Pensions regulator guns for unqualified trustees

By The Zimbabwe Independent | Oct. 18, 2024

IN an era of evolving financial landscapes and increasing stakeholder expectations, pension funds face the imperative of aligning with global best practices while anticipating future challenges. These were some of the topical issues that were discussed during the Zimbabwe Association of Pension Funds’ fifth edition of the Principal Officers and Chairpersons Convention in Bulawayo recently. The conference also explored cutting-edge strategies in governance, investment management and risk mitigation to ensure pension funds meet today's standards and adapt to tomorrow's demands. Our senior business reporter, Melody Chikono (MC), sat down with Cuthbert Munjoma (CM, pictured), pension and life director at the Insurance and Pensions Commission (Ipec), to discuss these issues. The interview took place after Munjoma presented his paper at the conference. Find below excerpts of the interview:

MC: You indicated that you will issue letters to disqualify trustees who are underqualified. Can you shed more light?

CM: The new Act provides for minimum qualifications , that is the Certificate of Proficiency (CoP). It is a course which can be done in six months, offered by the Insurance Institute of Zimbabwe and the Zimbabwe Association of Pension Funds.

We noted that about 18% of trustees are not compliant with that. We gave them time to comply late last year. We gave them up to May. Some have not complied. So we are proceeding to disqualify them from being board members. So that is the status.

MC: Who else will be disqualified?

CM: There are also those who have been in office for more than 10 years. The new Act which came in 2022 prescribes a term limit of five years.

These are renewable, which means a continuous period of 10 years. If anyone had already served previous terms before, they are no longer eligible for reappointment.

For those who have been in office for 25 years, 30 years, we have written to their funds. We are proceeding to disqualify them.

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MC: Have you identified them?

CM: We have identified the respective members. Once this is done, we close the governance gap by ensuring elections are done as soon as possible. The same applies to those who are employer appointed.

MC: How deep is the data integrity problem?

CM: This is a data-intensive industry. Prior to Ipec's establishment, there was no proper handover-takeover. Administrators would transfer funds without regulatory approval, and records were missing.

We are now ensuring data audits and smooth transfer processes. There must be a data audit; the transfer process should be smooth. We are now thinking of drawing precedence from other countries. Let us have one system housing all pension funds.

MC: How will the system work?

CM: That system will be connected to a supervisory system that we are acquiring. Should someone change an administrator, it does not matter.

We think that should be the solution. It has to be national infrastructure operating on a not-for-profit basis.

MC: You spoke of taxonomy together with the African Development Bank (AfDB)

CM: You have heard of the issues of ESG (environmental, social and governance). It is cross-cutting. Our government signed the Paris Agreement in 2016. It is a commitment to mitigate climate change.

Pursuant to that, the government announced nationally-determined contributions through the Ministry of Environment and Climate.

That document spells out that our sources of emissions are actually four areas.

Then, what we are now expecting as the financial sector supervisors is to guide our industry. Someone was asking whether investing in coal is good or bad? We want to align with the policy.

It may not be bad because the level of emissions in developing countries is (low). In China it is over 25% and in the US it is very significant.

So, the discussion is that we need to be guided by policymakers. Are we adopting or are we adapting? What can we do to ensure the activities we are doing are speaking to the environment?

MC: What is taxonomy?

CM: It is a common terminology for assessing investments. We are developing criteria with AfDB for Africa. This will help pension funds, banks and listed companies report their ESG contributions accurately.

The industry is already investing in solar — renewable energy. But it is a qualitative description of what they are doing. With taxonomy we are saying where are you invested? How do you quantify? This is what we are doing with AfDB. We will be done around February and March.

This is how you assess a pension fund’s contribution to ESG. This is how you as sess a bank. This is how you assess a list ed company

Once you have that, you then start educating them on how they should report. If we do not do it, there is the risk of what is called greenwashing. It is very important.

MC: What is greenwashing?

CM: Greenwashing is just window dressing. So, tied to that, we also need a green financing policy from the Ministry of Finance. We have engaged them. We need a taskforce and we need to discuss.

MC: How much is AfDB investing?

CM: The amount, to be honest, I don't have. What they do is they give you technical assistants.

This is a regional project. It is a continental project. It is not only for Zimbabwe. We are actively participating.

MC: On offshore investments, you said the industry has only invested US$13,7 million in one asset. What is happening?

CM: We have too many asset managers. These guys have been advocating for land offshore.

But we can now allow 15% of your balance sheet to go offshore. Now, we have the approval but they no longer invest. It could also be a question of not understanding navigating the global capital markets.

All we are saying is, let us be innovative. That was the key message, especially to asset managers.

You want the easiest thing, just going and buying shares. Is that the best? Why can't we consider diversifying even from a geographical risk? The question is, can you think outside the box and invest elsewhere and not store eggs in one basket?

MC: You are revising reporting requirements?

CM: Yes, through our interaction with the Public Accountants and Auditors Board (PAAB). They are recommending that we fully adopt IAS (International Accounting Standard) 29. That is hyperinflation accounting.

There is also IAS 21, which speaks to the exchangeability of a currency.

The problem which is happening right now is the property portfolio is in United States dollars, but you are reporting them using the official rate in Zimbabwe Gold. The implication of that is you are understating value even to the pensioners and you will be underpaying them.

So, the idea is which rate should they use? Can they use a parallel market?

So, the International Accounting Standards Board has changed IAS 21, which speaks to any exchangeability to come up with your own rate in a way you can legitimise a parallel market and it can then show a true reflection of your values. So, major changes in IAS 29, IAS 21.

NC: Which standard have the pension funds been using?

CM: It is IAS 26. That is the standard for pension fund reporting. So the argument was that their asset valuation is being done at fair value.

They are saying why are you doing a piecemeal adoption of the IFRS (International Financial Reporting Standards), just take everything. That is what the custodian of standards, PAAB is saying.

MC: When do you expect them to start adopting this?

CM: We could then start reporting this year. We are thinking that if we do it quicker, they will report in March, but guided by a guideline.

MC: Will they not be overwhelmed considering they are just coming out of implementing IFRS?

CM: They will not be overwhelmed. We think they will not have any problem. But the problem is they do not have the capacity to prepare.

You talk of someone with 68 pension funds and want to prepare audited financials for all the pension funds and you have one financial director.

So, why are you taking that business when you do not have the capacity? We are saying equip yourselves to avoid fines.