Retirement Planning: A Personal Responsibility

Retirement is a significant phase of life that requires careful planning and preparation.

Failing to take retirement planning seriously can lead to financial insecurity and a compromised quality of life in one's later years.

Retirement and pensions are so remote to us that many people shelve them until it is too late to prepare for them.

The reality is that, because more people are living longer due to advances in health care and technology, retirement planning is more crucial now than ever. As people live longer, they need more resources to support themselves during that period.

Planning for a potentially longer retirement period is therefore important and a responsibility for the person himself or herself, whether a formal or informal sector worker.  Retirement does not know the work you do or the sector you work in, it only knows you are ageing and therefore you need to retire at a point. 

Retirement

It is estimated that the period of retirement could be as much as a third of one’s lifespan and even more. Imagine starting work at age 25 or 30 and retiring at age 60, and nature blesses you to live up to 90 years or more, how would you fund this period of your life?

Will it be on your children, family, or the benevolence of others? What would you be doing with all this time on your hands?

If you do not plan to keep active, you are likely to feel unappreciated, and depression will set in, making your retirement years a forgettable experience. 

Your health, bearing in mind that ageing comes with an increase in health care costs, issues of housing, and the place to spend the rest of your life, all need careful planning.

This is why it is important to start thinking about retirement and set a plan in motion very early in life.

A lot of us have one way or the other imagined the kind of retirement we want, but very few people spend time planning to bring these thoughts to reality. 

One of the main sources of funds that forms a key part of the retirement plan is your pension.

There could be other sources, but the pension is classified as one of the safest and most secure sources of income during retirement.

It is a kind of forced savings that is highly regulated and designed to ensure that workers do not spend today what they will need to fund themselves in retirement.

Countries all over the world are changing their pension system to give more opportunities for people to save for a comfortable retirement.

South Africa has reformed its pension system to reduce early withdrawals to ensure that people accumulate enough money for their old age.

In Ghana, we have a three-tier pension system, which consists of four different schemes with tax incentives to encourage workers to save more for retirement.

A whopping 35 per cent tax exemption is granted under this contributory pension system. It is one of the biggest advantages for workers to save more for a stress-free retirement.  

A formal sector worker in Ghana has four windows of opportunity in the three-tier pension system to have an adequate income for retirement.

Apart from the mandatory first and second-tier schemes in which the worker and the employer are mandated to contribute, formal sector workers have an additional opportunity to contribute to a provident fund or personal pension scheme for higher income.

These are supplementary schemes that were designed with massive tax advantages to encourage people to save more for an enhanced retirement income. 

An adequacy test that was done on the three-tier pension indicates that if a formal sector worker is able and willing to contribute and save between 15 to 20 per cent of his or her income across the three schemes i.e second tier occupational pension scheme, provident fund scheme, and personal pension scheme, the worker is likely to end up with over 100 per cent of his or her prior retirement income on retirement with a stable returns.

The above percentage contribution excludes the first-tier contribution, which is mainly the employer’s part of the contributions. 

Similar opportunities are also available for workers in the informal sector economy and self-employed persons. Informal sector workers can contribute as much as they can to have enough funds to ensure a steady flow of income at retirement.

The informal sector schemes, including group or personal pension schemes, were designed to allow for intermittent and seasonal contributions such that every worker, including farmers, fisherfolk and everyone, can join and contribute to have a secure source of income in their old age. 

Planning

Every worker in Ghana, whether in the formal or informal sectors, should take a personal interest in planning their next phase of life.

Do not leave your retirement days to be planned by other people.

Imagine a worker who is nearing retirement has just found out, after resigning, that his employer has not paid his contribution for over 60 months.

Nobody can plan your retirement better than yourself.  

You will not be worried and shocked when you need to retire early because you already have your plans in place more than 20 years ago.

Take a personal interest in your pension and retirement planning. Financial stress during retirement can negatively impact mental and physical health.

The opportunities are there for us to have a good retirement; just get involved.  

The writer is with the National Pensions Regulatory Authority
Email:Kwameakwando@gmail.com