admingoes up by 50 percent to US$60 per month, while the minimum invalidity pension and survivor’s pension are both going up to US$30.
The pension of those earning up to US$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 US$200.
For those retiring in January who are earning US$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 US$115. For those earning US$1 000 retiring in January who have contributed since inception the pension will be US$230.
The increase in pensions has been made possible by the raising of the monthly insurable earnings level from US$200 to US$1 000 and an increase in the employee and employer contribution rate from the current 3 percent of insurable earnings each to 4 percent each.
The Minister of Labour and Social Services gazetted the new minimum pensions, contribution rates and insurable earnings ceiling last Friday.
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 US$45 for those who retire on a salary of US$200 or more having contributed for 17 years and US$40 for those on the minimum pension.
However, the insurable earnings limit of US$200, which has meant that no employee pays more than US$6 per month in contributions, has made it impossible for anyone retiring at the moment to receive more than US$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 US$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 US$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 US$60 then the pension that is paid will be US$60. Nobody entitled to a NSSA retirement pension will receive less than US$60. Those who have contributed since inception who retire in January and earn more than US$263 will receive a higher pension, based on the application of the above formula.
The survivor’s pension is 40 percent of what the deceased contributor’s pension would have been. However, the minimum survivor’s pension is US$30, which is 50 percent of the minimum retirement pension. The minimum invalidity pension is also US$30.
The increase in the contribution level to four percent means that a person earning US$100 will pay US$4 instead of the US$3. A person earning US$200 will pay US$8 instead of the present US$6.
At present, because US$200 is the current maximum insurable earnings ceiling, nobody pays more than US$6. As from January this will change. A person earning US$300 will pay US$12. Those earning US$600 will pay US$24. Those earning US$1 000 will pay US$40. Nobody will pay more than this, as US$1 000 is the new insurable earnings limit.
Anyone earning more than US$1 000 who retires while US$1 000 is the insurable earnings limit will have his or her pension calculated using US$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 US$1 000.
It also means that employers are required to make NSSA contribution deductions from their employee’s salaries of 4 percent of the salary for salaries of up to US$1 000 a month and match that contribution with an equal contribution of their own. The combined total of 8 percent of salary will be paid to NSSA by the 10th of each month. Those earning above US$1 000 will have deductions of 4 percent of US$1 000, which is
US$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.
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