Understanding the modalities around Mthuli’s GEMS Fund

0
871

FinX

HARARE – Cabinet yesterday resolved to set up a Government Employees Mutual Savings Fund with effect from March 2020 wherein Government would provide $100 million as seed for the fund among other proposals to improve the welfare of its employees. The fund will be supported through the deduction of 2.5% of total remuneration from every civil servant.

The scheme will  be established on a compulsory basis with an opt out covenant for those who may wish not to participate in the scheme.

Cabinet also resolved to establish Garrison Shops for members of the defence forces who will be on the GEMS Fund to access subsidised basic commodities.  Contrary to other reports, this does not mean that the GEMS will fund the shops even though the two are interrelated in as much as that they seek to ultimately improve and cushion all government employees from current short term challenges.

Treasury sources told FinX that while the Government pension scheme which has already been established would go a long way in providing financial security to civil servants at the point of retirement, it does not meet address the immediate pressing needs of civil servants where they need access to short term financial products.

“Oftentimes Civil Servants are left to borrow from unscrupulous credit providers, and this tends to lead to personal debt traps. At the same time, as is the trend elsewhere in the world, members of the defence forces have no access to subsidised basic commodities. A combined solution to these problems was urgently needed.”

Ultimately the idea is to move towards a Broad-Based Remuneration Structure. Documents seen by this publication are proposing a broad framework for the remuneration structure in the Civil Service. One which enables Government employees to have a combination of both current consumption and asset and savings opportunities; decent livelihoods while in service; and  decent livelihoods when they eventually drop out of service to enter other professions or when they reach retirement age. The GEMS Fund and the Garrison Shops address the first two needs whilst supporting the government pension scheme, which meets the long term needs. This is line with global trends.

According to documents seen, this is how the GEMS Fund will work;

·         Civil Servants will make monthly committed deductions from salary into a ring-fenced Pool. These monthly contributions will be ring-fenced as Capital Contributions which will accumulate and will be held as his or her share of savings in the pool for the account of the member. The deductions will be tied to one’s grade and con in the civil service. The grading system will then also define the benefit levels/loan limits.
·          Semi-annual or Annual Dividends will be declared on the Pooled funds from the net interest generated from loans and these dividends will be capitalized onto every member’s Savings account and reflect as accumulated capital for as long as the member is in service. This will be accrued and reflected on a member’s pay advice slip or accompanying statement on a monthly basis;
·         Members will, as a separate transaction, be allowed to borrow from the fund on a concessional basis (soft interest rates which are far lower than commercial interest rates). Various classes of loans will be designed, ranging from Emergency Personal Loans, Salary Advances, Medical and Educational, Asset Acquisition and Personal Improvement, and Home Improvement Loans and Mortgage Loans; enabling members to apply these additional resources to meet various short term financial needs.
·         Monthly loan repayments, which will entirely dependent on the small size and nature of loan will made via direct debit to members’ salaries and these repayments will be credited into the Fund together with the small interest payments; This gives sustainability to the fund.
·         Government will capacitate the fund by leveraging the members’ contributions several times and will capitalize the fund through an upfront contribution.
·         To kick start the fund Government will provide an upfront payment, of $100 million to expedite operationalisation of the Fund.
·         Upon exiting from the fund on termination of employment, or from voluntary exit through the opt out option, employees will access the full residual capital contributions and all accumulated interest less any loan obligations that they may have.

Analysis shows that the GEMS Fund will be sustainable as critical mass is guaranteed by the large number of Civil Servants who will contribute to the scheme. If say 300 000 Civil Servants are enrolled on the scheme from March 2020 and each member is contributing, say ZWL200.00 as capital, the pool of funds will grow at a rapid ZWL60million a month or approximately ZWL600 million by end of this year alone.

The establishment of Garrison Shops to supply subsidised basic commodities will allow serving members of the uniformed forces access to basic commodities at subsidised prices. “These shops will sell the subsidised foodstuffs and other basic goods exclusively and directly to the men and women serving in the uniformed services.”

Cabinet yesterday announced that it would immediately establish a Steering Committee comprising the PSC, MOFED and OPC to decide on the modalities of the Fund, including legal identity, the rights and duties of Government and members of the Fund, benefits to be enjoyed by members, etc. The Steering Committee will be empowered to incorporate or recruit short term consultations for the purpose of operationalising the fund if this is deemed necessary.

A statement from the Public Service Commission is expected to be released later today.

LEAVE A REPLY

Please enter your comment!
Please enter your name here