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The Zimbabwean economy is increasingly under strain due to exchange rate instability and subsequent inflationary pressures. The parallel exchange rate has moved from US$1: ZW$2.50 to US$1: ZW$3000 in just four years, a significant depreciation rate of 99%. The blended inflation rate as at May 2023 was reported to be 86.5% which was an increase from 75.6% in April but this is not matching the reality of the current pricing pressures in the economy.

A kilogram of beef currently costs ZW$21 999.99 which is approximately 55% of the Total Consumption Poverty line of ZW$39,927.46 per person, which represents the total income needed for an individual (with all their income added together) as a minimum for them not to be deemed poor. Pension income is rapidly losing purchasing power and older people by nature are not flexible enough to deal with the volatility of the economy as young people do. If things are not made right this time around, pensions administrators will again be termed the people who fold when things get tough and all the efforts to regain industry confidence will be in vain.

Deferred Pension

IPEC recently reported that 42% of the 953,886 total pension industry members are deferred pensioners as of 31 Dec 2022. In their minds, it is 

better to let the pension mature more so that they can enjoy it later, but it is not realistic in the case of Zimbabwe where the average life expectancy is 62.16 years, and the early retirement age is 55 years. Some get to die without enjoying their pension, which is not supposed to be the case.

Pension Indexation

Wage Indexation making life difficult for Pensioners.

An approach that could help to soften the blow is for funds to index pension benefits against prices. Indexation of pensions is critical because these benefits are typically paid over a long period and are by and large the main income source for most pensioners. In the absence of indexation, the purchasing power of old-age benefits would gradually be eroded by inflation. If, for example, pension payments were to follow inflation minus 1% per year, pensioners would lose about 15% in real income after 15 years into retirement; the loss in the net present value of total pension payments during the full retirement period would also be equal to about 15%.

Most pension funds in Zimbabwe use other indices, such as wages which tend to generate greater increases over time. In normal times, wages grow in real terms, i.e., 

nominal wages grow faster than prices, fueled by productivity growth. This means that for a given level of pension benefit at the moment of retirement, total pensions received during the retirement period tend to be much higher under wage indexation than price indexation. Wage indexation thus allows pensioners to benefit from productivity gains and an increase of living standards over time. In current exceptional circumstances, as prices increase faster than wages, wage indexation or a mix of prices and wages has resulted in real income losses and is raising poverty risks for people with low income.

Price Indexation as a solution

An approach that could help to soften the blow is for funds to index pension benefits against prices. According to Organisation for Economic Co-operation and Development (OCED) in their December 2022 paper HOW INFLATION CHALLENGES PENSIONS; if price indexation is applied, the initial benefit in payment can be set at a higher level, because, over the retirement period, adjustment to prices costs less than an adjustment

to wages. Due to the higher initial benefit when retiring, a lower level of indexation generates higher pensions in the first part of the retirement period and benefits those pensioners who have lower life expectancies. Longer-living retirees, by contrast, will see their benefits fall more over time relative to their level under wage indexation. Hence, while there is no a priori better indexation schedule, the indexation rule should be the result of a political choice that takes this trade-off into account and balances income adequacy and financial cost.

Some countries that were previously at least partially indexing pensions to wages moved to price indexation or increased the weight of price in the index; others made indexation of pension benefits conditional on economic metrics, such as the growth in the total wage bill or GDP. In this way, indexation considers changes in the size of the working population.


2008 wounds are slowly being reopened and the industry professionals and government should make sure this does not happen or else it will be déjà vu all over again. There is an urgent need for solutions that can safeguard members against inflation. Some pensioners received annuity payments equivalent to U$0.80 after the hyperinflation saga and some received lump sum payments of US$30 to compensate over 10 years of consistent contributions and hard work. The US$75 compensation for loss of value is now 90% but is still not enough to heal the market from that catastrophic period. The Justice Smith Commission of Inquiry established that total assets in the Insurance Pension Industry including NSSA worth about US$5, 13 billion in December 1996, US$3, 69 billion in December 2008 and US$5, 1 billion in December 2014, were disposed. The reduction in asset values during the period prior to 2008 was largely attributed to the misappropriation of assets and excessive expense structures as opposed to hyperinflation. 85% of the industry assets to date were acquired prior to the 2009 dollarisation period. This meant that most assets survived hyperinflation which was a positive thing and shows that administrators have the quality skill sets to manage the negative shocks. Industry and the government must try their best to contain the negative effects of the volatile economy. It would not be fair to let the market go through another inquiry into what went wrong and how pensions evaporated.

Musawenkosi Dzheka is an aspiring Financial Analyst. He is currently undertaking his Btech Honors Degree in Financial Engineering with Harare Institute of Technology. He was part of the CFA Equity Research Challenge finalists with HIT in Feb 2023. He is currently attached at Zimbabwe Association of Pension Funds. Musawenkosi enjoys quantitative financial research and writing articles.

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