REPORT OF THE PORTFOLIO COMMITTEE ON BUDGET FINANCE AND INVESTMENT PROMOTION ON THE PETITION RECEIVED FROM ZISCO STEEL PENSIONERS
HON. DR. MUTODI: I move the motion standing in my name That this House considers and adopts the report of the Portfolio
Committee on Budget Finance and Investment Promotion on the petition received from ZISCO Steel Pensioners.
HON. MUSHORIWA: I second.
HON. DR. MUTODI: Thank you Madam Speaker. Section 149 of the Constitution, read together with Standing Order Number 195, provides the citizens and permanent residents of Zimbabwe the right to petition Parliament to consider any matter within its authority relating to its legislative, oversight and representative functions. In line with that provision, Parliament received a petition from ZISCO Steel Pensioners on the 4th of March 2024 whereby the petitioners are imploring Parliament to exercise its oversight role on the Executive so that ZISCO Steel pensioners are paid fairly with “value retention” without any form of prejudice. The petition was referred to the Portfolio Committee on Budget, Finance and Investment Promotion. Upon receipt of the petition, the Committee conducted an inquiry into the issues and came up with this report for consideration by the august House.
Petition prayer, the petitioner beseeches Parliament to exercise its oversight role in examining the following; i. Non-payment of benefits to
ZISCO Steel pensioners; ii. To examine the exact value of debt taken over by the Government of Zimbabwe through the Zimbabwe Iron and Steel (Debt Assumption) Act, 2018; Disbursement of pension funds with value preservation.
- Objectives of the inquiry-:
The primary aim of the investigation was to review the request made by the petitioners and make recommendations for the desired relief. - Methodology
The Committee received submissions from the following stakeholders to understand the bone of contention between Zisco Steel Management and its employees; i. Zisco Steel Pensioners on 13 June 2024; ii. Zisco Steel Management on 13 June 2024; First Mutual Life (FML) on 7 June 2024; Zimbabwe Pensions and Insurance Rights Trust (ZIMPIRT) on 6 June 2024; Insurance and Pension Commission (IPEC) on 20 June 2024; and Ministry of Finance, Economic Development and Investment Promotion on 8 July 2024. The Committee deliberated on the evidence submitted and came up with its key findings and
recommendations that the Ministry of Finance, Economic Development and Investment Promotion must urgently address. - Committee’s Findings
5.1. Background of the Pension Fund ZISCO Steel pension Fund commenced in 1976 and is registered in terms of Section 5 of the Pension and Provident Funds Act, and administered by First Mutual Life Assurance (FML). The ZISCO Steel Pension Fund is a Defined Benefit Scheme where benefits are based on a predetermined formula at the point of joining the fund. The ZISCO Steel Pension Scheme covered all employees including those in their seventies, while some are now deceased or on deathbed and yet have worked all their life for ZISCO Steel. Its assets are registered in the name of FML Company through some pooled investment arrangements.
5.2 The Pension Scheme Arrangement, ZISCO STEEL stopped operations in 2008 due to cash flow challenges which affected remittances of pension contributions to First Mutual Life between 2009 and 2016. It last remitted contributions to the ZISCO Steel Pension Fund in 2007 but continued to deduct pension contributions from members’
salaries until 2016. Most pensioners who left employment from 2009 to the retrenchment date of 31 August 2016 had not been receiving any pay-out from the pension fund. The Pension Fund has a total of 5,956 members as of March 2024. All pensioners who retired before 2009 were getting a flat USD25 which never increased despite changes in economic environment.
5.3 The Assumption of ZISCO Steel Debt by Government. The Zimbabwe Iron and Steel (Debt Assumption) Act was enacted in 2018 with a view to address the settlement of specific liabilities accrued by the Zimbabwe Iron and Steel Company. The actuarial assessments conducted in 2016 projected ZISCO Steel’s liability to amount to US$39 145,930, with a total of 6 194 pensioners. The government assumed a total debt of US$39 145 930 in accordance with the 2016 Actuarial valuation report. However, petitioners argued that the 2016 Actuarial Valuation was flawed. IPEC, ZISCO Management and Pensioners agreed to the fact that the 2016 Actuarial Valuation was flawed. The parties noted that the Government was supposed to inject USD34.4 million plus USD30.6 million which was supposed to be amortised,
taking the total funding gap to USD65.1million. The submission points out that the Debt Assumption Bill was supposed to inject US$65 million as of 2016.
5.4 Macroeconomic issues: In 2019, Statutory Instrument 33 of 2019, “Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Real Time Gross Settlement Electronic Dollars (RTGS Dollars)) Regulations” was gazetted. The S.I was gazetted and from the effective date onward, the amounts were converted to ZWL at a one-to-one rate to the United States dollar. That meant the USD39.1 million debt was converted to ZWL39.1million. As a result, in November 2021, the Ministry of Finance, Economic Development and Investment Promotion disbursed a total of ZWL$39,145,930, the principal amount without interest, to First Mutual Life (FML) at a 1:1 ratio. This amount encompassed USD34.5 million for the ZISCO Steel Pension Fund, USD2.2 million for Buchwa Iron Mining Company (BIMCO), and US$2.5 million for Lancashire Steel Pension. On the date of payment, the exchange rate had shifted to USD1:90. In actuality, the payment amounted to USD434 954.80,
resulting in an outstanding balance of USD38.7 million in real terms. The introduction of SI 33 of 2019 eroded the value of the pension benefits. Due to this exchange rate movement, ZISCO Steel pensioners are pleading for payment of their pensions with fairness and value retention. Further, since 2009, the pensioners were contributing pension premiums in USD but due to the S.I. 33 of 2019, payment of pensions were to be paid as ZWL in terms of the law. April 2009, Member after SI 33 of 2019 – USD25/ZWL25, Spouse/Widow – USD10/ZWL10, Child – USD5/ZWL5
5.5 According to the Pensions and Provident Funds Act, ‘pension beneficiaries should receive their pension pay-outs within 90 days from the date of employment termination’. Petitioners argue that the SI 33 of 2019 was applied in retrospect because if the pension funds were paid in accordance with the Pensions and Provident Fund Act, the ZISCO Steel pensioners were supposed to have been receiving their pension pay-out by 30 November 2016. Therefore, ZISCO Steel pensioners argue that the funds disbursed by the Ministry of Finance, Economic Development and Investment Promotion were supposed to remain in the USD
currency given that contributions were made in the same currency and prior to S.I. 33 of February 2019. - Responses from Ministry and Regulators.
6.1 Ministry of Finance, Economic Development and Investment Promotion, it was noted that although the employee’s pensions were due in 2016, the obligation by Government to settle the pensions was after the enactment of Zimbabwe Iron and Steel (Debt Assumption) Act in 2018. The Ministry, through the Zimbabwe Public Debt Management Office, received information on ZISCO Steel from FML (actuarial valuation report) on 25th of October 2020. The Ministry informed the Committee that the payment was guided by SI 33 of 2019. The ministry confirmed that ZWL39.1million was paid at a rate of 1:1 despite the official rate having moved to 1:90. This suggests that the pensioners possibly have a legal case of prejudice in terms of value retention since they were paid on a 1:1 basis.
6.2 Submissions from First Mutual Life FML confirmed that the bone of contention was that some contributions were made in USD during the multicurrency regime and the pensioners argue that they
should also be paid their pension payout in USD. FML acknowledges prejudice suffered by the pension scheme members due to SI 33 of 2019. FML confirmed that they received the payment of ZWL39.1million and proceeded to invest this amount in the Guaranteed Fund in order to preserve value and the portfolio value.
6.3. Submissions from Zimbabwe Insurance and Pension Rights Trust (ZIMPIRT). Submissions from ZIMPIRT pointed to the same direction that ZISCO pensioners have not been paid their lawful pension benefits despite the Government having assumed the ZISCO Steel debts.
6.4. Submissions from Insurance and Pension Commission (IPEC). The Committee found that IPEC is in constant communication with the pensioners and their concern mainly relates to the amount of debt assumed by the Government at USD39.1 million against the 2018 actuarial valuation of USD61.5 million. IPEC’s assessment of the rate was that the pensioners have a legal case based on the changes the economy has experienced. Further, several governance issues were raised by IPEC on FML, which called for a forensic audit on its operations. A forensic investigation of FML concluded in February 2023
revealed poor governance practices by FML which have an impact on its ability to meet claims such as one raised by petitioners. Other governance issues raised include violation of asset separation rules outlined in Section 29 of the Insurance Act and Section 16 of the Pension and Provident Funds Act. Other issues raised in the report include Management’s failure to adjust to economic conditions. - Committee’s Observations
The Committee made the following observations;
a) Workers – That Zimbabwean pensioners in general and ZISCO Steel Pensioners in particular have lost value in 2008 during the multi-currency regime and when the country moved from USD to the local currency (ZWL) in February 2019.
b) That the ZISCO Steel pensioners suffered great prejudice by contributing in USD (2009 – 2016), yet government assumed the debt and paid in local currency in accordance with the Exchange Control Act.
c) ZISCO Management – That ZISCO Steel in spite of deducting pension contributions (2009-2016), for the pensioners as provided for by
the Pension and Provident Funds Act, failed to remit pension contributions to FML
d) Trustees failed in their oversight function as a trustee of the pension fund. They were complicit in that the employer was not remitting to the pension house under their watch.
e) That the board of trustees was not properly constituted. It was composed of former ZISCO employees who were pensioned at the company’s closure.
f) First Mutual Life – There was poor governance in FML which impacted all pension funds including ZISCO pension fund
g) FML did not implement the IPEC corrective orders to comply with Section 29 of the Insurance Act and Section 16 of the Pension and Provident Fund Act which obligates insurance companies engaged in pension and provident fund business to maintain a separate fund called “The Pensions Fund” to cover liabilities. They were supposed to keep separate accounts for this business’s income and expenses.
h) FML invested in long-term income generating activities implying that FML should be generating income in both USD and ZiG
considering that the economy operates a multi-currency regime. This implies that the pension pay-out should ideally be a mixture of both USD and ZiG as informed by the ratio of USD to ZiG revenue generated by the company on a monthly basis.
i) The IPEC’s regulatory structure was found wanting and ineffective from 2009 to 2017. It failed in its duty to monitor and protect pensioners, allowing the loss of value for their pensions. Moreover, it did not ensure the preservation of contributions made in USD neglecting to guarantee payment or disbursement after conversion from USD to ZWL.
j) Ministry of Finance,Economic Development and Investment Promotion – That the Ministry of Finance, Economic Development and Investment Promotion paid the US$39.1 million in 2021 using a rate of 1:1 in accordance with the law. However, the interbank rate had moved to 1: ZWL90 in 2021.
k) The Ministry could only settle the pension fund after the enactment of Zimbabwe Iron and Steel (Debt Assumption) Act, 2018 despite pension’s funds having been due in 2016.
l) The Ministry has put in place Statutory Instrument 162 of 2023, Pensions and Provident Funds which seeks to compensate for the Loss of Pre-2009 Value of Pension Benefits to actualise the Justice Smith Report’s recommendations of March 2017. However, the Statutory Instrument is gathering dust in terms of actual implementation.
m) General Observations – That COVID-19 pandemic issue of reconciliation of figures and lists cannot be cited as justification for non-payment.
n) The Government had assumed 2016 actuarial valuation debt of USD39 million, but the 2018 actuarial valuation revealed a total debt of US$61.5 million, indicating a shortfall of USD22.5 million. Pensioners, FML, IPEC, and ZISCO Steel management have reached an agreement on the USD61.5 million.
o) The 2018 Actuarial report came after Parliament had passed of the Zimbabwe Iron and Steel (Debt Assumption) Act. - Committee’s Recommendations
The Committee, therefore, recommends that:
a) The Ministry of Finance, Economic Development and Investment Promotion and IPEC should actualise the implementation of Statutory Instrument 162 of 2023 by December 2025;
b) Given the fact that the Ministry of Finance released ZWL39.2million when the rate was 1:90, it means that the Ministry of Finance owes US$38.7million which should be paid to the pensioners at the prevailing rate by 31 March 2025;
c) Parliament and the Ministry of Finance should amend the Zimbabwe Iron and Steel (Debt Assumption) Act [5] of 2018 to take into account the findings of the 2018 Actuarial Valuation Report, by 31 March 2025;
d) That the Ministry of Finance, Economic Development and Investment Promotion must immediately actualise the implementation of the Justice Smith Report guided by SI 162 of 2023 with respect to the 2008 occurrences, SI 133 of February 2019 and occurrences in the macro-economic environment;
e) IPEC as a regulator, should act against all its omissions and commissions as well as strengthen the commission as a regulator by 31 March 2025. - Conclusion
ZISCO Steel pensioners, and if not all pensioners in the various sector of the economy, have suffered prejudice in the form of loss of value upon retirement. This loss of value has mainly been attributed by the currency reforms undertaken in 2009 and 2019 as one of the measures to stabilise the economy. However, the pensioners have cried foul for receiving pension pay-outs that have not been commensurate with the national duty performed, hence the call to have the pensions be awarded with fairness and value retention. Therefore, the Committee fully acknowledges the Justice Smith Commission of Inquiries and calls for the implementation of the recommendation in line with SI 162 of 2023 to address the current challenges being faced the ZISCO Steel pensioners and other pensioners in general within 90 days. I thank you.
