adminpaid by NSSA.
There are pensioners receiving NSSA retirement pensions of more than US$500 per month.
Those on the upper end of the scale retired on good salaries at a time when there was no ceiling on insurable earnings. They had been paying a percentage of their gross earnings as contributions to the pension fund, rather than a percentage of the current maximum monthly insurable earnings level of US$200.
While the majority of pensioners, 23 895 of them to be precise, are receiving monthly pensions of between US$40 and US$100, there are 113 pensioners receiving pensions of between US$101 and US$199.
There are 30 pensioners receiving pensions of between US$200 and US$499 per month and four pensioners who are receiving pensions of between US$500 and US$1 500.
In calculating their pension, NSSA took into account their contribution period and the salary on which their contributions had been based at the time of their retirement. This was their gross salary.
NSSA uses the same formula for calculating the pensions of those who retire now. However, the difference is that the contribution rate has come down since then and a ceiling of US$200 per month has been imposed on insurable earnings for purposes of the national pension scheme.
Those retiring since the ceiling was imposed by Government in May last year have their pensions calculated on the basis of their contribution period and insurable earnings up to a maximum of US$200 per month. Calculated in this way the maximum national pension that anyone retiring now can be paid is US$44 per month. To qualify for that amount a person would have had to be contributing to the pension fund since its inception 16 years six months ago.
Earlier this year NSSA set at US$40 per month the minimum pension for anyone retiring. Compared to private occupational pension funds, this amount is actually relatively good, even though it is clearly not much, particularly for those living in urban areas.
The average contribution rate for private occupational pension schemes is 22,5 percent of an employee’s gross salary. Yet despite this much higher rate than NSSA’s six percent and the fact that the contribution is a percentage of the employee’s gross salary, rather than a percentage of a maximum of US$200, the minimum pension being paid by these schemes is below US$40.
Government intended to maximise employees’ and employers’ disposable incomes by reducing the joint employer-employee contribution level to 6 percent of an employee’s salary and imposing an insurable earnings limit of US$200. The consequent reduction in the amount of money that could be paid as a pension to those earning more than that amount was dramatic.
NSSA relies on actuarial advice in determining optimum contribution and benefit levels. However, it can only implement the actuarial recommendations with Government’s approval. Government in making its decisions has to take many issues into account, including the concerns of private occupational pension funds, bearing in mind that contributions to the national pension fund are compulsory while contributing to the private occupational pension funds is voluntary.
An international actuary, sponsored by the International Labour Organisation, has been looking into issues relating to the co-existence of the national social security pension scheme and private pension schemes.
Included in the actuary’s recommendations to Government is likely to be one on the most appropriate levels for the national pension fund’s contributions and benefits and the most appropriate level of any insurable earnings ceiling that might need to be imposed.
Actuarial advice is important for pension funds because of the long-term nature of the pension business. Money from contributions has to be looked after so that it is available for the payment of pensions not just now but in the distant future too.
Young people contributing to the pension fund at the moment might only retire in more than 40 years time. Because of the length of time they will have been contributing and because there may be a much higher insurable earnings ceiling or none at all by the time they retire, their pensions are likely to be significantly higher than present pension levels.
Those administering the funds today have to bear in mind the payment obligations the fund will have in the future. Social security authorities are typically established by governments.
They have to make projections and recommend ideal contribution levels. However, the final decision on contribution levels and insurable earnings ceilings normally comes from the 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 text them to 0772-307 913.
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