…pension funds data management under spotlight as pre-2009 value loss compensation stalls

Tawanda Musarurwa

INFORMATION technologies are drivers of business efficiency and the growth of economies.

Using the example of the ‘simple’ cellphone, the African Development Bank (AfDB) notes a causal effect between information technologies and economic growth.

“With respect to mobile telephony, which has greater relevance for Africa, the available evidence suggests that a 10 percent difference in mobile penetration levels translates to a 0,6 percent difference in economic growth rates,” said the AfDB in its 2019 Zimbabwe Infrastructure Report.

Quantifying these benefits is not always simple.

However, recent developments in Zimbabwe’s pension funds space have provided a real-time scenario of what effective adoption and use (or lack thereof) of information technologies by businesses and organisations can mean.

Last October, the Government promulgated Statutory Instrument 162 of 2023 (Compensation for Loss of Pre-2009 Value of Pension Benefits Regulations) – to effect the compensations.

In terms of the timelines of the processes indicated in the SI, compensations should have commenced within the first quarter of this year.

But, the compensation programme appears to have stalled, with the Insurance and Pensions Commission (IPEC) having approved just one compensation scheme out of the 966 registered occupational pension funds as at March 31, 2024.

One of the key issues that is hindering the compensation programme is the unavailability of pensioners’ data on the part of pension funds.

All things being equal, pension funds are expected to have effective record-keeping systems because most schemes have a minimum contribution duration of 10 years, and also have even longer investment horizons.

Speaking at the Zimbabwe Association of Pension Funds annual conference earlier in May, Minerva Risk Advisors business development manager Mr Noel Zvareva pointed to record-keeping problems in the sector.

“We have also had issues with data. One will have to appreciate that this industry was largely manual from 2000 to about 2009, and had archaic systems,” said Mr Zvareva.

“We have a case in point of a pension fund that managed to identify floppy disks, which had data; but when they approached IBM they were charged US$400 000 to read that information and be able to use it in the compensation exercise.”

The regulator has confirmed that data issues is one of the main reasons why many compensation schemes have been rejected.

“One of the observations from our team is that there is lack of granular data, as required by SI-162.

“The (pensions) industry does not have data on pensioners who have been contributing,” IPEC Commissioner Dr Grace Muradzikwa told the regulator’s annual general meeting earlier in June.

“The reports that we received were highly summarised, and do not allow our teams to be able to carry out the necessary reviews that they are supposed to do.”

SI-162 requires very specific data on pension funds’ active members, active pensioners, deferred pensioners, suspended pensioners, beneficiaries, members or beneficiaries who exited the fund through death or other means, because these are all entitled to compensation if the schemes were defined contribution (DC) schemes.

For defined benefit (DB) funds, only members who exited during the investigative period will be compensated.

According to section 4 of SI-162 of 2023, basic data that all pension fund compensation schemes should include: “an actuarial report clearly showing the cohorts of members to be compensated, the compensation amount per cohort, methodology, any assumptions made and the proposed sources of funding of the prejudice suffered by affected members; and a detailed schedule of affected members showing their respective compensation pay outs.”

Lack of granulated data could perhaps be pointing to previous poor design of pension projections by some local pension funds.

The International Organisations of Pension Supervisors (IOPS) says data should be readily available, including to the contributing members.

“Methodology and assumptions should be made available to the users, in particular the data related to the assumed rates of return on assets, contributions paid during the year, real wage growth, inflation rate, costs of pension plan accumulation and retirement products, and expected length of remaining life (longevity) …. Methodology and assumptions should be standardised as far as possible to allow comparability of different projections, avoid potential for miscommunication and facilitate supervision,” said IOPS in a 2022 paper titled ‘Good practices for designing, presenting and supervising pension projections’.

If pension funds practically fail to provide the required detailed data, IPEC will be stuck in a catch-22 situation, wherein they cannot approve compensation schemes that are not in line with the regulations.

Actuary Mr Gandy Gandidzanwa said the current problem of unavailability of pensioners’ data would not exist if pension funds had effective record-keeping and management technologies.

“There was no high regard for record-keeping in the past. It is only now that it has been made into a big thing by regulation.

“If only the funds and their administrators had embraced the right technologies and understood the importance of data, things could have been different,” he said.

Observers say due to the multi-layered nature of pension funds administration, record-keeping complexities are not unusual.

Actuarial Society of Zimbabwe president Mr Prosper Matiashe said there are various aspects that have compounded to contribute to current data challenges in the sector.

“Over the period of investigation (2000 to 2009), insurers and pension funds did undergo various system changes or system migrations to meet the changing technology needs for their businesses.

“However, challenges do arise when moving data from one system to another. Some data would be maintained in the older system, with the intention to restore the data when required,” he said.

“Some data formats were also not compatible between systems; hence data migration may not fully transfer all the data fields.”

Mr Matiashe said the pre-2009 compensation framework is also quite data intensive, therefore some of the data fields required may also not have been captured during the investigative period.

He also said some of the challenges may have arisen due to the set period for data storage for pension funds during the decade under review:

“Previously, the prescription period for storing data was also shorter at eight years, hence some of the data would have been dematerialised already after the end of the eight years.”

Because of the inherent complexity of pension fund record management, the sector requires custom-built retirement plan administration software.

In recent years, there have been initiatives by several developers across the world to come up with innovations such as blockchain-powered pension administration infrastructure, which are expected to reduce the complicated layers of pension management.

Mr Gandidzanwa said home-grown pension administration systems exist, while foreign-made ones require administrators to be proficient in the use of modern technologies.

“The current operating model and industry structure is not yet ready for blockchain technology, for example,” he added.

While local pension funds may not have the financial or technical capacity to adopt the latest or best data management technologies, there is scope for improving the sector’s data management frameworks to avoid similar challenges in the future.

“Most developing countries are generally behind in adopting data culture and frameworks that ensure data is readily available, accessible and relevant to the use cases,” said Mr Matiashe.

“Strengthening data management frameworks will go a long way to ensure more historical data is kept in formats that are easy to use.”

In pension management, where contributions span decades, archaic or poor data systems can trap vital information.

For a country like Zimbabwe, where trust in the financial services sector was badly eroded by the hyper-inflation period of circa 2007-2009 and demonetisation of the Zimbabwe dollar in 2009, the neglect has stalled rightful pension compensations and may further erode those low trust levels.

Local pension funds must treat data preservation as a priority, otherwise the people who spent a lifetime saving may find their records – along with their financial security – lost in the past.

ORIGINALLY PUBLISHED IN THE SUNDAY MAIL – https://www.heraldonline.co.zw/new-preserving-pensioners-data-throughout-the-years/