TOTAL assets in the pension industry declined by 6,5% to $4,03 billion in the fourth quarter of last year due to a shrinkage in equity investments that were affected by a drop in equity prices.

The Insurance and Pensions Commission (Ipec) in the 2017 fourth quarter of the pensions industry report released yesterday, said the drop in equity prices during the period under review was caused by the bull-run experienced on the stock market.

“Total assets for the pensions industry amounted to $4.03 billion as at 31 December 2017, reflecting a decrease of 6.50% from the $4,31 billion reported as at 30 September 2017. The decline in total assets was mainly a result of a shrinkage in equity investments from $1.83 billion as at 30 September 2017, to $1.46 billion as at 31 December 2017,” Ipec said.

“The shrinkage in equity investment was mainly a result of the decrease in equity prices on the Zimbabwe Stock Exchange during the quarter under review, which followed after the “bull run” that took place during the third quarter.”

Of the total assets, $2,51 billion was invested in property and equities combined. Ipec reported that the two long-term asset classes accounted for 62,28% of the total assets.

“The proportion attributable to equities and properties was considered to be in line with the risk profile of the industry with 61,52% of the members being active and generally requiring a long-term investment horizon to match their liability profile,” Ipec said.

“Notwithstanding the observation mentioned above, the commission bemoans the lack of diversity in the capital markets in Zimbabwe. The lack of diversity makes the industry vulnerable to inherent weaknesses of investments in equities and property, such as market risk and liquidity risk respectively.”

Compounding the situation further was the $600.31 million, accounting for 14,89% of the asset base, that was tied up in contribution arrears, up from $556,64 million reported as at September 30, 2017. This was due to correction to reported figures by insurers after the Ipec training seminar.

“The high level of contribution arrears compromises the asset quality and liquidity of pension funds due to the arrears not being available to fund day–to-day operations of pension funds,” Ipec said.

What this means is that the pensions industry was left with fewer dollars to use for investment projects, leaving it with fewer sources of capital. Contribution arrears are the monies that companies have failed to contribute to pension funds on behalf of their workers.

Newsday