EDITORIAL COMMENT: Pension arrears, tax debt underline economic malaise

EDITORIAL COMMENT: Pension arrears, tax debt underline  economic malaise
IPEC commissioner, Tendai Karonga

IPEC commissioner, Tendai Karonga

THE latest report by the Insurance and Pensions Commission (IPEC) shows pension arrears have risen to $463 million in the first quarter of 2017.
This 32 percent increase on the December 2016 figure is cause for alarm as it does not only mean a growing number of pensioners are retiring into undeserved penury after years of work.
It also signals deep-lying problems which corporate Zimbabwe needs to confront before matters get out of hand.
The pension arrears figure, especially when considered in tandem with the high levels of tax debt — $3 billion mostly in unremitted value-added tax and personal income tax  exposes an economy under serious strain.
The overwhelming majority of the outstanding pension remittances, nearly 90 percent of the total, have been in arrears for over six months.
This raises serious doubts over the capacity of the concerned firms to clear the backlog.
The task, clearing mounting debt in a sluggish economy, looks decidedly Sisyphean.
The Zimbabwe Revenue Authority (Zimra) debt, detailed in its regular public reports, is not broken down and, therefore, does not lend itself to deeper analysis. But IPEC data does.
It shows that local authorities, mining companies, State entities such as the National Railways of Zimbabwe, Zesa and the Grain Marketing Board, as well as key sectors including construction and communications, are groaning under the burden of a sluggish economy.
Largely, but not exclusively, as a consequence of this, businesses in these sectors are failing to remit staff pension contributions.
We only partly attribute this state of affairs to the flagging economy.
This is because mismanagement and failure to adjust cost structures to current conditions is also to blame for the inability, by some businesses, to meet their pension and other statutory obligations.
Ironically, pension funds have themselves tended to spend more than they should.
In the first quarter of 2017, the pensions industry reported average expense ratios of 19,35 percent and 14,75 percent based on total contributions and total income, respectively, excluding benefit payouts.
The expense ratios are particularly high among stand-along, self-administered funds, whose expenses ate up 27 percent of contributions and 17 percent of total income.
This is significantly above IPEC’s stated target of expense ratios below five percent.
With $3,4 billion in assets at the close of the first quarter of 2017, pension funds play a key role in the economy, through their investments in property, equities and money market.
It is thus imperative that due care and attention be given to this sensitive sector, whose importance to the rest of the economy cannot be overstated.

Connect With Us

Fingaz Polls

Can Emmerson Mnangagwa revive Zimbabwe's economy?