Contributions period makes a difference

any immediate NSSA benefit or what their benefit will be when they reach retirement age.
They left their jobs for various reasons. Some were retrenched. Some were in jobs where they were given early retirement. Some speak of having retired, though they are still relatively young. Some just left their job because they chose to do so or for personal reasons.
Most of them are many years away from retirement age. None of them seems to have any intention of returning to formal employment. They seem to have accepted they have made their last contributions to the national pension fund, though some of them could still have up to as many as 20 years in which to continue contributing to their pension before they reach a retirement age of 60 or 65.
This would seem unfortunate, because, where they to return to formal employment and resume contributions to NSSA, this would make a difference to the benefit they are entitled to when they reach retirement age.
Pension fund contributors who have left employment but not yet retired can, however, choose to continue making contributions to the national pension fund. This would be a worthwhile option, as it would enable them to continue to build up their contribution period in order to obtain a better retirement benefit.
The NSSA Pension and Other Benefits Scheme is a retirement scheme. It is intended to provide an income for those who are no longer able to work due to their age.
Benefits are not, therefore, payable before reaching retirement age. Unless one has become so incapacitated by physical or mental disability that it is impossible to work, an invalidity benefit may be paid, or the contributor dies, in which case the contributor’s dependants can claim a survivor’s benefit and a funeral grant is payable.
The major intention of the scheme is to provide those who retire at a certain age with a monthly pension that will replace some of the earnings they had been receiving while in employment. Whether they receive a monthly pension or a lump sum payment and how much they receive depends on how long they have contributed to the scheme.
Those who have contributed longest can expect to receive as a monthly pension a higher proportion of their employment income (or insurable earnings, if there is an insurable earnings ceiling in effect), than those who have contributed for shorter periods.
In order to receive a monthly pension on reaching retirement age the person retiring must have contributed to the national pension fund for at least 120 months. This does not have to have been a continuous period of 10 years. There could have been breaks in employment and contributions but altogether the number of contribution months must add up to at least 120 months.
Those who have contributed for less than 10 years by the time they reach retirement age are eligible to receive a lump sum retirement grant, provided they have been contributing to the scheme for at least 12 months. If they have contributed for less than 12 months their contributions are refunded to them with interest.
The length of the contribution period does not simply affect whether one receives a pension or a grant. It affects the size of the pension or grant. In the case of the monthly pension it affects the proportion of one’s insurable income in employment that the pension will replace.
With 10 years of contributions, the proportion of monthly insurable income prior to retirement that the pension replaces is 13,3 percent. After 20 years it is expected to be 26,7 percent. After 25 years the pension should constitute a third of income. The proportion of insurable income the pension replaces continues to increase with the contribution period reaching ideally a peak of almost 80 percent after 47 years of contributions.
One of the advantages of the national pension fund is that contributions continue when changes are made from one job to another. With occupational pension funds, membership of the fund generally ends when a person leaves one job and moves to another.
Contributions are refunded and the individual has to start building up a new contribution record with a different pension fund.
With the NSSA pension fund, on moving to a new job the individual completes a NSSA form giving details of the new job and past employment using the same social security number as before. In this way the contributions record is carried over from one job to another.
Those who are unable to find new formal employment on losing or leaving their job can arrange with NSSA to continue their pension contributions, though they will have to pay double what they were used to paying in order to make up the employer’s part of the contribution.
If they start their own business within the formal sector they should register with NSSA and register themselves among the company’s employees so they can continue to build up their contributions record.

l Talking Social Security is published each week by the National Social Security Authority as a public service. Readers with questions they would like dealt with in this column can e-mail to [email protected] or send an SMS to 0772 469 801. Those with individual queries they would like answered directly should contact their local NSSA office or telephone NSSA on (04) 706517-8 or 706523-5.