NSSA pays out $148,9m in benefits

NSSA4THE National Social Security Authority’s financial statements for 2013 published last week illustrate well how as time goes by the amount NSSA has to pay out in benefits escalates, as the number of beneficiaries and value of benefits increase.
The financial statements showed that NSSA paid out $148,9 million in benefits last year.

In 2012 total benefits payments came to $115,7 million, an increase of 29 percent. In 2011 total benefits only amounted to $55,3 million, while in 2010 the amount paid out was $27,2 million.

That means that in three years total benefit payments went up by more than 500 percent. The benefits included retirement benefits, invalidity benefits, survivor’s benefits and worker’s compensation insurance fund claims.

There are several reasons for the increase in benefits payments. One is an increased number of beneficiaries. The number of national pension fund beneficiaries increased from 152,952 in 2012 to 167,926 in 2013.

Workers’ Compensation Insurance Fund (WCIF) beneficiaries increased from 7,257 in 2012 to 9, 313 in 2013.

Increases in the number of WCIF beneficiaries reflects an increase in the number of people injured in workplace accidents.

Increases in the number of national pension fund beneficiaries reflects an increase chiefly in the number of people claiming retirement and survivor’s benefits.

There are other reasons too for the increase in benefits payments. One is the increase in benefit rates. Minimum pensions were increased in August last year. Another is the raising of the maximum insurable earnings ceiling. Another is more people retiring after contributing to the pension scheme for longer.

The previous maximum insurable earnings ceiling of $200 suppressed benefit levels. In June 2013 the maximum insurable earnings level was increased to $700 per month.

The formula used for determining an individual’s retirement benefit is based on the person’s last insurable earnings before retirement or on reaching the age of 65 and his/her contribution period. The longer the contribution period and the higher the insurable earnings, the higher the benefit will be.

The rate at which benefit payments are escalating reinforces the need for NSSA to ensure surplus funds are invested and grown for the benefit of those currently contributing to the pension scheme, some of whom may only be entitled to a retirement pension in 40 years time or more.

Contribution rates also went up in June last year from a combined employer/employee contribution of six percent of insurable earnings to seven percent, with the employer and employee each paying half of this.

Income from pension contributions went up 27 percent from $136,3 million in 2012 to $173,4 million in 2013. This was chiefly attributable to the increase in contribution rates and the insurable earnings limit.

Total Workers’ Compensation Insurance Fund premiums went up by 21 percent from $48,1 million in 2012 to $58,5 million in 2013.

NSSA’s financial statements revealed that the authority’s assets grew by 17 percent from $886,6 million in 2012 to almost $1,04 billion by the end of 2013. Investment income amounted to $24 million.

Despite the increase in contributions and premiums, revenue was barely within budget. Revenue was adversely affected by the closure of an estimated 75 companies, which it is estimated left close to 9,000 workers without jobs.

Unless these workers found or find new jobs quickly within the formal sector or arranged within 12 months of losing their jobs to make voluntary contributions to the national pension fund, the amount of their retirement benefit will be adversely affected when they reach pensionable age. That is because the size of a person’s retirement pension is determined by the contribution period and insurable earnings at retirement.

To be entitled to a retirement pension a contributor must have contributed to the national pension scheme for at least120 months, which is 10 years.

With the pension scheme having been in place now for 20 years, more people are qualifying and will qualify for retirement pensions than was the case some years ago.

How much those pensions will be when they reach pensionable age will depend on their monthly insurable earnings when they retire or when they were last employed and on their contribution period.

The longer that people have contributed to the pension scheme, the larger the percentage of their insurable earnings their pension will replace. That in turn will increase the total amount that NSSA has to pay out in benefits.

Insurable earnings are the earnings on which an employee’s national pension scheme contribution is based. Everyone currently earning $700 and below pays a monthly pension scheme contribution of 3,5 percent of basic earnings. The employer pays a further 3,5 percent, making a combined contribution of seven percent, which the employer is responsible for remitting each month to NSSA.

Because there is currently a maximum insurable earnings limit of $700 a month, those earning above $700 pay the same contribution as a person earning $700 a month, namely 3,5 percent of $700, which is $24,50. The employer pays the same in respect of these employees.

A person who has contributed to the pension scheme for 20 years receives a pension equivalent to 26,7 percent of his basic earnings if he or she was earning $700 or below on retirement and 26,7 percent of $700 if he or she was earning $700 and above at retirement.

However, after 25 years of contributions the percentage of insurable earnings that the pension replaces increases to 33,33 percent. After 30 years the percentage is 40 percent. After 35 years it is 51,7 percent. After 40 years it is 63,3 percent. After 45 years it is 75 percent and after 47 years it is 79,7 percent.

As the years progress it is likely that there will be further upwards reviews of the insurable earnings limit. Perhaps it might one day even be abolished altogether, as it was in 2009.

What all of this means is that the longer a person contributes to the scheme and the higher the insurable earnings on retirement are, the higher the pension. Moreover, the more people there are contributing for long periods with high insurable earnings the larger the overall payments NSSA will be making to beneficiaries.

This is why NSSA has to safeguard current contributions and invest surplus funds to ensure it will be able to meet the ever growing beneficiary obligations it will have to meet in future years and in the decades ahead.

Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also a weekly radio programme on social security, PaMhepo neNSSA/Emoyeni le NSSA, at 6.50 pm every Thursday on Radio Zimbabwe and Friday on National FM. Readers can e-mail issues they would like dealt with in this column to [email protected] or text them to 0772-307913. Those with individual queries should contact their local NSSA office or telephone NSSA on (04) 706523/5, 706545/9, or 799030/1.

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