adminOne of these messages queried whether there had in fact been any hue and cry at the beginning of the year about the proposal to increase pension contribution rates from 3 percent to 4 percent and the maximum insurable earnings level from US$200 to
US$1 000 per month. The correspondent could not imagine anyone could have made a fuss about what he considered only a modest increase. He also asked what the actuaries had recommended.
The proposed increases were in line with the actuarial recommendation. The proposed increase would have meant that the monthly contribution would have been US$8 for a person earning US$200 per month, US$12 for someone earning US$300 a month, US$20 for someone earning US$500 a month and US$40 for someone earning US$1 000 or more a month. At present all of those earning these amounts pay US$6 per month, which is 3 percent of US$200.
Had the proposed increase been implemented, the pension payable to a person who retired at age 60 or 65 after contributing to the pension scheme for 17½ years would have been almost US$70 for a person earning US$300 a month. Just over US$116 for a person earning US$500 per month and US$233 for a person earning US$1 000 and above. The minimum pension would have been raised to US$60 per month. The pension scheme has only been going for 17 years nine months.
After contributing to the pension scheme since inception, a pensioner would be entitled to a pension equivalent to just over 23 percent of his or her insurable income on retirement. With an insurable earnings limit of US$200 per month, that works out to a maximum of only US$46. It was for this reason that an increase in the insurable earnings limit had been proposed.
A look at the newspapers published in mid to late January would confirm the opposition that was expressed to the proposed increases, which had already been gazetted but had to be revoked. Many employees might have been agreeable to the increases, since they would result in higher pensions. However, it is not only the employees that contribute to the pension scheme but employers as well.
While the increase might have been manageable for an employee, it could have represented a significant cost increase for employers who employ a lot of staff, particularly those who have a large number of employees on salaries that are above US$300.
Employers could not be expected, therefore, to be happy about an increase in contributions.
Some employees, particularly younger employees for whom retirement is a long way off, would not be keen to have their take-home pay reduced, as a result of higher contributions.
One of the messages to this column referred to earlier was from a correspondent who said he would be happy for the combined employer and employee contribution to remain at the low maximum level of US$12 per month. He understood the relationship between contribution levels and pension levels but said the objective of the pension fund should be to provide a pensioner with “a small income to cater for some grocery”. The greater part of what a pensioner lived on should come, he said, from personal investments made during a person’s working life. He added that he wished there was a mechanism to increase the number of contributors to cover the non-formal sector.
If this correspondent is an employee, he probably is many years away from retirement. Those who have retired or for whom retirement is close are unlikely to agree that a pension should provide a small amount for groceries to supplement their investment income.
It is generally recognised that a pension will not provide an income that totally replaces one’s employment income. However, social security pension schemes such as the one run by NSSA are designed to replace a significant proportion of the insurable income prior to retirement of those who have contributed to the scheme for their entire working lives.
The pension calculated on the basis of insurable earnings on retirement remains the individual’s pension for life, unless there is a cost of living increase or the minimum pension exceeds the calculated pension, in which case the minimum pension will be paid.
The third of the messages referred to earlier simply asked when the next NSSA pension increase would be. That will depend on when contribution levels can be increased. That in turn depends on the agreement of Government, which will want to take into account the views of various stakeholders and the impact of such increases on the economy.
l Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also now a weekly radio programme, PaMhepo neNssa/Emoyeni le NSSA, discussing social security issues every Thursday at 7.50pm on Radio Zimbabwe. 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.
Online Reporter