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2010 received less in social security taxes — what in Zimbabwe would be termed social security contributions — than it has paid out in benefits, the newspaper reported. “The shortfall has been made up as the government has dipped into IOUs left in the trust funds from previous years. Monday’s numbers, though, show the combined trust fund itself will run a deficit of U$2,6 billion in 2022,” the newspaper said.
There is great concern in the United States at the moment about the future of the country’s social security programme. Unlike in Zimbabwe, where NSSA chooses where to invest its surplus funds, in the United States social security surpluses have to be lent to the Federal Government, which is obligated to pay back the money with interest when it is required.
A website article a year ago had said it was expected that from 2010 instead of surpluses, which from 1982 had ranged from US$89 million to US$190 billion per year, social security benefit payments in the United States would exceed contributions. However, it was expected money from the trust fund — the surpluses lent to the government that were accumulating interest — would still enable it to operate, as the interest from this fund was expected to exceed the shortfalls.
From 2020 the trust fund was expected to start shrinking, with the system running at a deficit from 2037. This deficit was previously expected to be avoided by increasing the payroll taxes (contributions) and reducing the benefits. Now, however, it appears the deficit situation is likely to occur 15 years earlier than previously projected.
The difficulties besetting the social security system in the United States illustrate the difficult task that social security systems everywhere have in projecting future benefits and contributions. This also presents a problem in ensuring that there will be sufficient funds in several decades time to provide benefits at retirement to those currently in employment and contributing towards their future social security retirement pension.
When journalists, contributors and commentators see that NSSA is collecting more in any one year than it is paying out, they start to question whether NSSA could not afford to pay higher benefits. One reader last week questioned how NSSA’s investment in Renaissance Bank would benefit contributors.
The United States experience shows how quickly surpluses can be turned into deficits.
It also shows how far such schemes need planning ahead. As time goes by the number of people qualifying for a social security retirement pension inevitably increases. The amounts that pensioners will be entitled to can also be expected to increase. It is imperative, therefore, for NSSA to invest whatever surpluses it might have now in investments that can be expected to grow the accumulated pension funds.
As with the United States social security system, the NSSA pension and other benefit schemes pays out not only retirement pensions and grants but benefits to survivors of contributors who have died and an invalidity benefit for those no longer capable of working.
It has to ensure there will be funds available to pay out all these benefits when they are due.
NSSA is obliged to have an actuarial valuation done every three years. Actuarial valuation for 2009, 2010 and 2011 will commence this month. The actuarial valuation report is forwarded to NSSA’s board, which includes representative of employees and employers, for consideration.
If the board agrees to adopt the recommendations, it forwards them to the Minister of Labour and Social Services, who will, if in agreement, after consulting the minister responsible for finance, gazette any necessary changes in contribution and benefit levels.
There are many factors that have to be taken into consideration in projecting future contributions and benefit payment requirements.
These include future birth rates, death rates, migration, marriage and divorce rates, retirement age pattern, the incidence of disability, employment rates, productivity gains, wage increases, average lifespan after retirement, inflation and many other demographic, economic and programme specific factors.
Every effort has to be made to preserve and invest wisely current contributions so that current contributors can receive the benefits they expect once they become entitled to them.
Increasing contribution rates is rarely popular. Having to decrease benefits due to exceeding contributions would still be less popular, particularly among those who have only just qualified or are just about to qualify for them.
l Talking Social Security is published weekly by the National Social Security Authority as a public service. Readers can e-mail [email protected] 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 706523-5.