An investigation into pension funds survival strategies during hyperinflation and how they adjusted to a multi-currency regime (2009 - 2012)

Abstract

The viability of pension funds in Zimbabwe was threatened by the hyper inflationary environment that prevailed in the period January 2000 – January 2009. A multi –currency regime was introduced to curb hyperinflation in Zimbabwe, however it brought its own challenges to the survival of pension funds. The overall objective of the study was to investigate how pension funds managed to survive during the period of hyperinflation (January 2000 – January 2009) and how they adjusted to a multi – currency regime over the period February 2009 –December 2012. The researcher adopted a qualitative research methodology. Primary data collection involved collection of data from a sample of 74 respondents, with 42 respondents returning the self - administered questionnaire. This was triangulated by data collected through interviews with 18 key informants. Secondary data in the form of literature relevant to the topic as well as document review was utilised.

The following were the major findings of the study; In order to survive during the period of hyperinflation pension funds changed portfolio composition and diversified investments into non core activities. Pension funds also adopted decentralisation of decision making in order to make faster decisions and allow for quick adaptation to changes in the economic environment. Retrenchment strategies, differentiation of services and short term planning horizons were adopted as survival strategies in the hyperinflation period. Conversion of Zimbabwe dollars to foreign currencies and speculation in commodities were also adopted as survival strategies. Under sudden currency change in the economy pension funds changed their costing structures through variation in the level of charges, employing innovation strategies and changing planning horizons to medium term and long term plans. The researcher made the following recommendations; To survive pension funds should consider investment portfolio composition to hedge against inflation and venture into non core activities offering higher returns above inflation; In a hyperinflation period pension funds should also adopt decentralised decision making, differentiated services and short term planning horizons. The researcher further recommended that the regulatory framework’s adequacy during hyperinflation and upon sudden change of currency be investigated.