Home » General » Pension Scheme Benefits Contributors When They Retire

There was a recent suggestion that the pensionable age for retirement benefits should be reduced from the current standard age of 60 to 45, so that workers could enjoy their benefits while they were still active.

Of course the idea of a retirement pension is to provide an income for those who are no longer active, in the sense that they have retired, ideally to enjoy a well-earned rest after many years work, and no longer have any earnings from employment.

An argument was also put forward that there was need for the pensionable age to be revised downwards, since life expectancy had been reduced due to HIV and Aids.

One of the results of the successes Zimbabwe has achieved in reducing the rate of HIV infection and making anti-retroviral drugs more readily available for those who test positive for HIV is that the average life expectancy figure, which in 2006 was reported to be as low as 37 years for men and 34 years for women, has been gradually rising.

By 2011, average life expectancy at birth in Zimbabwe had risen to 53 for men and 55 for women.

In 2013, it was 56 for men and 60 for women, according to World Health Organisation statistics.

It has to be remembered too that average life expectancy figures are based on averages. A high infant mortality rate brings down the overall average life expectancy. The longer one survives, the higher one’s life expectancy is likely to be.

Based on the 2011 average life expectancy at birth of 53 years for men and 55 years for women, which is lower than the 2013 figures, a world health rankings chart gave the life expectancy in Zimbabwe of those who reached the age of 20 as 60 years for men and 61 years for women. By the age of 40 the life expectancy had risen to 66 years for men and 68,9 years for women.

Men who reached the age of 45 could expect to live to 69 years, while the life expectancy of women aged 45 was given as 72,7 years.

Life expectancy at 50 was 72,4 years for men and 75,8 years for women. At age 55 it was 74,5 years for men and 77,5 years for women.

At age 60 it was 76,7 years for men and 78,7 years for women, while at age 65 it was 78,8 years for men and 80,1 years for women.

These projections were based on the 2011 average life expectancy at birth of 53 years for men and 55 years for women.

Since in 2013 the average life expectancy in Zimbabwe at birth was 56 years for men and 60 years for women, projections for life expectancy at different ages based on the 2013 figures would be higher.

Zimbabwe’s national pension scheme is based on similar schemes in other countries. Its formula for calculating pensions is an internationally accepted formula.

In most countries the normal pensionable age is 65 or, in some cases 65 years for men and 60 years for women. In some countries this age is being raised to as high as 70 years, due to the fact more people are living for longer than when those countries’ pension schemes were first established.

How large a pension a contributor to Zimbabwe’s national pension scheme receives is based on the contributor’s contribution period and insurable earnings at retirement? The minimum contribution period for a pension is 120 months, which is 10 years.

At present many people are receiving the minimum retirement pension of $60 because of low insurable earnings and a relatively short contribution period. The longest that anyone retiring now could have contributed to the scheme for is just over 20 years, since the pension scheme was only established in October 1994.

A person retiring now who has contributed to the pension scheme for 20 years and who earns $700, which is the maximum insurable earnings limit at the moment, or above $700 would receive a monthly pension of $186,62.

Those who earn less than $700 would receive less, depending on their basic earnings and contribution period.

However, in another 20 years time there will be some people retiring who have contributed to the scheme for 40 years. They could expect to receive a pension that replaces more than 63 percent of their monthly insurable earnings.

A person who begins contributing at age 20 to the pension scheme could have contributed to the scheme for 40 years by the time he or she is 60 years old.

If the person only retires at 65, the contribution period could be 45 years. If the pensionable age were to be reduced to 45, contributions would only have been made for 20 years.

After 45 years the pension could be expected to replace 75 percent of a contributor’s insurable earnings at retirement.

After 40 years it should replace 63,3 percent. After 20 years, it only replaces 26,7 percent of insurable earnings.

It would not be workable to have a pension scheme where people were paid retirement benefits at 45 years of age.

Some might go on to live for another 45 years, receiving a monthly pension for all that time when they had only contributed for 20 years.

It is because people are living longer than was once the case and so drawing pensions for longer than had originally been envisaged, that the pensionable age is being raised in some countries from age 60 or 65 to 70.

The ability to pay benefits depends on all those in employment and their employers paying monthly contributions to the pension scheme. How much those benefits will be depends on the contribution period and the individual’s insurable earnings, which are the earnings on which the contributions are based.

NSSA does have an early retirement age of 55 but only for those who have retired at that age after spending at least seven of the preceding 10 years doing arduous work such as agricultural work, heavy truck driving, quarrying and some mining and forestry jobs.

For others the earliest pensionable age is 60 or as soon, after that age, as the person retires. Sixty-four is the latest age at which one can still contribute to the pension scheme.

Once a contributor turns 65, contributions should stop and the retirement benefit be claimed, whether or not the person has retired.

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, PaMheponeNssaEmoyeni 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 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) 7065235, 7065459, or 7990301.

Source : The Herald