Martin Kadzere Senior Business Reporter
Government might incur the heaviest burden of compensating pensioners and insurance policy holders who suffered a loss of value before and after dollarisation in 2009 because of hyper-inflation and regulatory flaws and its role in de-monetisation.

The commission of inquiry, which probed the process used to convert insurance and pension benefits before and after dollarisation confirmed a “huge” loss of value to policy holders and pensioners and recommended compensation for the loss suffered.

It established that while policyholders lost value during the conversion period, they have also been losing value throughout the investigation period between 1996 and 2014.

In its report, the commission said high levels of inflation, currency debasing, dollarisation conversion process and de-monetisation were the main reasons of the loss of value.

The commission noted the loss that resulted from inflation, currency de-basing and exchange rate used for de-monetisation contributed 43 percent of the loss, regulatory flaws; 21 percent while poor industry practices contributed 36 percent.

Industry players said if pensioners and policy holders were to be compensated, the Government would bear the heaviest burden as the industry cannot be blamed for the factors that contributed most to the loss of value for pensioners n and policy holders

The commission proposed the establishment of a compensation framework that would take into consideration the criteria for assessing the prejudice in relation to the insurance and pension contracts, the factors that caused loss of value, the shortcomings of the
conversion and soundness of the industry.

“If 64 percent of the loss of value was suffered as a result of factors directly attributable to Government or indirectly in the case of the regulator, it then means the Government will have to pay more,” said an executive with a leading insurance                                                         company.

“It must not just be viewed as if the industry is solely responsible for compensation.”

Owing to data limitations, the commission was unable to quantify the total prejudice suffered as adequate information was not availed for it to make determination.

The commission was also unable to quantify the exact loss attributable to factors for the loss.

It rather relied on a qualitative approach of the judgment of the extent of the loss of value.

The Government commissioned the investigation in 2015 into how pensions and insurance benefits were paid out following a big outcry from pensioners and policy holders.

Pension fund values were badly eroded in values due to devastating hyperinflation, which soared to a record 500 billion percent in 2008 according to the IMF.

The Government wiped out the hyperinflation figures in 2009 when it abandoned the use of the Zimbabwe dollar for a basket of foreign currencies, but mostly dominated by the US dollar, leading to what is now generally called dollarisation.

During the investigation, the commission examined the prejudice suffered by selected complainants and it emerged that some pensioners received insignificant amounts as low as US0,08c after several years of working and the majority of them got zero values owing to lack of benefit inflation-indexation and currency de-basing.

It is, however, satisfied that the industry has “reasonable capacity” to compensate.

“Notwithstanding the unsound
practices in the industry, the commission is of the opinion that a fair and just compensation framework can be implemented to compensate for the
loss of value suffered by policy holders and pension fund members over
the investigation period,” said the commission chaired by Retired Justice Smith.

“In the recommended compensation framework, the commission assess the asset and capital structures of the industry in evaluating its capacity to compensate for loss of value.

“The primary objective is to ensure that prejudiced members of insurance schemes are prejudiced members of insurance schemes and pension funds get their rightful benefits while maintaining stability and confidence of the sector,” it added.

The commission recommended the Insurance and Pension Commission should assume the oversight role of the compensation framework by the industry which should prepare a compensation scheme within a year of date to be specified by the regulator.

The compensation shall be from 1996 to the date when the compensation scheme is instituted.

The recommended currency is the US dollar notwithstanding that many of the contracts were entered into and subsequently concluded in Zimbabwean dollar.

The commission proffered
compensation  guidance of the following products; Wit-Profit Insurance Policies, Investment Contract or Cash Accumulation Policies, Unit-Linked Policies, Inflation- Indexed Policies, Unilateral Terminated Funeral Contracts, Terminations due to Currency Debasing, Guidance on Stopped Premiums, Pension Benefits and National Social Security Authority’s pension scheme.

Sponsoring employers with outstanding pensions would be obliged to honour their obligations.

While the commission noted that
the other reason for the loss of value was due to industry poor practices — here compensation will be expected from the private sector — the main reason was harsh macroeconomic environment characterised by hyperinflation.

The loss of value has left my people extremely poor who are now expecting a remedy from the Government.

The commission recommended Government to implemented compensation framework urgently to alleviate the plight of pensioners.

Even after compensation, Government should consider setting up a means-tested old age pension to alleviate the plight of these pensioners and policy holders’ poverty.