adminThere is an important distinction between a person’s earnings and insurable earnings, when it comes to the national pension scheme administered by the National Social Security Authority.
Insurable earnings are the earnings on which national pension scheme contributions are calculated and paid. They are the earnings which are insured and on which a person’s benefits are calculated. The Government currently sets an upper limit of insurable earnings, a limit to the earnings on which national pension scheme contributions are paid, a limit to the amount of a person’s earnings that can be insured by the national pension scheme.
At present that limit is $700 a month. Between May 2010 and May 2013 the limit was $200. What that means is that an employee’s national pension scheme contribution is 3,5 percent of his basic earnings but only up to a maximum earnings limit of $700 a month.
In other words everyone earning $700 and below pays a national pension scheme contribution of 3,5 percent of his or her basic earnings. The employer pays the same amount.
However, everyone earning $700 or above pays a national pension scheme contribution of 3,5 percent of $700. The employer pays the same.
A person earning $2 000 a month pays the same contribution as a person earning $700 a month. Only $700 of the person’s earnings is insured. If he or she retires now at 60 years of age or more his or her pension will be the same as that of a person who earns $700 and has contributed to the pension scheme for the same length of time that he or she has.
Nobody who retired between May 2010 and May 2013 had insurable earnings of more than $200, because that was the maximum insurable earnings limit during that period.
The highest insurable earnings on which the national pension scheme benefit of such a person could be calculated was $200, because nobody had been able to insure more than $200 of his or her earnings.
“My monthly insurable earnings was $1 000 but my pension is at the barest minimum of $60. Why?” one person wrote to this column.
Although this person does not say when he retired, the likelihood is that he retired during the period when there was a $200 maximum insurable earnings limit in place that is between May 2010 and May 2013. He may have been earning $1 000 per month but only $200 of that was insurable earnings.
He was only paying a contribution that was a percentage of $200. Only $200 was insured. When his pension was calculated it would have been based on insurable earnings of $200, which would have amounted to less than $50 at the most. The reason he is receiving $60 a month would be because the minimum retirement pension was raised with effect from August last year to $60 a month.
On the other hand those who retired in 2009 or the first four months of 2010 received a pension based on their contribution period and insurable earnings that were the same as their actual basic earnings. That was because during this period there was no maximum insurable earnings limit in place. Employees were paying a contribution to the national pension scheme that was a percentage of their actual basic earnings. Their entire basic earnings were their insurable earnings. Employers matched this with an equal contribution of their own. Because employees’ insurable earnings were the same as their basic earnings, their pension was based on that amount.
A few of those who retired during that period are receiving pensions that are higher than any that subsequent pensioners have been able to receive. That is because there is now an insurable earnings limit in place.
Someone else wrote: “I was born on 17 September 1954 and I was retrenched at the end of October 2012. When do I get my pension? What is the amount? My pay was $1 030 per month?” Since this person is now over 60 years of age, he or she is eligible for a pension, if contributions to the national pension scheme were made for at least 120 months and he/she is currently unemployed.
The pension can be claimed by completing the P9/10 claim form, which includes a section to be completed by the last employer.
However, if the last contributions to the pension scheme were made in October 2012, this would have been during the period when there was a maximum insurable earnings limit in place of $200. It is likely, therefore, that the pension would be the minimum pension of $60.
However, if he or she is able to secure employment once more in the formal sector, he/she could continue to make contributions to the national pension scheme and delay claiming the pension until retirement from the new job. Contributions can be made up to the age of 65. The pension would then be calculated on the basis of the insurable earnings at the time he or she retired from the new job.
If the new job paid as well as the last job the insurable earnings at the moment would be $700, since that is the current maximum monthly insurable earnings.
That should ensure a better pension than one based on the 2012 insurable earnings of $200. That ceiling might even go up before he/she retires from the new job.
If, however, this person is unable or unwilling to obtain a new job, then any pension, presuming contributions were made for at least 10 years, would be based on her last insurable earnings, which in 2012 would have been $200.
Retirement pensions are calculated by multiplying the last insurable earnings figure by the number of contribution years by 1,333 percent. If the result of that calculation is an amount below the minimum retirement pension, which is currently $60, then the minimum retirement pension is paid.
Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also a weekly radio programme on social security, PaMheponeNssa/Emoyeni le NSSA, at 6.50 pm every Thursday on Radio Zimbabwe and Friday on National FM. Readers can e-mail issues they would like dealt with in this column to [email protected] or text them to 0772-307913. Those with individual queries should contact their local NSSA office or telephone NSSA on (04) 706523/ 5, 706545/ 9, or 799030/ 1.
Online Reporter