admingoes up by 50 percent to $60 per month, while the minimum invalidity pension and survivor’s pension are both going up to $30.
The pension of those earning up to $1 000 who retire from January onwards will be calculated on the basis of their actual salary rather than on the basis of the current insurable earnings limit of $200.
For those retiring in January who are earning $500 per month and have contributed to the national pension and other benefits scheme since its inception, which by January will have been for 17 years three months, the monthly pension will be $115.
For those earning $1 000 retiring in January who have contributed since inception the pension will be $230.
The increase in pensions has been made possible by the raising of the monthly insurable earnings level from $200 to $1 000 and an increase in the employee and employer contribution rate from the current three percent of insurable earnings each to four percent each.
The new minimum pensions, contribution rates and insurable earnings ceiling were gazetted last Friday by the Minister of Labour and Social Services.
There have been growing calls for the increase in the insurable earnings level, which has kept contributions low but kept pension levels low as well.
Nobody, whether pensioners, contributors, NSSA management, NSSA board members or government, has been happy with the current pension level, which is about $45 for those who retire on a salary of $200 or more having contributed for 17 years and $40 for those on the minimum pension.
However, the insurable earnings limit of $200, which has meant that no employee pays more than six dollars per month in contributions, has made it impossible for anyone retiring at the moment to receive more than $45 per month.
The increase in the insurable earnings level, even though it will mean higher contributions, is expected to be generally welcomed, especially by those earning more than $200 who have been contributing since inception and will be retiring next year.
Had the insurable earnings level not been changed, they would have been receiving a pension of $46 if they retired in January.
The formula used to calculate NSSA pensions is the individual’s insurable earnings at retirement multiplied by the contribution period multiplied by a factor of 1,333 percent.
The new minimum pension level means that if, when this formula is applied, the pension figure is less than $60 then the pension that is paid will be $60. Nobody entitled to a NSSA retirement pension will receive less than $60. Those who have contributed since inception who retire in January and earn more than $263 will receive a higher pension, based on the application of the above formula.
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Pensions go up, as insurable ceiling is increased
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The survivor’s pension is 40 percent of what the deceased contributor’s pension would have been. However, the minimum survivor’s pension is $30, which is 50 percent of the minimum retirement pension. The minimum invalidity pension is also $30.
The increase in the contribution level to four percent means that a person earning $100 will pay four dollars instead of the current three dollars. A person earning $200 will pay eight dollars instead of the present six dollars.
At present, because $200 is the current maximum insurable earnings ceiling, nobody pays more than six dollars. As from January this will change. A person earning $300 will pay $12. Those earning $600 will pay $24. Those earning $1 000 will pay $40. Nobody will pay more than this, as $1 000 is the new insurable earnings limit.
Anyone earning more than $1 000 who retires while $1 000 is the insurable earnings limit will have his or her pension calculated using $1 000 as the insurable earnings figure.
The replacement rate of the pensioner’s insurable earnings increases with the maturing of the scheme and the increase in the number of years the pensioner has contributed to the scheme. After 17 years of contributions the replacement rate is 22,6 percent. After 20 years contributions it is 26,7 percent and after 25 years 33,3 percent.
This ideal replacement rate continues to increase with the contribution years so that by the time a person has been contributing for 35 years the replacement rate is 51,7 percent and after 40 years contributions it is 63,3 percent.
The insurable earnings are the earnings of the employee used to calculate pension fund contributions.
The new minimum pensions, insurable earnings limit and contributions rate all come into effect on January 1, 2012. That means that anyone who retires in January will have his or her pension calculated on the basis of actual basic income, provided that income is not above $1 000.
It also means that employers are required to make NSSA contribution deductions from their employee’s salaries of four percent of the salary for salaries of up to $1 000 a month and match that contribution with an equal contribution of their own, paying the combined total of eight percent of salary to NSSA by the 10th of each month. Those earning above $1 000 will have deductions of four percent of $1 000, which is $40, made from their salary, which will be matched by the employer,
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.
ENDS
Online Reporter