Pensioners under the Zimbabwe defined benefit social security scheme: Are they losers?
Chikova, Henry N.
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Private occupational schemes have expressed reservations on the way the national scheme is designed. Since the national scheme is compulsory private, schemes have complained that it is crowding them out of the pension industry. They complain that the problem is with the way the system that the national scheme uses i.e. the Defined Benefit (DB) system. They argue that this design should be reformed to the Defined Contribution (DC) system. The objective of this study is to find out whether this call to reform the national scheme has merit. It uses the concepts of time value of money and micro simulation to achieve this objective. It also made assumptions on future wage growth, inflation and returns on investment. While pensioners who die before reaching 65 years would be better off under the DC scheme, the DB scheme favours pensioners who would survive to at least 64 years. After considering the life expectancy at retirement for Zimbabwe the study showed that about eighty percent of pensioners would benefit under a DB scheme. The study concludes that the way the Zimbabwe National Pension scheme is currently designed favours its members. Pensioners would be worse off if the scheme's design were to be reformed to a DC scheme. There is no merit in the initiative by private occupational pension schemes to have the national scheme transformed to a DC scheme.
Additional Citation InformationChikova, H. N & Kaseke, N. (2014). Pensioners under the Zimbabwe defined benefit social security scheme: Are they losers?. University of Zimbabwe Business Review, 2 (2), 17-28.
University of Zimbabwe, Faculty of Commerce
National Pension Scheme (NPS)
Time value of money
Net present value