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Pension Accumulation in Zimbabwe: Unveiling the Mysteries of Wealth Growth

Delve into the complexities of pension accumulation in Zimbabwe as outlined by Prosper Tafadzwa Matiashe at the 49th Annual Congress. Explore the expectations, contributions, potential outcomes, and reasons behind fluctuating yields. Gain insights into the challenges and opportunities faced by policyholders in securing a prosperous retirement future.

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Pension Accumulation in Zimbabwe: Unveiling the Mysteries of Wealth Growth

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  1. ZAPF 49TH ANNUAL CONGRESS Where is my money? The mysteries of pension accumulation in Zimbabwe Prosper Tafadzwa Matiashe 16 May 2024

  2. Outline Policyholder Reasonable Expectations Contributions Looking forward Yield Exit Remedies

  3. PRE: Mind Map Benefits Investment Return I will get a handsome payout when I retire I earn a handsome return over the long term Expenses I pay experts to run this little pot of mine I save some money for my retirement future Contributions

  4. Contributions: How much do I get in? Average per Person Average contributions per year are USD 445 Equates to USD 37 per month 2020 average was less than 6 dollars per annum Median estimate of USD 129 5 to 10 years recurring cycle Contributions 222 220 Contributios (USD Millions) 186 169 165 151 141 125 118 84 51 23 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Year Average Contribution per Member 783 Scheme XYZ Case Study 749 Measure 20222012-2023 Adjusted 661 653 Contributios (USD Number of employees 3,702 3,702 497 464 433 Average Contribution 398 540 327 325 Median Contribution 115 157 228 147 Lower Quartile Contribution 83 113 71 Upper Quartile 260 157 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Year

  5. Looking Forward: What may I get out? Potential Outcomes for a median person Full Amount 1/3 Commutation 2/3 Commutation Monthly Pension Return -5% 2,179 726 1,453 10 -4% 2,449 816 1,633 11 -3% 2,773 924 1,849 12 -2% 3,163 1,054 2,108 14 -1% 3,633 1,211 2,422 16 0% 4,205 1,402 2,803 19 1% 4,900 1,633 3,267 22 2% 5,750 1,917 3,834 26 3% 6,792 2,264 4,528 30 4% 8,071 2,690 5,381 36 5% 9,646 3,215 6,431 43

  6. Looking Forward: What may I get out? Potential Outcomes for a average person Return Full Amount 1/3 Commutation 2/3 Commutation Monthly Pension -5% 7,505 2,502 5,004 33 -4% 8,437 2,812 5,624 38 -3% 9,552 3,184 6,368 43 -2% 10,894 3,631 7,263 48 -1% 12,516 4,172 8,344 56 0% 14,484 4,828 9,656 64 1% 16,880 5,627 11,253 75 2% 19,808 6,603 13,206 88 3% 23,396 7,799 15,597 104 4% 27,803 9,268 18,535 124 5% 33,228 11,076 22,152 148

  7. Yield: What is the money actually earning What we estimate Between 1 January 2013 and 31 December 2023, average return is -4.6%. Continued recovery results in an average return of -1% to -3%. Estimate return between 1 January 2000 and 31 December 2022 is -3%. If you adjust return assumption from 3% to 0%, compensation reduces by 50% on average. Reflecting the true return of the fund minimizes compensation Total Assets 2.1 2.1 2.0 1.9 CAssets(USD Billions) 1.8 1.6 1.5 1.2 1.1 1.0 1.0 1.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Year Value of Industry Assets Based on Return Scenarios Return Value of Industry Assets (USD Billions) -5.0% -4.6% -3.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 1.16 1.22 1.44 1.60 1.78 2.21 2.46 2.74 3.04 3.38

  8. Yield: But Why? Why does return become negative Conversion at 1:1 created close to 100% loss of value for fixed interest and money market investments. In 2016, 8.04% of assets was in fixed interest and money market investments. Assuming 90% loss of value, at least 7% is lost though neutralised by other asset classes that hedge better. The loss of a pension fund member is the gain of a borrower elsewhere. You are hedged if you are on both sides but very few are this lucky. Presence of a building isn’t return. Rental yield approx 4.5%. Cost of developing the property is more than the market price. Minimal renewal of the properties hence market value reduces as rentals reduce. Equities don’t return consistently positive returns as assumed. E.g. VFEX. Dividend yield also not as high as expected though they recover in periods of recovery and approach zero in periods of contraction.

  9. Yield: But Why? Delta Share Price 1.60 1.40 1.40 1.20 Share price (USD) 1.02 1.00 1.00 0.81 0.80 0.74 0.71 0.70 0.65 0.60 0.56 0.50 0.46 0.40 0.35 0.30 0.21 0.20 0.17 0.11 - Month What we estimate Delta returned 1.1% per annum over the period 2009 to 2023 (4% if benchmarking against the interbank). The compensation framework requires loading of 2014 prejudice with 3% per annum up to 31 December 2023. On the contrary, Delta returned -7% per annum over the period 1 January 2014 to 31 December 2023 (-4% if benchmarking against the interbank).

  10. Yield: But Why? ZSE Market Capitalisation (USD Billions) 7.0 6.6 6.0 5.2 5.0 4.3 4.0 3.9 4.0 3.8 3.8 3.7 3.3 3.1 2.9 3.0 2.7 1.9 2.0 1.4 1.0 1.0 - Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 What we estimate ZSE returned 2.5% per annum over the period 2009 to 2023 The compensation framework requires loading of 2014 prejudice with 3% per annum up to 31 December 2022. On the contrary, ZSE returned -10.3% per annum over the period 1 January 2014 to 31 December 2022. The return is -9.5% between 1 January 2015 and 31 December 2022.

  11. Exit: What can go wrong? What we know When you contribute into a fund you buy a proportional share of the assets When you exit you sell your proportional share of the assets to the remaining members Effectively, there is a unit price to the proportional share of the assets. If you enter when the unit price is very low (assets are underpriced), you buy assets on the cheap and earn superior returns. If you exit when the unit price is very low (assets are underpriced), you sell your assets on the cheap to remaining members and lock in significant losses. Our research shows that actives bought equities on the cheap from exits especially 2005 to 2008. (Some actives have negative prejudice) This is effectively how financial markets work and pension funds aren’t sparred. Timing can be fair over the long term but in the short term its very unfair. Compensation can be effectively taxing actives for buying assets on the cheap, but isn’t this an effort of trying to reverse a natural law of financial markets? It can be argued its ubuntu. Reversing natural phenomena isn’t always successful.

  12. Remedies: Is there a way to correct the negatives Tax the borrower Inform and Defer Optimal Contributions Strengthen capital markets

  13. END

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