Inflation-linked instruments key to pension fund confidence: Expert

THE creation of inflation-linked instruments and a social welfare fund for pensioners could be crucial in restoring confidence in Zimbabwe’s pension industry, protecting pensioners’ savings and providing adequate returns, an expert has said This comes as confidence in the multi-billion-dollar pensions industry remains fragile, following years of economic volatility that wiped out many retirement savings In an interview, Actuarial Society of Zimbabwe outgoing president Prosper Matiashe told NewsDay Business that a new plan to protect pensioners’ savings and provide adequate returns could be the key to restoring confidence in the sector “We need to create instruments that hedge against inflation

For instance, loans could be linked to inflation rates, allowing pension funds to be repaid in line with changes in inflation,” he said “This would help protect the value of pensioners’ savings.”

Matiashe said that linking loans to inflation rates and allowing pension funds to be repaid in line with changes in inflation would help protect the value of pensions and ensure adequate returns on their investments He said several key pillars could be considered to restore confidence in the pensions industry “We need to establish a framework that enables us to move forward and fulfil the promise that pensions provide

The major challenge lies in ensuring that investments yield adequate returns,” Matiashe said “For instance, in cases of hyperinflation, it is often the borrower who benefits, as they receive the money upfront and can use it to acquire assets or expand their business, while repaying a significantly reduced amount due to inflation On the other hand, the saver, typically a pension fund or pensioner, loses value in the process.”

He said that a social welfare fund for pensioners was also proposed, which would provide support to those who needed it most “To move forward, another crucial aspect is enabling pension funds to invest in assets that yield appropriate returns

Given the need to revamp our infrastructure, such as roads, public health and education, pension funds could syndicate and provide financing for these projects,” Matiashe said “This would allow them to generate returns linked to inflation, such as toll fees that increase with inflation To achieve this, we require a public-private partnership approach, where government and stakeholders work together to create instruments that provide pension funds with access and governance.”

He said pension funds also needed to learn from past experiences and establish a framework to address potential future hyperinflation scenarios “One possible solution is to treat pension protection as a social welfare issue

Similar to the Aids Levy, we could establish a social welfare fund for pensioners, providing means-tested support to those who need it most,” Matiashe said “This approach would ensure that resources are targeted effectively, rather than providing blanket compensation that may not benefit those who need it most.”

Source: NewsDay Zimbabwe