Some former contributors to the national pension fund have written to this column asking whether they could pay voluntary contributions for the period they have missed since leaving formal employment and continue thereafter making voluntary monthly contributions.
Talking Social Security
One said he was now living and working abroad and is in a position to make the back-payments and continue making voluntary contributions each month.
There are two reasons why a person might make such a suggestion. The first would be to accumulate the minimum 120 months of contributions to qualify for a pension when he/she reaches pensionable age, if he or she has contributed for less than 10 years.
The other would be, where the individual has already made more than 120 monthly contributions, to increase the contribution period further, since the length of the contribution period is one of the factors affecting the size of one’s pension on retirement.
It is possible for a person who leaves formal employment to arrange with NSSA to continue making voluntary monthly contributions to the pension fund, but this normally needs to be done within a short time of leaving one’s employment.
The contribution would have to be twice the contribution the person was making when in employment, as it would have to be equivalent to the joint employer and employee contribution. In other words, at the moment it would be 6% of one’s basic wage, if one was earning $200 a month or less and 6% of $200, in other words $12, if one was earning more than $200, since $200 is currently the maximum insurable earnings limit for the national pension fund.
To make voluntary payments, one has to arrange this soon after leaving employment, preferably before the next month’s contribution is due and not later than four months after leaving the job.
Those who are still young would probably have the most to gain from ensuring their contribution period remains unbroken.
By the time they reach pensionable age not only will they have perhaps 40 or more years of contributions, but by then there will hopefully be either no insurable earnings limit, meaning that their entire basic income will be the insurable earnings on which the pension is calculated, or the insurable earnings limit will be sufficiently high to ensure that either all or most of their income constitutes their insurable earnings.
However, it tends to be those who are older who are most aware of the importance of their pension.
The formula used for calculating pensions is the number of contribution years multiplied by the person’s insurable earnings at retirement multiplied by a factor of 1,333%.
Applying this formula ensures that the longer the person has contributed the higher the percentage of his/her insurable income on retirement the pension will be.
The main limiting factor is the insurable earnings limit. This does not affect those earning $200 or below who are currently about to retire, but it means that those earning above $200 a month who have contributed for the same period of time all receive the same pension based on insurable earnings of $200.
However, from time to time the authority reviews the insurable earnings ceiling aided by actuarial recommendations to ensure that the authority pays adequate benefits, but at sustainable levels. It is therefore inevitable that at some stage the insurable earnings ceiling will be raised upwards to allow more people to have pensions based on a higher income.
The provision for voluntary contributions is chiefly intended to allow contributors to maintain their contribution record in between jobs. It could be useful too for those moving from the formal to the informal employment sector, since at present it is only formal sector employers that register with NSSA and remit contributions to it.
While the minimum pension and the pensions of those who are currently retiring may seem small, the pension scheme is designed so that the longer a person has contributed the higher the proportion of his/her insurable income on retirement the pension will be.
Ensuring one’s contribution period is, if possible, unbroken will prove beneficial, therefore, when the time for retirement comes, particularly for those who still have a long way to go until they reach retirement age.
Application for voluntary contribution can be made at your nearest NSSA office.
Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also now a weekly radio programme, PaMhepo neNSSA/Emoyeni le NSSA, discussing social security issues every Thursday at 6:50pm on Radio Zimbabwe.
Readers can e-mail issues they would like dealt with in this column to email@example.com 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