NSSA thrives while pensioners starve

15

FOR all its shortcomings, the National Social Security Authority (NSSA)’s financial standing is quite impressive, latest financial statements show.
Although all of the organisation’s indicators are pointing in the positive direction, pensioners under its mandatory scheme still get very low benefits as a result of the pension system’s design, which generally conforms to international best practices.
In spite of its infamy over boardroom politics, NSSA’s financial fundamentals have stood firm.
Its financial statements for the year ended December, 2017 tell the story of a thriving entity.
Apart from a healthy 41 percent increase in profit after tax to $149 million, the statutory corporate body’s statements also show its exceptional funding level while its net inward cash flow significantly exceeds benefit outgoings.
It has also had solid investment returns, all of which form the basic vital signs check-list for a pension fund.
NSSA’s total assets were at $1,75 billion as at December 2017, representing a simple funding ratio of more than 400 percent or four times.
Funding level is the ratio of a pension’s assets to its liabilities.
A funding ratio above one indicates that the pension is able to cover all payments it is obligated to make while a ratio below one indicates that it is either unable to make payments or is in danger of not being able to do so.
NSSA’s funding level compares favourably with those of other pensions around the world, a 2017 Organisation for Economic Cooperation and Development (OECD) report shows that most pension funds in the developing world had funding levels of less than 200 percent in 2016.
NSSA’s investment income for the year ended December 2017 amounted to $54,6 million representing a simple investment return of about five percent.
The OECD average for 2016 was 2,4 percent.
The statutory body received $292 million in contributions and premiums in 2017 which was an 11 percent decrease from collections of $328 million in 2016.
The takings however significantly exceeded the $172 million paid out in claims during the year.
All things considered, NSSA’s financial standing is quite solid yet almost every mention of its pension scheme invariably references paltry pensions.
NSSA’s Pension and Other Benefits Scheme has up to this point only paid pensions that most people would describe as ‘measly’ or ‘unliveable’.
In 2017 the scheme paid an average of $74,01 per month, per pensioner or beneficiary.
The pension and benefit pay-outs are consistent with the general ‘peanuts’ narrative but the situation does not reflect mismanagement or incompetence on the part of NSSA as most people are inclined to believe.
The formula for calculating pensions is determined through legislative processes and is based on international best practises.
The pay-out that a pensioner receives is based on their wages and the number of years they would have contributed to the pension scheme. According to NSSA, a pension is accrued as a portion of an individual’s earnings over the tenure of their employment, up to a limit of $700 per month.
“After 20 years of contributions the replacement rate is 26,7 percent. After 25 years it is 33,33 percent. After 30 years it is 40 percent. It is 51,7 percent after 35 years, 63,3 percent after 40 years, 75 percent after 45 years and 79,7 percent after 47 years,” said NSSA in a note.
This means that someone who earns $500 dollars monthly and contributes to the fund for 45 years will be entitled to a pension of $375 per month upon retirement while someone who earns more than $700 will get $525 per month.
These numbers are not too bad when compared to the $74 paid out on average in 2017, the problem is that there is actually no one who is currently receiving more than $250 per month on a NSSA pension because the scheme has not been around long enough for anyone to contribute for more than 25 years.
But, the Pension and Other Benefits Schemes were established in October, 1994 — 24 years ago.
“…there is nobody yet who can enjoy the replacement rates that come after 40 or even 30 years of contributions,” NSSA said.
The problem of low pensions in Zimbabwe is not limited to the NSSA fund, the local industry regulator, the Insurance and Pensions Commission (IPEC) says the average pensioner in Zimbabwe gets an ‘unliveable’ pension.
In 2017, pensioners receiving monthly benefits through all of the pension funds in Zimbabwe — including NSSA, were paid a total of $76,62 million, translating to an average of $142 per pensioner while the food basket for a family of six members and total Poverty Datum Line was in the range between $500 and $575 for the year ended December 31, 2017.
“The major causes of low pension benefits in Zimbabwe include low salaries and contribution rates, low investment returns, contribution arrears, loss value due to dollarisation of the economy and high expense ratios,” IPEC head of pensions, Josphat Kakwere said while making a presentation recently.
However, only one of these factors applies to NSSA’s scheme which is a defined benefit scheme.
A defined benefit scheme pays out pensions based solely on contributions and the tenure of the contribution stream.
NSSA’s pension scheme contribution rate is currently at seven percent, half of which is paid by the employer. Compared to global contribution rates, seven percent is actually decent but local incomes are relatively low and the resultant contributions are also low.
Incomes are basically a function of the state of the economy, it therefore follows that if or when the economy of the country improves pensions will also improve. And as NSSA’s pension schemes mature, the average pay-outs will also increase.
Meanwhile, the one thing that would significantly increase NSSA pensions is increasing contribution rates.
newsdesk@fingaz.co.zw