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Pension varies with contribution period, insurable earnings

The minimum retirement pension goes up this month to $60.

The minimum retirement pension goes up this month to $60. However, one correspondent asked why it is that those who contributed only a small amount and those who contributed more all receive the same minimum pension.

Talking Social Security with NSSA

First of all only those who have contributed for at least 10 years receive a pension. How much that pension is depends on the person’s contribution period and insurable income on retirement.

The amount of the pension is related, therefore, to the number of contributions that have been made and the insurable income, which is the income on which contributions are calculated, at retirement. The longer the contribution period and larger the contribution that was being made when the person retired, the higher the pension will be.

However, NSSA has stipulated a minimum pension, so that anyone whose pension, when calculated using the standard formula of contribution years multiplied by insurable income on retirement multiplied by 1,333%, falls below that minimum will be paid the minimum pension.

The new minimum pension of $60 is the same as the pension that would be paid to a person with insurable earnings of $250 a month who retired now after contributing to the scheme for 18 years.

Those contributing for the same length of time who retirewith higher insurable earnings than that will receive a higher pension. Those who, if there was no minimum pension, would be entitled to a pension lower than that will from this month receive $60 per month. The previous minimum pension was $40.

So, while a person’s pension depends on the contribution period and insurable earnings on retirement, which means that those who contribute more receive more, that only applies to those who, when the pension is calculated, would have a pension that is higher than $60.

All those whose pension would, when calculated, fall below $60 receive, from this month,the minimum pension of $60.

There will be a lot of people falling into that category, because with a maximum insurable earnings limit of $200 in place between May 2010 and May 2013, nobody who retired during that period would have received a pension even after 18 years that was more than $48.

There are, of course, pensioners receiving higher pensions than that who retired on reasonably high incomes in 2009 and early 2010 when there was no insurable earnings limit in place and their basic earnings were thus the same as their insurable earnings.

It may seem unfair that people contributing different amounts should receive the same minimum pension. However, all those receiving minimum pensions would have been entitled to less than that amount if there was no minimum pension in place.

Anyone earning $200 or more over the past two years would, until June this year, have been making the same contribution of six dollars per month because the maximum insurable earnings limit fixed by government was $200 per month.

It is this low insurable earnings limit that kept pension scheme contributions low and the pension of those who retired during this period with actual earnings above $200 being calculated on the basis of their insurable earnings of $200.

With the raising of the maximum insurable earnings limit in June to $700 a month, the pensions of those who retire now will be calculated on the basis of actual earnings at retirement for those earning up to $700 a month, although those retiring now with earnings above $700 are contributing the same as those earning $700 and their pensions will be calculated on the basis of insurable earnings of $700.

Messages continue to be received from people who apparently “retired” at a remarkably young age.

“I am a man aged 40. I did not get help ever since I retired in 1998 because of the hardships I faced. How can I get my money? I started making contributions in 1993,” one person wrote.

Well, if this man is now 40 and retired in 1998, which is 15 years ago, he must have “retired” at the age of 25! As the first contributions to NSSA were only paid in October 1994, he would have contributed for about four years at the most, depending on when precisely in 1998 he “retired”.

If he remains unemployed until the age of 60 he can at that age claim a retirement grant, which is a single payment. However, at the age of 40 he could still obtain formal employment again and resume his contributions to NSSA.

There is still plenty of time for him to make the minimum 10 years of contributions required for him to receive a monthly pension in his old age. The longer the contribution period and the higher the insurable earnings at retirement, the higher his retirement benefit will be.

“What happens to a person who has worked as a temporary teacher for six years and has been making contributions? Do you refund him/her?” somebody else asked.

No. There is no refund. What happens is that when that person reaches the normal retirement age of 60 then, if he or she is unemployed, a retirement benefit can be claimed. If the person is employed then the benefit can be claimed when he or she does retire or reaches the age of 65, whichever comes soonest.

If the number of monthly contributions reaches or exceeds 120, then a pension will be payable. If not, then a lump sum grant is payable, provided there have been at least 12 months of contributions.

Contributions are only refunded if a person has contributed for less than 12 months or if a person has continued to pay contributions after the age of 65, in which case the extra contributions made after that age are refundable.

Talking Social Security is published weekly by the National Social Security Authority as a public service. There is also a weekly radio programme, PaMheponeNssa/Emoyeni le NSSA, discussing social security issues at 6.50 pm every Thursday on Radio Zimbabwe and every Friday on National FM. There is another social security programme on Star FM on Wednesdays at 5.30 pm. Readers can e mail issues they would like dealt with in this column to mail@mhpr.co.zw 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.