The 44 percent kwacha devaluation will leave pensioners in limbo and Old Mutual Pension Services has said the returns will likely be eroded in the short to medium-term.
In a written response yesterday, Old Mutual Pension Services general manager Taonga Manda said while the devaluation will cause prices to surge, resultant hike in interest rates will likely delay until the January 2024 Monetary Policy Committee (MPC) meeting.
He said this will result in returns on fixed income investments not matching with the inflation rate which will likely rise, as such, negative real returns.
Said Manda: “Equities will likely continue with the correction from the over-valuations noted post the 2022 currency devaluation.
“Therefore, returns on pension funds investment will likely be depressed in the short to medium-term. With potentially below inflation investment returns over short-term, we expect erosion in the purchasing power of the funds for pensioners.”
He, however, noted that for pensioners on profit annuities,
the impact of devaluation will be cushioned by the pension increases they may receive from their insurers depending on the performance of the pension fund.
“Unlike retirees that are not on a monthly pension and do not have a steady source of income in their retirement, the impact of the devaluation on their livelihood may be dire,” said Manda.
Veteran insurer and Smile Life Insurance Company Limited chief executive officer Stain Singo said in an interview yesterday that with a monthly pay-out equivalent to less than 20 percent of their pre-retirement salary, the devaluation presents a tough time for pensioners.
He said: “The 44 percent devaluation means a 44 percent depressed value for the already little income of pensioners.
“Life is going to be even harder for those who have no other additional revenue streams as with old age comes a lot of challenges. ”
For Shyleen Jere, a retired secondary school teacher in Mzimba, she sees life being miserable for her.
She said: “With the devaluation, almost everything has gone up and my pension will likely be affected. Life will be hard for me.”
Following the devaluation of the local unit, there have been increases in the prices of fuel, electricity and others, which also threatens inflation prospects.
Inflation rate for October 2023 was recorded at 29.6 percent, but economic experts say when the full impact of devaluation kicks in, inflation rate will likely surge to unimaginable levels.
RBM data shows that pension assets increased to K1.7 trillion in 2022 from K1.3 trillion in 2021.
The sector’s investment assets were skewed towards listed equities and government debt, which accounted for 50.9 percent and 31.3 percent of the total investment assets, respectively, according to RBM data.
The amended Pension Act 2023 allows pensioners to withdraw 50 percent of the retirement savings, with the remaining 50 percent buying an annuity payable for their lifetime, which is an equivalent of less than 20 percent of their pre-retirement salary.
Annuities are insurance products that provide a reliable, steady stream of payments to support one’s financial needs