This is the second article of the series of articles on New Pensions Law in Zimbabwe. The series is aimed at highlighting the changes brought about by the new pensions law in Zimbabwe which came into operation on the 2^nd of September of 2022. 2023 promises to bring a host of new opportunities and challenges in the pensions industry. With so many consultations, legislative changes (regulations and guidance notes), it can be difficult to keep up. To better make sense of 2023, we discuss some of the range of key developments in the pensions industry. The pensions industry continues to be impacted by regulatory changes – these not only include enhanced financial reporting requirements and actuarial guidelines, but an increased focus on governance, risk management and compliance requirements.

On the 2^nd of September 2022 the President of Zimbabwe passed into law a new pensions law, the Pension and Provident Funds Act (Chapter 24:32). This new law came into operation on the same date and repealed the existing Pension and Provident Funds Act (Chapter 24:09).

The new Act is designed at aligning our legislative and regulatory framework in line with global regulatory standards. The Act seeks to modernise the regulation and supervision of the pensions industry. The new law ushers in fundamental provisions, which if properly implemented will bring a paradigm shift to the pensions industry. In this article we provide a compliance overview for pension funds brought about by the new Act. Some of the major provisions are discussed in this article.


General Compliance: Fund Rules & Management of the Fund – 2 March 2023
The new law ushers in fundamental provisions which will have to be complied by certain dates. In order to appreciate the dates for expected compliance one has to appreciate the importance of the appointed day as provided for by the Act. The appointed day means the date on which the Act became operational (2 September 2022). Section 64 sets out the timeline for general compliance with the Act, by bringing the rules and the management fund in conformity with the Act. This will have to done within 6 months of the appointed day putting the compliance deadline at 2 March 2023. Section 64 provides as below;

4.The board of every fund referred to in subsection (3) shall take whatever steps are necessary to bring the rules and management of the fund into conformity with this Act within six months after the appointed day: Provided that, when amending the rules, the board shall pay due regard to the vested rights of the fund’s members and beneficiaries.

Fund Governance
Good governance is increasingly recognized as an important aspect of an efficient private pension system, enhancing investment performance and benefit security. The daily operations of a fund are directed, controlled and overseen by the Board members. Board members in terms of this new law replace the Trustees. The new law entrenches best practice principles relating to corporate governance and risk management to ensure sound corporate governance and risk management practices. The duties, responsibilities, fit and proper requirements of Board members are a welcome change towards enhancing governance. These enhancements are also coupled with the fit and proper requirements of the principal officer which brings Zimbabwe in line with other jurisdictions regarding governance of pension and provident funds.

• The Board members should be aware of their fiduciary responsibility (s 23 and 26),
• Appointment of Board members, independent board members and term limits (s 22 and 25),
• No person shall be appointed, elected or continue to act as a board member unless he or she possesses such qualifications and additionally, or alternatively, has such experience or expertise as may be required for the proper administration of the fund (s25),
• All the assets of a fund, including any policy of insurance, shall be controlled and held in the name of the fund (s30),
• Board members duty to notify IPEC of any material issues affecting the fund (s 23).

These provisions requiring compliance with the Act are peremptory and are to be followed. However, should funds fail to comply with these provisions and require extension they will need to make use of section 44, provided they would not be at fault or defaulted in acting on their duty. Section 44 provides as below;

44 Commission may extend time-limits

Whereby in this Act any time is specified within which anything is to be done,the Commission may extend the time, if it is satisfied that the failure to comply with

the provision relating to such time has not been or will not be due to culpable neglect

or default on the part of the person concerned.

Principal officers
It is difficult to implement organizational changes particularly in the challenging pension fund sector. However, the changes brought about by the market volatility and the growing exposure to the new regulatory environment means that change is inevitable. Principal officers must adhere to good practices and manage funds professionally.

Contributions
The pensions contributions terrain has remained very difficult. These contributions have remained low and even proved difficult to collect resulting in contribution arrears. This has resulted in contribution arrears which has affected the financial performance of pension funds. The new law codifies the principal officer’s obligations to report to the regulator once there has been a default on payment of contributions.

Whereas section 27 of the Pensions & Provident Funds Act provides as follows;

(8) Every principal officer shall inform the Commission on becoming aware

of any material matter relating to the affairs of the fund which, in his or her opinion

may seriously prejudice the financial viability of the fund and its members.

And whereas it is the duty of the Principal officer to ensure that all contributions due to the fund are collected timeously. Section 16 of the Act provides for payment of contributions subsection 3 and 4 of section 16 provide as below;

(3) Every participating employer shall, not later than fourteen days after the end

of the month in respect of which the contribution is payable, remit all contributions

that are payable to a fund in terms of its rules.

(4) Any participating employer who fails to remit contributions within the

period referred to in subsection (3) shall be guilty of an offence and liable to a category

1 civil penalty.

(5) Where a participating employer fails to remit contributions in terms of

subsection (3), the Principal Officer shall report to the Commission, within seven days

after the expiration of the fourteen days referred to in subsection (3).

The principal officers also need to take note of the following important provisions;

• “financial year” in relation to a fund established in terms of this Act or any other enactment, means the period of twelve months ending on the 31^st of December in any year. (s 29)
• Extensive Penalties for non-compliance. Penalties include civil penalty orders (apply for every day of default in addition to a fixed penalty). Principal Officers personally criminally liable for offences of the Fund. (ss55, s56, s60, s61)
• A fund shall, within three months after the end of its financial year, submit to the Commission audited financial statements (s 31)- 30 March 2023
• A fund reserves the right to terminate the services of any of its service providers on providing such notice in terms of any contractual and other agreements between the fund and its service provider (s47)
• Investments (s34);

The Right to Administrative Justice: IPEC to regulate and supervise in line with Constitution.
The adoption of The Constitution of Zimbabwe Amendment (No.20) Act 2013 will have an enormous impact on the pensions industry. The Act carries with it the principles as enshrined in the Constitution particularly the right to administrative justice (section 68) and basic values and principles governing public administration (section 194). IPEC being the pensions industry regulator has been given a more robust role in line with the above constitutional provisions, giving clarity to its mandate which will improve the regulation and supervision of the industry. Its exercise of functions is set out in terms of section 6 of the Act with pension funds needing to be fully aware of their rights to administrative justice on any decision taken by the regulator.

Some provisions to take note of;

• IPEC has extensive investigative and regulatory oversight powers including power to require information, search and seizure. (s36 –s43, s45)
• Where a participating employer fails to comply with a direction made by the Commissioner in terms of subsection (6), the Commissioner shall direct the bank of such employer to remit outstanding pension contributions to the fund, either by way of a single instalment or such number of instalments as the Commissioner may specify.”; and the subsequent sub-clauses shall be renumbered accordingly. (section 16)

•    Any other decision, or action in terms of this Act; may be appealed to the Minister within 30 days after notification of the decision or action against the decision, or action (s52)

Consumer Protection
The Justice Smith Commission of inquiry identified the principle of treating customers fairly as an important pillar of financial soundness. The report advocates for the protection of rights of policyholders and pensioners. The Act carries through provisions enhancing consumer rights. It incorporates universally accepted principles for adequate financial consumer protection to ensure protection of the rights and benefits of fund members and their beneficiaries. Some of the provisions below deal with:

• Every fund shall, except exempted by the Commission, contribute to a pension protection scheme established by the Commission in terms of the Insurance and Pensions Commission Act (s63)
• Postal address, electronic mail address and registered office (s21)
• Communication with stakeholders and providing copies of fund rules (s14)

In conclusion, the new pensions law is welcome in as far as it is designed at aligning our legislative and regulatory framework in line with global regulatory standards. The changes brought about by the new regulatory environment require that board members and principal officers develop a comprehensive and systematic plan to ensure compliance with the new law which would be would be consistent with their fiduciary duties.

For more information and inquiries get in touch with our Insurance and Pensions Practice Group on info@mmmlawfirm.co.zw