adminNSSA is actually giving billions of dollars to banks, forgetting that it is the workers’ money,” wrote one irate person in a letter to one of the daily newspapers.
One thing NSSA never forgets is that it is entrusted with workers’ money. The money is contributed so that those workers can have a pension to fall back on in their old age.
That is why NSSA cannot pay out contributions coming from employees that are currently employed to those that are already on pension. If it did so, then there might be nothing left when those workers who are currently making contribution finally retire.
NSSA, therefore, has to invest those contributions so that it can pay current workers reasonable pensions when they retire.
The NSSA pension scheme is designed so that a person who has contributed to it all his or her working life will, on retirement, have a pension equivalent to a reasonable percentage of his or her insurable income immediately prior to retirement.
The insurable income replacement rate for someone who has contributed to the scheme for 40 years is 63,3 percent.
For someone who has contributed for 45 years it is 75 percent. For a person who has contributed for 47 years it is 79,7 percent.
To achieve this, NSSA has to grow, through investments, the contributions that workers and their employers have made to the pension fund.
There are two reasons why the average pension being paid at present is low. One is that the pension scheme has only been going for just over 18 years and so nobody retiring now will have contributed for longer than that.
The other is that the monthly insurable earnings ceiling of US$200 stipulated by Government is low.
The insurable income replacement rate for someone who has contributed to the pension scheme for 18 years is 24 percent.
For those retiring now after 18 years of contributions the pension will be equivalent to 24 percent of their basic earnings, if they earn US$200 a month or less.
For those earning above US$200, it will be 24 percent of US$200, since only US$200 of their earnings are insured.
The formula for calculating an individual’s pension is the number of contribution years multiplied by the insurable income at retirement and a factor of 1,333 percent.
If this calculation results in a figure that is lower than the minimum pension NSSA has set down, then the minimum pension is paid.
The minimum pension is currently US$40 per month. The above formula applied to a person retiring after 18 years of contributions on an insurable income of US$200 gives a pension of US$48.
Some of those who retired in 2009 and the first few months of 2010 are receiving pensions of more than US$100 or even more than US$500, depending on what they were earning, since no insurable earnings ceiling was in place when they retired.
What NSSA can afford to pay as a minimum pension, is determined by the advice of an independent actuary based on projections of the authority’s future liabilities, chiefly benefits payable, in relation to its assets.
When NSSA seeks Government permission to increase contributions, raise or remove the insurable earnings ceiling and increase benefits, it normally does so on the basis of the actuarial assessment and advice it has received.
In order to be able to pay reasonable pensions in 20, 30, and 40 years time and beyond, NSSA has to invest contributions in a manner that ensures the funds maintain and increase their value. It does this through a spread of investments in the money market, stocks and shares, and property. When it “gives” money to banks, it is investing the money, either through shares in those banks or through interest bearing loans.
NSSA’s investment guidelines state that the rate of return on its investment portfolio should at least match or exceed prevailing market standards.
However, the guidelines also provide for investments that improve the well-being of members and beneficiaries, including investments in areas that generate productive employment, higher productivity, export competitiveness and the provision of residential accommodation and other social amenities, as well as investments that the starting of business ventures by local people.
Thus, some of the money lent to banks is for on-lending to businesses or for business projects at concessionary interest rates.
Funds were also lent to two banks for on-lending to retrenched contributors with viable business projects that needed funding.
Recently NSSA has made funds available to banks for on-lending to local authorities, in response to a Government appeal for such funds to be made available to enable those local authorities to prevent possible outbreaks of cholera and typhoid.
The banks are liable for the repayment of these loans and have to provide NSSA with security for them. This is why they too require security from those they on-lend to.
NSSA is conscious of its obligations to contributors. It follows strict guidelines in investing funds that are currently surplus funds when measured against payments to beneficiaries but which are earmarked for the payment of pensions and other benefits to those still in employment.
Remember that NSSA is currently only receiving a maximum joint employee/employer pension contribution of US$12 per month per employee but is paying out each month a minimum of US$40 to old age pensioners and US$20 to those receiving an invalidity or survivor’s pension.
Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also a weekly radio programme, PaMhepo neNSSA/Emoyeni le NSSA, discussing social security issues at 6.50pm every Thursday on Radio Zimbabwe. Readers can e-mail issues they would like dealt with in this column to [email protected] or text them to 0722 307 913. Those with individual queries should contact their local NSSA office or telephone NSSA on (04) 706517-8 or 706523-5.
Online Reporter