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The National Pension Scheme administered by NSSA has now turned 20. The scheme was established on October 1, 1994, which means that anyone who has continuously contributed to the scheme since then has contributed for 240 months.
This is twice the minimum contribution period that is necessary for a retirement pension, which is 120 months.
Some of the earliest retirement pensioners contributed for less than this, due to a system of credit years that allowed those who were too old to contribute for 10 years before they retired to still obtain a pension.

The credit years were calculated by subtracting 49 from the age of the contributor on October 1, 1994.
That means that anyone born on or before September 1945 was eligible for credit years. Each credit year was equivalent to a contribution year. However, no more than seven credit years were allowed.

The National Pension Scheme is designed to provide those who have contributed to it for 47 years with a pension that replaces almost 80 percent of their insurable earnings at retirement. The insurable earnings replacement rate after 47 years is actually 79,7 percent.

After 45 years of contributions the replacement rate is 75 percent. After 40 years it is 63,3 percent of the person’s previous monthly insurable earnings. Now that the pension scheme has been running for 20 years, the replacement rate for anyone retiring at the end of September after contributing to the pension scheme for the whole of that period, that is for the full 240 months, would be 26,7 percent.

That means that such a person would receive a pension equivalent to 26,7 percent of his or her basic earnings, if earning $700 or below, and 26,7 percent of US$700 if earning US$700 and above, since there is currently a maximum insurable earnings limit in place of US$700.

As the number of years for the scheme increases beyond 30 years, the replacement rate increases at an accelerated rate.
Pensions at present are calculated by multiplying the number of contribution years by the contributor’s last monthly insurable earnings by 1,333 percent. After contributions of 30 years, an additional one percent of any contribution years in excess of 30 years is added. After 25 years the replacement rate is 33,3 percent. After 30 years it is 40 percent. After 35 years it is 51,7 percent.

After 20 years, the pension scheme is half-way towards becoming the sort of mature pension scheme that pays pensioners at reasonably high replacement rates when they reach pensionable age and retire. The size of an individual’s pension depends on two factors, namely the contribution period and the person’s insurable earnings at retirement.

As time goes by it can be expected that the insurable earnings limit, which is a limiting factor when it comes to retirement benefits for those earning above that limit, will be raised. There was a period in 2009 and early 2010 when there were no insurable earnings limit. Everyone’s insurable earnings were the same as their basic earnings.

From May 2010 until May 2013 there was an insurable earnings limit in place of US$200 per month. For those who retired during this period, the maximum pension was a percentage, depending on the contribution period, of US$200, which was considerably less than the current minimum pension of US$60.

A contributor’s pension is established on the basis of the contribution period and insurable earnings at the time of retirement.
However, should it fall below any new minimum pension level that NSSA might establish, then it is raised to the level of the new minimum pension.

That is what has happened with those who retired on insurable earnings of $200 or less and those who retired when their contributions had all been in Zimbabwe dollars.

Although their pension of $60 might seem modest, it is higher than they would have been entitled to based strictly on their contribution period and the earnings on which their contributions were based.

The value of the survivor’s benefit paid to the surviving spouse and dependent children or if there is no spouse or dependent child, other dependants registered with NSSA is also linked to the contribution period of the member of the national pension scheme.

A surviving spouse of a pensioner or contributor is entitled to 40 percent of what the pensioner was receiving or the contributor would have been entitled to on the basis of his or her contribution period.

The children’s allowance is also 40 percent, meaning that the family receives 80 percent of what the contributor would have been entitled to for as long as there is at least one child under the age of 18 or, if still in full time education, 25.

Where the contribution period has been less than 120 months, a retired member of pensionable age receives a lump sum grant, instead of a pension.
Similarly the surviving dependants of a person who has contributed to the national pension scheme for less than 10 years does not receive a pension but receives a lump sum grant.

There are currently more than 41 400 people receiving a retirement pension from NSSA. At the end of June this year there were 95 923 survivor’s pensions, including children’s allowances. The other category of benefit under the national pension scheme is the invalidity benefit payable to a person below the age of 60 who has contributed to the scheme for at least six months but who becomes permanently incapable of work due to a medical condition.

An invalidity pension is paid if the person has contributed to the scheme for at least 12 months. If the contribution period is less than 12 months, then an invalidity grant is paid.

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, PaMheponeNssa/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.