The nitty-gritty of the new pension arrangement

   

By The Citizen Reporter

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Dar es Salaam. The new regulations on social security benefit schemes are likely to

put more smiles on the faces of workers, especially those in the private sector, since they expect pension increases, but for their counterparts in the former Parastatal Pension Fund (PPF), the package would appear less attractive.

“For instance,” said Dr Andongwisye Mwakisisile who lectures at the University of Dar es Salaam (UDSM), a person who retires with a basic salary of, say, Sh1.235 million and has worked for at least 442 months, should expect at least Sh46.587 million as lump sum payment,” he added.

According to him, under the new regulations, which will come into effect in July this year, the said lump sum is 33 percent of the annual full amount which a pensioner expects, and, in this case, the amount should be Sh141.173 million.

“This retiree will also expect a monthly pension of Sh630,573. But if we are to compare with the yet to cease formula, then a civil servant…that from the former PPF, would have received Sh75.815 million as a lump sum and his monthly pension would be Sh505,435,” Dr Mwakisisile added,

He is of the view that, a member of the dissolved PPF would see an increase in the monthly pension, yet a reduction is seen on the lump sum payment.

“We should expect the wrath of some civil servants as they have got plans…a sudden change from the expected amount would be a disappointment…at least one would have been alerted so as to adjust his plans.”

Moreover, if the new formula is compared with the proposed 2018 formula, which provided a 25 per cent in lump sum payment while the remaining percent would be paid on a monthly basis spread over 13 years, then the new scheme is of a relief.

In fact, the proposed 2018 regulations prompted an outcry, especially from public servants who used to receive 50 per cent in the first lump sum and the remaining would be paid on a monthly basis spread over 12 years.

However, the mathematics lecturer, who has written several journals which are related to the country’s pension system, thinks that the current system which operates under pay-as-you-go (PAYG) principles, needs a reform.

“PAYG defined benefit is a pension system where current contributions from working members are used to pay benefits to retirees. The system is an intergenerational contract and operates easier when the younger population is larger than the older population in each step of time,” he noted.

According to him, most countries in the world had public pension systems operated under PAYG defined benefit principles. Initially, contributions exceeded benefit payments, but as the system matured, benefits increased relative to contributions, which led to financial difficulties.

Of course, the opposition ACT Wazalendo is of the view that the new regulation is not meant to be easy-going to the civil servants.

In her statement issued in Dar es Salaam yesterday and made available to this paper, Ms Mwanaisha Mndeme, ACT Wazalendo’s sectorial spokesperson for Investment, Public Entities and Pension Funds, said the government has decided to ignore the workers’ outcry.

Part of the release reads: “…paying a retiree 33 percent of his total pension as a lump sum, with the remaining benefits to be paid for 12.5 years, using the new calculation, is meant to afflict more pain to these senior citizens who have wholeheartedly served our nation.”

Ms Mndeme, a lawyer by profession, believes the said calculation would diminish workers’ morale hence inefficiencies in places of work.

Therefore, the party recommended that the government should immediately pay an outstanding loan worth1.5 trillion to both National Social Security Fund (NSSF) and the Public Service Social Security Fund (PSSSF) immediately for their sustainability.

They also want the government to revert to the 2017 Social Security Schemes- Pension benefits harmonization rules, which would allow a civil servant to be paid a 50 percent lap sum while the remaining benefit should be paid in 15.5 years on a monthly basis.

On the other hand, ACT Wazalendo urged funds management to invest in profitable projects which relate to the needs of their members as well as calling for the trade unions to stand and defend the rights of their members who are in fact, the expected retirees.

Last week the government through Prof Joyce Ndalichako, Minister of State in the Prime Minister’s Office (Labour, Youth, Employment and Persons with Disability), announced amendment of Section 25A of the Social Security Benefit Schemes Regulations. Under the new regulation, workers will now be paid 33 percent of their total savings in lump sum upon retiring, with the remaining 67 being reserved for monthly pension.