adminthe National Social Security Authority and the Government or state service pension scheme.
The Government, like many private companies, has its own pension scheme for its own employees. Such pension schemes are known as occupational pension schemes. They are related to the individual’s employment. When a person leaves that employment they are generally refunded their pension contributions or an arrangement is made for a transfer to another pension scheme.
The national pension scheme administered by NSSA is a national pension scheme which all employees and employers are obliged to contribute to, regardless of whether or not they are also making contributions to an occupational pension scheme.
The scheme is a national one, embracing everyone engaged in formal employment. There is no refund of contributions, therefore, when a person leaves his or her employment. Contributions continue in whatever new job the person moves onto.
Many people, therefore, are contributing to two pension schemes, namely an occupational pension scheme and the national pension scheme administered by NSSA.
They generally pay more to the occupational pension scheme, because contributions are calculated as a percentage of gross earnings, whereas with the NSSA scheme there is currently an insurable earnings ceiling of US$200.
Moreover, the percentage of the salary paid as contribution to an occupational pension scheme is normally significantly higher than the NSSA pension scheme contribution rate.
The Government or State service pension scheme is specifically for government employees. Civil servants contribute 7,5 percent of their salaries to the pension scheme, while government pays 15 percent of their salaries towards their pension, making a total pension contribution of 22,5 percent of gross salary.
In addition, like all other employees, civil servants pay to the national pension scheme administered by NSSA three percent of their salaries up to maximum insurable monthly earnings ceiling of US$200. This means that the maximum monthly contribution is US$6, a figure that is matched by an equal contribution by their employer, which is the Government.
The pension reforms that Government is considering, which were reported in the media last week, are reforms to the Government pension scheme, which is purely for public servants. They have nothing to do with the national pension scheme administered by NSSA.
The State service pension scheme for public servants was being run on a pay as you go basis. Contributions were being paid into the Government consolidated revenue fund. The new proposal that Government is considering is the creation of a separate pension fund into which Government pension scheme contributions would be paid. It would be a fully funded scheme.
Money paid into the Government pension fund would be invested, in the same way that other pension funds, including the national pension scheme administered by NSSA, invest surplus funds in order to grow the fund.
Those who designed the NSSA national pension scheme opted for a partial funding or scaled premium financing method for the scheme, rather than a pay as you go or full funding financing method.
A scaled premium or partial funding financing method is a financing method under which contribution rates are increased throughout the lifecycle of a pension scheme on a step-by-step basis.
Increasing contribution rates has proved problematic, however, due to the need to obtain Government’s approval for such increases. In 2009 NSSA increased the contribution rate to four percent of an employee’s gross salary for both the employee and employer, making eight percent altogether. Those who retired during this period could be paid reasonable pensions as a result.
However, last year Government reduced the contribution rate back to three percent from the employee and three percent from the employer. It also imposed an insurable earnings ceiling of US$200 per month, meaning that those earning more than US$200 per month still only pay six dollars a month to the NSSA pension scheme, with the employer contributing another US$6.
What it is important for civil servants to note is the clear distinction that there is between the State service pension scheme they are contributing to and the national pension scheme.
When they retire from Government service they will be entitled to their state pension from the Government and, if they are 60 years of age and have been contributing to the NSSA pension scheme for 120 months or more, a pension from NSSA.
Civil servants began contributing to the national pension scheme administered by NSSA at a later stage than employees in the private sector. They only began contributing in mid-2002. This means it is only from mid-2012 onwards that retiring civil servants, presuming they have contributed every month since 2002, will be eligible for the NSSA pension, in addition to their Government pension.
However, those who have contributed to the scheme for less than 10 years but more than one year are entitled to a retirement grant from NSSA. This is a once-off payment, unlike a pension, which is a monthly payment.
This has nothing to do, though, with their Government pension, which is a completely different scheme administered directly by Government.
l The Talking Social Security Column is published each week by the National Social Security Authority as a public service. Readers who have any questions they would like dealt with in this column are welcome to e-mail their questions to [email protected] or send an SMS to 0772 469 801. Those who have individual queries they would like addressed directly should contact their local NSSA office or telephone NSSA on (04) 706517-8 or 706523-5.
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