"Comprehensive social security system needed"

12 April 2010, The Sunday Mail
URL: http://www1.sundaymail.co.zw/inside.aspx?sectid=17309&cat=8

Bulawayo: According to the US Economic Policy Institute, social security benefits significantly reduce poverty among senior citizens. While 12 percent of the elderly in the US live in poverty, more than 50 percent of seniors would live in abject poverty without social security.

In Zimbabwe, the Government will soon appoint a new board for the National Social Security Authority (NSSA) to succeed the one led by Mr Albert Nhau, whose term expired at the end of March.
However, the success of these boards has being subject to a lot of debate as the beneficiaries of the social security system in Zimbabwe receive paltry monthly payouts.  NSSA is one of the most active institutional investors on the Zimbabwe Stock Exchange (ZSE) and is also a critical investor in the real estate sector after tried and tested institutions like Old Mutual.

Some pensioners get as little as US$10 a month from NSSA, yet their monthly bills, taking into cognisance utility bills, medical expenses and groceries run to more than US$500 a month.  Is it a case of the beneficiaries expecting too much from NSSA or is it simply because NSSA is out of touch with the reality on the ground or is it just management anorexia? So many questions...

Does social security still make sense in Zimbabwe when beneficiaries get as low as US$10 a month?  University of Zimbabwe Head of Economics Dr Takawira Mamvuma says: "In principle, social security is still a good concept.  It is sad that NSSA is paying paltry sums as little as US$10. However, we would be wrong to blame NSSA for this. The volumes contributed to NSSA vis-à-vis the claims are unreal. The volumes are low yet the claims from NSSA are very high.

"There is need for NSSA to come up with more strategic ways of bringing more people to contribute to the pool. Some of the investments made by NSSA take time to yield good results and the challenge for NSSA is how best to balance between the claims and its investments," said Dr Mamvuma.

NSSA's finance and investments department's main objective is to ensure that the social security schemes are able to pay benefits, provide services and generate income that helps to finance such benefits and services.  The investments team invests such funds in money- market instruments such as Treasury Bills and quality Bankers' Acceptances for the financing of short-term liabilities, while the medium- to long-term investments which are listed and unlisted shares, bonds, special projects and properties cater for long-term liabilities.

Added Dr Mamvuma: "As the economy recovers, NSSA will also be in a position to pay out meaningful monies. How do people who have been contributing US$2 a month expect a payout of more than US$100 a month?"

He said NSSA must also come out in the open and explain to the public what is exactly happening and explain why it is paying out the paltry monies than to leave the public with more questions than answers.

The Journal of Social Development in Africa notes that Zimbabwe still does not have a comprehensive social security scheme in place, adding that the development of social security in Zimbabwe is inextricably linked to the country's colonial history.   Racial discrimination in colonial Rhodesia led to the introduction of fragmented social security schemes (for the non-African population) old-age pensions, public assistance and occupational pensions for purposes of income maintenance in cases of involuntary loss of income.

"The same protection was not extended to Africans because it was assumed that their needs were simple and easily met within the peasant economy.  Although attainment of Independence brought an end to all forms of racial discrimination, Zimbabwe still does not have a comprehensive social security system."

According to the journal, "a unique administrative framework" could be set up to enable the rural population to participate in a contributory social security scheme and at the same time benefit from a non-contributory social security scheme.

The journal agrees with Dr Mamvuma's school of thought that NSSA should come up with ways of bringing more people to pool their contributions by suggesting that "the success of such an approach depends on linking social security to a strategy of rural development geared towards increasing the productivity of the poor."

NSSA general manager Mr James Mutizwa said his organisation is doing its best to pay comfortable pensions but cannot do so at the moment as it carried 160 000 pensioners from the Zimbabwe dollar era into the multi-currency system.  He says before the economy deteriorated during the hyperinflation era, "we were paying moderately comfortable pensions. A benefit has a formula wherein every year the member accrues 1,33 percent of their retirement multiplied by the length of service the person has made. The element of length improves with the longer the member contributes. Our scheme is still young, as it is less than 20 years.  At 20-30 years the scheme would be at its medium term but from 40 years upwards we refer to it as a matured scheme.

"When the scheme has matured, benefits to members will naturally improve," he said. During the hyper-inflation era all the monetary assets that NSSA had were decimated by inflation and the authority carried forward the buildings it owns as its only assets.  We called in actuaries to value our immovable assets and they recommended that the value of our assets can comfortably sustain are payouts of US$25 a month.

"In reality we were the first pension scheme to make payouts in hard currency. As for most occupational pension schemes, they were killed completely by hyperinflation. We are now in the process of increasing the lowest monthly payouts by 40 percent but we are awaiting approval from the Ministry of Finance which is assessing the possibilities and the implications of such a move."

Mr Mutizwa added that those mostly affected by the low monthly payouts from NSSA are those whom NSSA carried forward from the Zimbabwe dollar era.   "At the moment the highest payout we are making monthly is US$560 and this is for some that are retiring now. If we make such huge payouts even to people that retired during the Zimbabwe dollar era, the scheme will go broke."

In a paper titled "Pensions and Social Security in Sub-Saharan Africa: Issues and Options", the World Bank notes that formal social security institutions have not been successful in fulfilling their main mission which is broad-based coverage of the population.   "What is more important, it is unlikely that pensions and disability coverage will be extended to the informal sector, which represents the vast majority of the employed population in Africa, within the next generation," notes the World Bank.

Mr Mutizwa said extending pensions coverage to the informal sector is part of its strategic planning. However, there are challenges.  "It is very complicated and it is not easy to get those in the informal sector to contribute to NSSA. The older ones nearing retirement age would want to contribute and enjoy the benefits but the younger generation would not want to pay anything towards social security.

"A good example is if we started collecting contributions from informal traders at Mupedzanhamo flea market, we could be successful for a month but if they decide not to pay they would simply leave and start their business elsewhere and the contributions process is disrupted," explained Mr Mutizwa.

The World Bank further notes that, as has happened in Europe over the past century, only sustained economic growth, formalisation of the economy and reduction of the relative weight of the agricultural labour force will create the basis for some form of universal coverage.   "Thus, formal social security systems in Africa are at present a perquisite of the middle class. This has implications for the strategy of reform, and, in particular, for claims of public resources that can be made by existing institutions."

The World Bank Group argues that over the long term, formal social security institutions need increased membership to thrive adding that this buoyancy will not be possible if an adequate set of incentives is not in place.   "In many cases, rules today were developed in a context where government and its enterprises were the main providers of formal employment. As a consequence, contributions are high and benefits, at least as written, are generous."

Experts contend that countries need thriving economies and strong financial sectors to provide profitable investment opportunities. They argue that when this is so, pension fund reserves can profit from the opportunity.   "When financial sectors are weak, concentrating fund reserves in public hands to protect them often leads pension institutions to try and become financial intermediaries, with dismal results, including the further weakening of the financial institutions."