The impact of COVID-19 (coronavirus) and the measures taken to contain it have been swift and severe. This heightens the need for the Pensions Industry to understand the possible impacts of the various measures taken by government. There are a whole range of issues that Trustees of Pension funds, Employers and Administrators are facing as a result of COVID-19.


We provide some guidance to support Trustees of Pension Funds.

Pension assets can take an immediate hit due to equity exposure and the economic downturn. The resulting monetary policy statement by the Reserve Bank of Zimbabwe on the 27^th of March 2020, Statutory Instrument 85 of 2020 permitting businesses to trade in United States Dollars (using free funds);  Statutory Instrument 96 of 2020^[1] (Deferral of Rent & Mortgage Payments during National Lockdown); Statutory Instrument 91 of 2020 (gazetted on 17^th April 2020)  Pension and Provident Funds (Amendment) Regulations and  Statutory Instrument 108 of 2020  National Social Security Authority ( Pensions and other Benefits Scheme) (Rates of Benefits ) (Amendment)^[2] published on the 15^th of May 2020 further enhances uncertainty in an already difficult pensions industry. We recommend that trustees consider the following;


Advice and governance
It is important in these difficult times for Trustees to continue documenting their decisions, whether they seek advice or not. Over the next couple of weeks (and or months) government measures in response to COVID-19 and any directives by the Regulator IPEC are going to have short and long term effects on pension funds and Trustees should consider specialist advice on all such measures taken.


Investments
The preparation and maintenance of the Investment Policy Statement (IPS) is one of the most critical functions for a Pension fund as it establishes the formulation of Investment policy statements by Pension funds. The trustees of every registered fund are be responsible for directing, controlling and supervising of  the operations of the fund^[3].


Trustees should consider the following:

• Review their investment governance structures to ensure they can continue to function and make decisions in light of the government imposed lockdown or restrictions on movements.
• Urgently review the funds cash flow requirements and how they expect obligations to be met.
• Urgently review any previously agreed investment and risk management decisions due to be implemented in the future. This is to ensure they remain appropriate, efficient and do not introduce risks or crystallise losses. 
• Review, the Investment Policy Statement taking appropriate considerations of COVID-19 on the sustainable long-term performance of a fund’s assets. The recent regulations on Rental and Mortgage deferral have both a short term and long term effect on the performance of property investments. These regulations immediately erode the income and liquidity of Pension Funds.

Engaging the Employer
This is an extremely difficult time for many businesses, with significant uncertainty around trading continuity, staffing, and the longer-term implications for a number of sectors. Funds require payment of contributions from participating employers and these may be delayed or disrupted.  The recently gazetted SI 108 of 2020 dealing with the NSSA rates of Benefits also  has far reaching impacts on funds and benefits thereto. Section 3 of SI108 of 2020 amends the rate of contributions and increases it from 3 ½ to 4 ½ effective January 2020.


The NSSA amendment has a negative effect on Pension fund contributions and will result in reduced benefits. With most Pension funds in Zimbabwe being Defined Contribution Funds, an increase in the rate of contributions in the compulsory statutory NSSA pension scheme will not necessarily translate in a similar increase of contributions by employers. Thus employees will have reduced benefits accruing from the funds.


Meanwhile section 7 of the Pension and Provident Funds Act^[4] and the Pensions regulations.


require the employer to deduct from the remuneration of a member the contributions payable by that member and to pay to the fund those contributions within fourteen days from the end of the calendar month. Failure to pay contributions thus results penalties against employers.


Thus employers have a contractual and statutory duty (NSSA) to pay contributions and a failure to pay result in penalties against employers. Employers going through difficult challenges are likely to prioritise contributions to the compulsory NSSA pensions system as opposed to the contributions to pension funds. The Covid-19 pandemic and subsequently the lockdown have affected and disrupted the employer-employee relationship and resultantly contributions to Pension Funds  might be delayed or disrupted and resultantly lead to increased contribution arrears.


As a key stakeholder, Trustees of Pension Funds should be kept informed with the best available information, on the employer operations. This may prove too complicated but the current times will demand enhanced engagements and communication.


Pension Fund Administration
COVID-19 is placing huge additional pressures on the administration of pension schemes. With many fundamentals of business operations changing in a dramatic and unpredictable way, forecasting will be difficult. SI 91 of 2020 (Pension and Provident Funds) Regulations 2020 amends Statutory Instrument 80 of 2017 (Pension and Provident Funds) Regulations 2017. The 2020 regulations have the effect of introducing new provisions in the administration of pension funds particularly the conduct of business by fund administrators. Trustees have to ensure that the fund administrators they engage comply with section 6 and 7 of the Pension and Provident Fund Regulations 2020 to avoid any sanctions from IPEC. Trustees and administrators should  also ensure they focus their activities on the key risks to pension savers:

• benefits need to be paid timeously
• processing of bereavement services
• employers need to continue contributing

Trustees should have appropriate monitoring and contingency plans in place and  be alive to risks pension funds are facing. The Trustees of all pension funds should work closely with their service providers, administrators, employers and IPEC to ensure that their pension funds continue to be administered on a timely basis.

^[1] Presidential Powers (Temporary Measures) (Deferral of Rent & Mortgage Payments during National Lockdown) Regulations, 2020.

^[2] SI 108 2020 National Social Security Authority ( Pensions and Other Benefits Scheme) (Rates of Benefits) (Amendment) Notice 2020 (No.27)

^[3] Section 6 E (1) (f) of SI 80 of 2017

^[4] Chapter 24:09