Columnists Features

Retirement age: What issues?

KELVIN KACHINGWE, Lusaka
ALTHOUGH the issue first came to the fore mid-last year, it was only on November 19 that Acting President Guy Scott signed the Statutory Instrument (SI) increasing the retirement age from 55 to 65 years.
Immediately, there were sharp reactions with some opposition political parties making it an election issue although most of the objections from the public concerned the life expectancy in Zambia, which according to the 2013 United Nations Development Programme (UNDP) Human Development Report is at 49.4, down from 52 years in 1980.
Others also wondered about the chances of young graduates and the youth getting employed if workers are going to stay in their jobs for another 10 more years.
“The lifespan in Zambia is at about 48 years and constitutionally, retirement age is still 55, so this can be contested,” Zambia Congress of Trade Unions (ZCTU) secretary general Roy Mwaba argued.
The Zambia Federation of Employers (ZFE) was in agreement with the unions with executive director Harrington Chibanda saying ZFE believes that employees are more productive when they are below the age of 55.
He says the federation is aware that Government is looking at delaying the payment of pension benefits so that the money still remains in the economy in the pension schemes.
That is the suspicion of many.
Two months before Dr Scott signed the SI, it was reported in the British media that “people in their 50s and 60s will be urged to work longer by the government in a drive to increase the average retirement age by six months each year”.
The campaign comes on top of legislation which already raises the age at which people qualify for the state pension in line with increased life expectancy.
At present, the average age of retirement in Britain is 64.7 for men and 63.1 for women. The Independent reported that the Department for Work and Pensions said in its business plan that it would like the average to rise by as much as six months every year as it would be a “meaningful change” and would “demonstrate an improvement”.
The number of over-65s in England is expected to increase by 51 percent over the next 20 years, and the numbers of those aged 85 and above will double by 2030, thereby putting enormous financial pressure on the National Health Services (NHS), social care and state pensions.
Indeed, the issue of the retirement age has much to do with social security and the public purse.
Before the new SI on retirement was signed in Zambia, for full pension, a worker must have attained 55 years of age (50 years for women) with at least 180 months of contributions.
According to Mywage.org/Zambia, which is connected to the international WageIndicator Network and works together with the University of Amsterdam and other academic and labour institutions to contribute to a more transparent labour market in Zambia, early pension was available to workers having attained the age of 50 with at least 180 months of contributions.
If a worker does not meet the eligibility conditions for pension, he or she would be eligible for old-age settlement as a lump-sum payment.
The monthly pension is an insured worker’s average monthly earnings multiplied by the number of years of contributions. The minimum monthly pension is 20 percent of the national average monthly earnings.
According to the National Pension Scheme Act No. 40 of 1996, in terms of dependents/survivors who include the widow, widower and children, benefits are paid only if, at the time of death, the worker was in recopy of retirement pension or invalidity pension; was entitled to invalidity pension or had reached pensionable age and was entitled to retirement benefit. The minimum survivors’ pension is 20 percent of national average earnings.
The survivors’ pension is available to the spouse until death (or remarriage). If the surviving spouse is younger than 45 years and has no children with the deceased worker, a limited pension is paid for two years.
A lump-sum payment is also available to survivors if the deceased worker did not meet the qualifying conditions. Funeral grant is also provided under the law.
As for pension, it is monthly calculated pension or the minimum pension plus compensation for lost years of work if the worker was employed at the time of death. If the deceased worker was already in receipt of old age or disability pension, this pension is replaced by the survivors’ pension.
In the United States, the social security programme is officially known as the Old Age and Survivors Insurance (OSASI), designed to provide the elderly with a flow of income during retirement.
James Gwartney, Richard Stroup, David MacPherson and Russell Sobel write in Economics: Private and Public Choice 15th edition released early this year that in spite of its official title, social security is not based on principles of insurance.
“Private insurance and pension programmes invest the current payments of customers in buildings, farms or other real assets. Alternatively, they buy stocks and bonds that finance the development of real assets, which generate income that allows the pension fund (or insurance company) to fulfil its future obligations to its customers.
“Social security does not follow this savings-and-investment model, instead it taxes current workers and uses the revenues to finance benefits for existing retirees.
“There is no build-up of productive assets that the federal government can use to fund the future benefits promised to today’s workers. When the current workers retire, their promised social security benefits will have to come from taxes levied on future generations,” they write.
In essence, social security is an inter-generational income-transfer programme, based on pay-as-you-go rather than on the savings and investment principle.
When the programme started in 1934 in the United States, not many people lived past the age of 65, and the nation had lots of workers and few eligible retirees.
For Zambia, however, the sticking point seems to lie in the life expectancy, many believing that they will be unable to get their pension before the trip to the Other Side of Town.
It remains contentious.
But in truth, most social security schemes around the world need to be reformed.




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