adminThat is not how social security schemes are perceived in other countries, particularly those that have had such schemes for many decades. It is not how Zimbabwe’s social security scheme was designed.
In most developed and developing countries, it is the national social security pension that is the standard pension citizens of those countries expect to receive in their old age.
Private pension schemes, commonly referred to as complementary schemes, are seen as providing additional (top up) income to the national pension scheme benefits paid to those who contributed to the national scheme during their period of employment.
The national pension scheme operated by NSSA was not designed to provide a rock bottom pension but over time to provide pensions that replace up to 60 percent or more of the insurable income on retirement of those who contributed to the scheme since their youth.
The ideal would be for the insurable earnings to be the same as actual earnings, so that one’s pension was 60 percent of actual income at retirement. However, if contributions were paid as a percentage of a maximum insurable earnings limit, such as the $200 ceiling in effect since May 2010, then the pension would be 60 percent of that limit.
The reason NSSA pensions are low at present is that at this stage of the pension scheme’s development the maximum contribution period is only just over 17 years, since the scheme has only been in operation that long, and the low maximum insurable income level means that $200 is the maximum income on which pensions can be calculated.
The minimum contribution period for a NSSA pension is 120 months. Those who retire after contributing for a lesser period than that are entitled to a retirement grant rather than a retirement pension, provided they have contributed to the scheme for more than 12 months.
For the first decade only retirement grants were paid, except to those who qualified for contribution credits, since the qualifying period for a pension is 120 months. The income replacement rate for the first pensions paid was relatively low.
Now after 17 years it is 22,6 percent for those retiring after contributing for a full 17 years. In another three years there may be some retiring who have contributed to the scheme for 20 years. The replacement rate then will be 26,7 percent.
After 25 years of contributions the replacement rate the scheme is designed to provide is 33,3 percent. After 30 years of contributions it is 40 percent. After 40 years it is 63,3 percent. After 47 years it is 79,7 percent.
By the time the scheme is 40 years old, it will have matured. The norm by then will be for pensioners to be retiring after 40 years of contributions. Most pensioners at that stage can expect to receive a pension equivalent to more than 60 percent of their insurable income at retirement.
It is clear, therefore, that Zimbabwe’s national social security scheme, like similar schemes elsewhere, has been designed to eventually provide a pension that constitutes a substantial proportion of a person’s insurable income on retirement. For that to be meaningful there needs to either be no insurable earnings ceiling or a relatively high ceiling.
The scheme is not intended to simply prevent those who do not contribute to private occupational pension schemes from starving or to provide pocket money for those who do contribute to a private occupational scheme.
Under normal circumstances the government allows the private sector to operate without direct intervention. It is only when there is market failure that government intervenes. In the case of pensions, there were gaps in private pension coverage with sectors such as the clothing manufacturing industry completely left out. As a result, government introduced the compulsory retirement scheme in order to cover everybody.
There are thousands of NSSA pensioners who do not have any other pension except the NSSA pension. They survive on this pension alone.
Many people who have contributed to an occupational pension fund have had their contributions refunded and membership of the fund terminated on leaving their employment. On gaining new employment they start from scratch to contribute to another pension fund.
These may be as vulnerable and as much in need of a social security pension as those who never contributed to any occupational pension fund. Those contributing to both the compulsory social security pension scheme and a private occupational pension scheme should be able to look forward to retiring in their old age with two reasonable pensions.
Which one is larger will depend on their contribution period for each scheme and whether or not in the case of the social security pension there is a maximum insurable earnings limit. There is no such limit when it comes to private occupational pension funds, for which contribution rates are much higher than the ones applicable to the NSSA pension scheme.
- Talking Social Security is published weekly by the National Social Security Authority as a public service. Readers can e-mail issues they would like dealt with in this column to [email protected] or text them to 0735 041 278. Those with individual queries should contact their local NSSA office or telephone NSSA on (04) 706517-8 or 706523?5.
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