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THE gap between NSSA’s income and its expenditure on the National Pension Scheme is often highlighted in the media, implying that NSSA could afford to pay higher pensions. As has been pointed out before, the size of this gap is due to the fact that there are considerably more contributors than there are beneficiaries. This is to be expected with a pension fund that is still fairly young and has a minimum contribution period of 10 years for pensions to be payable.

All of those currently in formal employment will be eligible for a benefit at some point, either when they retire in their old age or when they die and a benefit is paid to their surviving spouse and children or other dependant.

When they do become eligible for their benefit – and for some young employees that could be in 40 or 45 years time – they will rightly expect the funds to be there to pay them their benefit.

The benefit for those who have contributed to the national pension scheme for 40 or 45 years will be higher than it is for those retiring at the moments, who have contributed for less than 20 years, since the pension scheme only became operational in October 1994.

Their contributions have to be invested, therefore, to ensure the funds are there to pay them when they become eligible for their retirement benefit.

The retirement pension that is paid to beneficiaries who have contributed to the pension fund for at least 120 months and reached the applicable pensionable age, is calculated on the basis of a formula that takes into account the individual’s contribution period and monthly insurable earnings at retirement.

The formula on which pension calculations are based is designed to ensure that those who have contributed to the scheme all their working lives receive a pension in their old age that replaces a reasonable proportion of their monthly insurable earnings prior to their retirement.
After 40 years of contributions that replacement rate is expected to be 63,3 percent. After 45 years of contributions it is 75 percent. After 47 years it is almost 80 percent.

The modest pensions that many people are receiving at present are the result of a limited contribution period and the low maximum insurable earnings level of $200 which was applicable prior to its increase to $700 in June last year.

NSSA has established a minimum retirement pension of $60 per month. The minimum survivor’s pension and invalidity pension is $30. Had NSSA not established these minimum pension levels, many people would be receiving much lower pensions.

The minimum retirement pension was raised last August from $40 to $60, even though the maximum combined employee and employer contribution, which is for a person earning $700 and above, is only $49 per month. Up until June last year, the maximum combined contribution was $12 per month.

Investment income enables NSSA to do this and ensures there will be funds to pay today’s employees when they eventually retire. All pension funds have to invest contributions in order to be able to pay future pensioners.

The areas in which NSSA invests pension funds often come under public scrutiny, particularly where investments do not do as well as anticipated and where it is felt more money should be invested in social amenities that benefit members of the pension fund.
Investments that have done well draw less public attention than those that do not.

The primary purpose of NSSA’s investments is to grow pension funds. Every investment entails a risk.
Therefore NSSA’s investment guidelines require it to channel funds into diverse areas and investment instruments in order to spread the risk, protect the value of its assets against the volatility of the economic environment and ensure it has a balanced portfolio.

The rate of return on investments should generally match or exceed prevailing market standards.
However, it is recognised that some investments should be channelled towards social objectives that benefit members, such as areas that generate productive employment, higher productivity, export competitiveness and the provision of residential accommodation and social amenities.

Many of NSSA’s investments in various companies have done well. Some of them have contributed to the turnaround of companies that were in danger of collapsing.

Its investment in Renaissance Merchant Bank, now Capital Bank, at a time when it was in danger of collapse has not resulted in the hoped for turnaround of the  bank’s fortunes but did give NSSA access to shares in insurance company First Mutual Life, which is performing so well that the profit derived from it exceeds the potential loss of funds NSSA invested in the bank.

NSSA assists businesses through providing loans to banks specifically for on-lending to businesses at concessionary interest rates. The risk of these investments is minimised by insisting on the banks providing collateral security and being liable for repayment of the loans, regardless of whether they recover the funds from their borrowers, as well as insisting that beneficiaries know that the funds come from NSSA.

NSSA’s investment in housing is considerable, although there have been obstacles to some of them. For instance, NSSA has been unable to begin some housing projects due to local authorities’ inability to provide the necessary off-site infrastructure to connect with the proposed on-site water and sewerage pipes.

In some cases the local authority has taken back the land because it has not been developed within a certain period, even if the reason was its own failure to provide off-site infrastructure or the period of hyperinflation which inhibited all construction.

Apart from housing projects it has embarked on itself, NSSA has, between the years 1996 to 2000, provided funds to enable building societies to finance housing developments. It provided the funds, for instance, to enable 4,000 houses to be built in Kuwadzana 4 in Harare in 1996 and 1997. It also provided funds through building societies to enable some cooperatives to build houses.

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 6.50PM every Thursday on Radio Zimbabwe and Friday on National FM. There is another social security programme on Star FM on Wednesdays at 5.30PM. 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) 706517-8 or 706523 5.