Young stand to benefit most

They may have begun working at 18 or even younger. By the time they retire, which in most cases is at age 65, they may have been contributing towards their social security pension scheme for as much as 47 years or even longer.

All those years of contributions ensure their pension is equivalent to a reasonable percentage of their income on retirement.
Zimbabwe’s social security scheme is designed is such a way that after 47 years of contributions a pensioner should ideally receive a pension that is equivalent to 79,7 percent of insurable earnings or income on retirement. This percentage of insurable income is known as the income replacement rate.
However, Zimbabwe’s social security pension scheme is still relatively young. It is not old enough for a person retiring now to have built up 47 years of contributions.

The longest period anyone could have been contributing for is just over 17 years, since the scheme was only established in October 1994. The insurable income replacement rate after 17 years of contributions is 22,6 percent. It increases gradually with the contribution period.
Those who began working and contributing to the pension scheme when they were 18 could well have contributed for between 40 and 47 years by the time they retire. They can expect then to receive a pension with an insurable income replacement rate of between 63,3 percent (the replacement rate after 40 years) and 79,7 percent.

Insurable earnings are the income on which social security contributions are calculated. It may be the same as one’s basic salary or it may be less than that, if insurable earnings ceiling has been fixed that is lower than one’s salary. At the moment there is an insurable earnings ceiling of US$200 per month.
Pensions are calculated by multiplying the insurable earnings at retirement by the number of contribution years by a factor of 1,333 percent. For contributions beyond 30 years, once the scheme has been going for

that long, a 2,333 percent accrual rate will be applied to the additional years.

Those retiring this year earning more than US$200 have had their pensions calculated using US$200 as their insurable earnings.
Establishing social security schemes takes time. The present generation of school-leavers and university graduates, when they become employed should be assured of a reasonable pension when they eventually reach retirement age, provided they remain in formal employment and so continue contributing to their social security pension.

They will, when they retire at age 60 or 65, find themselves in a similar position to pensioners in countries with longer established social security pension schemes who have been making social security pension contributions for most of their lives.

By that time it is possible the insurable earnings limit may have been further increased or even abolished.
Those who began contributing to the pension scheme as young people can be assured of reasonable pensions, so long as they continue with their contributions. A person who only joined the scheme at 25 could have a 40-year contribution period, if he or she took the later retirement at age 65. That would mean a replacement rate of 63,3 percent.

Even someone who only contributed from age 30 could achieve a 35-year contribution rate, resulting in an insurable income replacement rate of 51,7 percent. A person who began contributing at age 40 and retired at 65 after 25 years of contributions could still be paid a pension that was the equivalent of a third of his or her insurable earnings. The problem is with those who have already retired, those whose age when the scheme was introduced was such that they were not able to have reasonably high-income replacement rates at retirement.
Contributions have to be made for a minimum of 120 months (10 years) for a pension to be paid. Those who retire after contributing for less than that but more than 12 months are eligible for a once-off retirement grant.
That also limited the pension of those earning more than US$200 who retired while there was an insurable earnings limit of US$200.
The situation of those who retired when contributions were still in Zimbabwe dollars is worse still, given the loss in value of the local currency. To assist such people, NSSA introduced a minimum pension. Anyone whose pension, when calculated using the standard formula, would be less than the minimum pension receives the minimum pension instead. The minimum pension is at present US$40.
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.