Pension schemes available in Zim: An overview
A PENSION scheme or plan is a long-term savings plan that helps you save for life after retirement. It allows you to make regular contributions/payments into a fund for retirement. It can be employer-sponsored or an individual pension plan.
Types of pension schemes
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Employer-sponsored group fund
May receive both employer and contributions
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Contributions and investments are made according to the rules of the fund
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Limit to 1/3rd lumpsum payment at retirement, remainder as regular pension payouts.
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Employer-sponsored group fund
May receive both employer and contributions
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Contributions and investments are done according to the rules of the fund
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Benefits paid as a lumpsum preservation fund Individual retirement fund
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Preserve retirement savings transferred from other funds
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Pension or provident preservation fund Retirement Annuity
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Operated as an insured fund contributions made as periodic payments or/ lumpsums.
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Benefits secured through an insurance policy One of the challenges in the private occupational pension schemes is that of non-remittance or delayed remittance of pension contributions to pension funds by sponsoring employers.
is may result in scheme members receiving lower or no pension benefits upon retirement as the pension fund may not have received the contributions.
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Under the defined benefit (DB) scheme, the fund members are guaranteed a specific pension benefit upon retirement based on a predetermined formula typically considering factors such as last salary and years of service.
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If the pension fund does not have adequate resources to meet the members’ specific benefits, the employer chips in with the difference to ensure that members get the promised benefits.
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DB schemes are typically more favourable for employees because they provide a predictable retirement income based on a set formula. Under this scheme, the benefit is what is defined in advance.
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Under the defined contribution (DC) plan, fund members’ benefits are dependent on the money contributed and investment returns on those contributions.
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e benefits are dependent on the performance of the pension fund. If the fund underperforms, the members’ benefits will be lower, and vice versa. e fund members bear the investment risk.
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DC schemes are typically more favourable for employers because they have no obligation to pay more than the pension contributions they make. Under this scheme, the contribution is what is defined in advance.
Contribution arrears Hybrid pension scheme
ere is also the hybrid pension scheme, which is a combination of a defined benefit and a defined contribution scheme. e scheme has some features of both DB and DC, such as a desired minimum level of pension using a defined benefit.
Both the employer and the employee are responsible for providing the funding.
Payable circumstances
e circumstances under which fund members can receive pension benefits are written in respective pension fund rules.
Below are generic circumstances under which pension benefits can be accessed. Retirement Benefits are payable on early, normal, or late retirement depending on the fund rules. For a provident fund or provident preservation fund, the benefits are paid in full upon the member’s retirement.
Withdrawal pension benefits can also be payable on exit from a fund before the retirement date on account of voluntary or involuntary separation from an employer.
However, only the employee’s contributions are accessible before the normal retirement age. e employer’s contributions become accessible upon the member reaching normal retirement age as per the rules of the fund.
Death pension benefits are payable upon the death of a member before or after the retirement date. e benefits are paid to the member’s dependents.
Unclaimed benefits
One of the challenges bedevilling the pension sector is that of pension fund members not claiming their benefits when they become due. is could be attributed to a lack of awareness of their entitlement to receive the benefits, relocation of some members and change of contact details.
Pension fund member’s rights
You have the right to receive clear and understandable information about your pension plan, including contributions, investment options, fees and benefits.
You have the right to transfer your pension benefits when changing employment, ensuring the continuity of your