LAST year I promised myself that I would not comment much on issues to do with pensions in Zimbabwe up until the Presidential Commission of inquiry publishes its findings. Well, this has kind of resembled that time when you try to resist the urge to scratch an itch. The more you resist, the more itchy it appears to be – so here I am scratching.
I am 100 percent convinced that one of the contributing factors that led to the pension troubles that followed the dollarisation of the economy, is that Trustees are lacking in the necessary skills needed to run a pension fund. Get me right here, I am in no way saying that Trustees are to blame for eroded pensions, but they were simply not equipped to deal with a crisis of that magnitude.
For every pension fund, there are two types of trustees based on how they are nominated; Employer nominated trustees and Employee nominated trustees. These will be ordinary employees in the company,hand picked or elected to be custodians of the assets in the pension fund – with a duty to uphold the interests of all the beneficiaries (not of those who appointed them). People don’t go to school to become trustees, they go to be lawyers, accountants, engineers and other professions like that. This means that when an employee is appointed to be a trustee, they do not know much about how pension funds work!
What then happens is that trustees appoint other professionals to help them with the day to day running of the pension fund. This is good, but if you read my post on conflicts of interest you would know that advisers can be conflicted and fail to provide you with the advice that you really need. Trustees are turning a blind eye to what their administrators and consultants are doing or not doing. No one is checking to see if membership details are up to date or if people are being paid their pensions correctly. And since pension funds hold a lot of money, they are a temptation and are easily susceptible to fraud.
Fraudulent activities are not only done by outside parties alone. A common risk to our pension funds is that of dominance risk. For example, when the MD of the company is also on the board of trustees for the pension fund, other trustees naturally find it hard to question suggestions that the MD brings up. They are simply reduced to human placeholders who only serve to ensure that a quorum is present for the meeting to be held. This ultimately means that no checks and balances are ever applied and the fate of the pension fund rests in the hands of one person.
Lately, I have seen that pension funds are beginning to embrace the fact that they need to ensure that their trustees are continually educated on emerging pension management best practice. This however has been in the form of seminars and conferences where they invite speakers from as far as Canada and Europe to present topics such as Liability Driven Investments (LDI). I have nothing against opening up our trustees to what’s happening in the developed world, but let’s be honest, there is no way a pension fund in Zimbabwe will be able to carry out a Liability Driven Investment strategy because to do so, you need to have long term bonds, interest rate swaps, stock options and a myriad of other derivatives and financial instruments.
Before we start to think about LDI, let’s first educate our trustees on how to ensure that their pension funds are secure even in the current liquidity environment where companies are not remitting contributions into the pension fund. Let us educate trustees on how to handle conflicts of interests, handle beneficiary queries, manage their consultants and ask key questions of their investment advisers/asset managers. Let us educate our trustees on how collectively, they can contribute to infrastructure investment in Zimbabwe.
I have always advocated for a risk management focused governance regime for our pension funds. Trustees simply need to adopt governance principles that are the norm for commercially run companies.
Being a trustee myself, I never take my duties lightly. Decisions that I make, not only affect the financial well being of my co-workers when they retire, but also affect that of their dependents. Keeping that in mind every time I sign a board resolution means that I am always aware that the ramifications of my actions can either be like a generational curse to the beneficiaries, or a blessing that will benefit many.
Thomas Sithole is an Actuarial Analyst and the current Head of Enterprise Risk Management (ERM) Solutions at Bluecroft Actuarial Solutions. If you have any comments or questions concerning any of the matters discussed on this platform, please do contact him on firstname.lastname@example.org or his twitter handle @ZimboActuary.
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