The disposable income (the net payment that goes home) of permanent employees in private organizations is going to be reduced by five percent, following the ratification of the private pension fund proclamation on June 09, 2011. As opposed to earlier practices, the permanent employees of private organizations will contribute to their pensions like public employees. The Private Organizations Employees Social Security Agency (POESA) announced that the scheme will be effective starting from July 8, 2011.

"The collection of the pension contribution is carried out through existing institutions. Therefore, it is not difficult to implement the program within a short time. The agency is equipped with the necessary staff and equipment," said Getachew Belay, head of the agency.

The collected pension fund will be invested else where in the economy where it can generate the maximum possible profit, according to the head. The benefit gained from such activity is not subject to any tax he explained.

Coverage:

The pension fund does not cover those employees in private sector working on a contractual basis. Those private firms who have permanent employees but do not have provident fund scheme prior to the enactment of the proclamation are forced to join the pension fund. However, those organizations who already have a provident fund program can join the fund if they wish.

An employee who contributed to the pension fund and leaves office willingly prior to 10 years of service will not receive any compensation but if the employee leaves office after 10 to 20 years of service, the employee is entitled to receive the sum of the contributions made on the part of the worker at an official retirement age which is 60. However, the employee is not entitled to collect the contribution made by an employer on behalf of the worker.

Both the employee and employer are expected to contribute in a progressive manner. The employee is expected to contribute five percent in the first year of operation beginning from July 8, 2011 through July 7, 2012. Then they will contribute six percent in the second and seven in the final year while the employer is subjected to contribute seven percent in the first year of operation, eight in the second, nine in the third and 11 percent finally. The pension contribution from both will amount to 18 percent of the gross salary of the employee in the final year.

Special consideration:

A permanent employee will be provided with compensation if the employee was dismissed from office for disciplinary reasons or failure of the business with less than 10 years of service. The employee will then be able to get their money back when they reach the age of sixty.

Collection:

The collection of the pension contribution will be collected in all areas of the country through the government’s revenue collecting offices. In this way work will not be duplicated and cost will be reduced, argued the head of the agency. Those private organizations which have permanent employees can settle their pension contribution payment at offices where they pay their income tax.

Employees will be provided with social security number if they do not have tax a payer identification number (TIN) yet. For those with TIN, the TIN will serve as social security number as well.

Payment Schedule:

A permanent employee is entitled to 30 percent of the average gross salary in the last three years of service in the first 10 years of employment. Then afterwards, the 30 percent is multiplied by 1.25 percent for every additional year that follows. The average 30 percent in the last three years plus the multiplied amount in the subsequent years will constitute the pension payment of the concerned individual. The maximum pension paid is bond to 70 percent of the gross salary. --Capital