Wednesday, February 18, 2009

The Theft of Private Assets

Tuesday, 17 February 2009
When I left school at the age of sixteen and went to work on a farm,
my father sent an insurance salesman to see me and said that I should take
out a life insurance policy that would give me a pension when I retired in
49 years time. I forget what the monthly payments were but I signed up and
sacrificed some of my meager salary to the Old Mutual.
As I grew older, periodically I revised my insurance cover and took
out new agreements - eventually leading me to a situation where I was
contributing via a bank stop order to five contracts with the Old Mutual for
life cover and pensions of various sorts. By the time I left my last job, I
was a Managing Director of a large corporate and had a salary commensurate
with my position. I certainly never had to really worry about my family's
basic needs. In that position I had to fund not only my personal policies
but also the company pension scheme.
My father retired in 1978 and when he did, his pension was Z$268 a
After a lifetime of hard work. They could never have lived on this and
I was glad to be able to bring them into my own family, build a cottage next
to the house and support their basic needs. When he died 17 years later, his
pension rights barely paid for his immediate personal needs. But his
lifetime medical aid was still valuable.
When I reached the magical age of 65 and my lifelong savings in the
form of contributions to the Old Mutual matured, I expected to receive a
reasonable pension. The total value of all five contracts was insufficient
to pay for the petrol required to travel to the Old Mutual and collect the
cheque. I never received a cent for all the years of my contributions and
not even a letter of explanation.
One day I will do a calculation of what my total lifelong
contributions to the Old Mutual; were worth - but this I know, that until
1980, 24 years into my payments, the local dollar still bought a pound and
two US dollars. It was real money. When I started my payments in 1957, the
local currency bought two pounds. I would like to know what those sales guys
got in the way of a pension when they retired? I bet it was not linked to
the local!
We now have many thousands of pensioners here - some 300 000 from the
civil service, 16 000 from the railways and many thousands like myself who
were in the private sector. They are nearly all totally destitute. Many have
to be supported by relatives and friends and even special organisations that
have been set up to help.
This is not the only theft of private assets that has taken place.
Anyone, whose assets were held in monetary form, is now destitute. I well
remember a couple in Harare who when they retired sold their family home and
rented a smaller home, putting the money onto fixed deposit in a financial
institution (remember those days?). At the time I advised them not to go
that route and to buy a smaller home and invest the rest in blue chip
equities (do they exist anymore?) - they did not and they now live on small
monthly remittances from family abroad.
How did this happen and is there a remedy? It happened because the
massive cash flows from this myriad of small individual monthly payments
went into the pool of national savings and were easy pickings for the major
players in the economy. The first heist was in the form of the chunk taken
off the top and invested in government bonds (prescribed assets) at low
interest rates.
Then the companies administering the funds took their share for
expenses and overheads.
What was left they invested - not in productive ventures but most
often in high rise luxury buildings that even today stand as monuments to
our hard work and savings. I am told that 80 per cent of all the buildings
in down town Harare are owned by pension funds and insurance companies. It
explains how this country - one of the poorest in the world can boast a
skyline in Harare that would rival many cities in the richer developed
After that they invested in equities - so that they had some liquidity
in case they needed it to meet the occasional payout after a crisis.
The Old Mutual started out as a Mutual Fund owned by its
policyholders, became a major listed public company and gave us all shares -
I got 400 or so and sold them to help fund my business. It is now one of the
largest investors in the world - certainly in South Africa. But it pays
little or no attention to the plight of the tens of thousands of policy
holders in countries like Zimbabwe, who have had their lifetime savings
wiped out.
The reasons are, of course inflation - in the States right now you
will struggle to find an investment that will return you more than the cost
of inflation. Dividends from equities are a joke. When you have a spell of
hyperinflation like we have are having then cash assets just get wiped out
over night. It's a storm from which there is no protection.
I am told that credit card debt in the USA is bigger than the national
It is now clear that the entire developed world have been living so
far out front on credit that any loss of confidence will result in just what
we have experienced - the collapse of finance houses and the equity markets
and the value of real estate. Until savings deals with burden of debt and
real earnings in goods and services match incomes, the crisis will persist
and real living standards will fall.
At least here in Zimbabwe we have no debt - at least not in Zimbabwe
dollars, they were wiped out together with our savings. What we have to do
now is get our real assets working again and then make sure that in future
we invest our surpluses in real working assets and not in guilded towers
that do not produce anything.
One thing is also certain, we must do something to support our
pensioners - they after all were responsible for everything you see in
modern Zimbabwe.
This probably means that we will have to all sacrifice some of our
future income to meet the needs of those who supported us in the past.

Eddie Cross
Bulawayo, 17th February 2009

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