Govt mulls pension reforms

prevailing Pay as You Go pension system that has failed to benefit retired public servants.
The new system will take into consideration fiscal sustainability and transferability of pensions as well as pension benefits consistent with contributions.

Finance Minister Tendai Biti, in the Budget Strategy Paper for 2012 said the current system is not sustainable, as contributions from current members are insufficient to meet pension payments.
This has resulted in the Government chipping in to meet the shortfall from tax revenue.
“Additionally budget constraints have made it difficult to make meaningful pension reviews, which would enhance benefits for retired public servants.

“In this regard, Government is undertaking pension reforms which should lead to the creation of a Pension Fund,” said Minister Biti.
This means that Government is going to create a separate fund where contributions for benefits would be managed and invested. It is from this fund that benefits would be paid.
The Pay as You Go system is marginal in the sense that it does not have mechanisms of pre-funding unlike the new system that is being proposed.

The new pension fund allows funding in advance thus creating more value for pensioners who are currently getting as low as US$40 despite many years of contributing.
A pension plan is a qualified retirement plan set up by a corporation, labour union, Government or other organisation for employees.
Primarily, the objective of a pension fund is to accumulate sufficient assets, through contributions and investments income, to satisfy all pension obligations of the contributor.

Many employees, both in the public and private sectors, had their pension savings eroded during the hyperinflation period.
This left employees with a double barrel problem in that they struggle and toiled during their working days only to encounter the same fate when they opted for early or due retirement.
Currently the National Social Security Authority handles the National Pension and the Workers Compensation schemes.

Last year, NSSA pensions and Compensation Fund collections amounted to US$181,4 million and only US$27 million was paid out as pensions.
In Zimbabwe social protection is offered under two schemes, the National Pension and the Workers Compensation schemes.
Beneficiaries have called for a review of pay outs but it was blocked after the reintroduction of a insurable earnings ceiling of US$200 in May last year.

In a bid to improve the life of pensioners, NSSA has also set up a US$5 million empowerment fund to support business ventures of retrenches who were former contributors to NSSA schemes.
The facility, which will operate through FBC Bank and Metropolitan Bank is for amounts between US$500 and US$5 000, payable over a period of six to 12 months at 10 percent interest rate.