supported by many employers, banks and land developers this can give employees relief. In fact there is a chance that investment in low cost or investment properties may even compete with pension schemes. Pension funds beware.
Conclusion
There is need to prepare employees for life after employment. In addition to local currency-based pension, it may be worthwhile considering foreign currency-based pension, where possible, or assisting employees to invest or save in the form of acquiring properties, even low cost in high density areas in big or small cities or towns. Rent will go a long way.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Profile
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
