New pension plan to stretch pockets
Businesses and workers face potential financial pressure over proposed compulsory contributions under a planned national pension fund amid ongoing consultations over final rates.
Businesses and workers face potential financial pressure over proposed compulsory contributions under a planned national pension fund amid ongoing consultations over final rates.
Employers are warning that compulsory contributions could squeeze already struggling small businesses while reducing take-home pay for low-income employees.
Small and medium enterprise founder Danny Meyer says although the objective of creating a universal pension system is commendable, the proposed funding model could place an unsustainable burden on both employers and employees.
“The launch of a national pension fund is laudable, and so is its aim to provide long-term financial security and support economic stability.
However, the devil is in the details with regards to funding,” he says.
Meyer says Namibia’s informal sector and micro, small and medium enterprises (MSMEs), which the government has repeatedly described as major creators of jobs and wealth, are already under severe financial pressure.
“Such enterprises can barely cope with the cost of doing business in a challenging environment,” he says.
Meyer says businesses already face numerous statutory obligations, including local authority trading licences, fitness certificates, Social Security Commission (SSC) contributions and Business and Intellectual Property Authority (Bipa) fees.
Adding another compulsory pension contribution, he warns, could discourage businesses from hiring new workers.
Employees, particularly those entering the labour market for the first time, could also feel the impact.
“For employees in the informal and MSME sector, it is generally their first income-paying job. Salaries are also generally on the lower side,” Meyer says.
“There will be widespread unhappiness if they are expected to forego another portion of their pay in addition to their SSC monthly contribution.”
CONTRIBUTION RATES
SSC chief executive Ben Nangombe, however, says concerns about the proposed contribution rate need to be considered in the context of how pension contributions already vary across the economy.
Nangombe says a contribution figure of 15.91% comes from an actuarial valuation and represents the general average premium (GAP), calculated as the contribution rate needed to balance the fund’s income and expenditure over a 100-year projection period.
The commission says this figure is not a final contribution rate.
“No final decision has been made yet on how the contribution will be shared between employers and employees,” Nangombe says.
The final split will be determined through planned tripartite discussions involving the government, employers and labourers, he says.
The actuarial valuation models several possible arrangements, Nangombe says.
A 50/50 employer-employee split results in an overall contribution rate of 15.91%, while a 67/33 split produces a rate of 15.79%, and a 75/25 split a 15.73% contribution rate.
“These figures illustrate the range under consideration rather than a final decision,” Nangombe says.
This clarification comes amid concerns that employers could be expected to contribute 7.95% of workers’ earnings, almost five times the current 1.8% contribution towards social security.
The Namibia Employers’ Federation (NEF) has warned that higher compulsory payroll costs could affect hiring, particularly among SMEs and labour-intensive businesses.
“Employers make recruitment decisions based on the total cost of employing someone.
A substantial additional compulsory payroll cost could affect decisions to recruit, expand workforces or create permanent positions,” NEF president Elias Shikongo says.
He says employers support adequate retirement protection, but argues that the contribution rate should only be determined after consultation and economic and actuarial assessments.
“Employers support the principle of adequate retirement protection, but a figure such as 15.9% should not become an assumed outcome before meaningful tripartite consultation,” he says.
He says questions about the fund’s design, financing, governance and administration also remain unresolved, including how employers already providing pension benefits would be treated.
LOW-INCOME WORKERS
Nangombe says the actuarial valuation took into account workers across different income levels and includes an earnings floor intended to protect lower-income employees.
Under the proposed design, no employee contribution would be payable on the first N$300 of monthly earnings.
However, earnings below this floor would still count when calculating a worker’s pension credits.
Nangombe says the N$300 floor would be adjusted annually according to increases in the average earnings of national pension fund members.
For example, if an employee contribution rate of 6% were applied to a worker earning N$1 500 a month, the contribution would be calculated on N$1 200 after deducting the N$300 floor.
The worker would therefore contribute N$72, equivalent to 4.8% of total earnings.
The SSC
