I welcome myself back to this column after a two-year break! Its great to see the many changes the world has seen in this period, including the Covid.
I didn’t start my financial services career with the passionate love for pension and retirement matters. However, as I discovered how critical the practise is to our lives, I just sank into it.
It is a heartbreak to see someone who could have planned a decent retirement, but who failed and had therefore fallen on hard times. And trust me, I’ve seen many.
I believe you have seen, (or least heard) of people who retired, and outrightly or eventually sank into financial hardship. There is a wide array of factors which can lead into financial hardships in retirement. They could range from health to social to financial and could even be situations above anyone’s control. However, a larger aspect of our financial security rests with us.
Again, having functioned in the financial aspect of financial retirement planning, I focus on the financial aspect of retirement, and I share seven factors that act as ‘thieves’ to your pension benefits.
Since you could live as much as one-third of your life in retirement, you better deal with these ‘thieves’, before they rob you.
- Adequate Knowledge
My first reason why people struggle financially in retirement is lack of adequate knowledge on the subject. As a test on you, how much of your own pension schemes do you know? Most peoples’ knowledge start and end at contributing into a scheme and making withdrawals when they see the fund grow. Begin to learn about pensions. Learn about your options, their risks, and your responsibilities.
You are not required to be an expert, but you should have relevant applicable fundamental knowledge. Seek advice from an expert. Advise in our part of the world is not very popular, but its high time you appreciate it. My emphasis here is the word ‘ADEQUATE’ knowledge. This column, RETIRING RICHLY, is one great way to learn.
Take my columns and sessions seriously, likewise other credible ones you may find. You are most likely to do the right things if you know what to do. Your lack of the needed knowledge of the subject can be the thief that would rob you of good benefits. The loss out of ignorance is in two-fold.
- The income you could have made in retirement, but you missed because you didn’t know.
- The loss to your fund you could have prevented, but you couldn’t because you did not know
I am very certain that a reader skipped this article because they are not interested in pensions. That is exactly the problem!
2. Time
Some of us, especially the younger ones, think retirement is a long way off. The same way you cannot recount how the last decades whisked past, that is the same way the next few decades will fly by. If you are 30 years and above, you need to take this seriously.
Time becomes a thief to your pension benefit if you do not fully utilise its advantages. Remember that time is an asset in this game. Giving yourself a long time to accumulate assets for retirement can make up for the loss from low income. That is why you need to put away large sums of money if you have a shorter time to retirement.
Starting early means planning your retirement with less stress.
Retirement Planning starts when your career begins. There are no hard and fuss rules about the age to start planning for your retirement. The Ghana pensions law allows a person from age 15 to start contributing into a pension scheme. The reason is that accumulating funds for the last phase of our lives requires a long time, in fact decades. It’s about the period you put in, rather than how much you have. Therefore, from today remember that in planning for your financial future, time is of essence and an asset. The time ahead of you is an asset, use it to your advantage by starting now.
- Gaps in Contributions
There are several ways one can prepare for their old age financial provision. One proven way is to accumulate funds for pension. Pension is simply a system of accumulating funds to be drawn down when you retire. Accumulating the funds is mostly done through contributions. Gaps in contributions due to career breaks hurts the full potential of your pension funds. Career breaks do happen and can be out of our hands. However, as soon as your career is back on track, get back immediately to contributions. For voluntary schemes you can increase your contributions to make up for the lost time.
Gaps in contributions could also emerge from administrative errors, or simply non-payment of contributions by employers or by system errors by which inflows are not credited to your pension account. To deal with this thief, look at the next factor below.
- Shirking your Responsibility
Gone are the days when companies provided good pension for their staff. That phenomenon ended in the last couple of decades. Governments around the world are scratching their heads on how to take care of their pensioners on social security schemes. Their solution however is to motivate individuals to ‘carry their own burdens’.
You have a part to play to ensure that your contributions are being paid, your funds are performing well. You also need to regularly check your statements and follow up on your pension transfers among others. You need to seek advice, and truly we are in an era where you need to seek advice for your plans and investments.
- Poor Management
Poor management of your pension scheme is a potent thief of your pension fund. Shoddy management can be in the form of weak administration, high cost of running the scheme, bad investments, and lapse in accountability among others. These factors will affect your retirement benefits whether it is under the social security (SSNIT) scheme, or under private pension. The impact under private pension can be quite severe.
To deal with this ‘thief’, you must ask questions about your scheme. You should be interested in your scheme. This is very related to the point 4, in that the only way you can know the performance is to monitor your scheme. Follow up on performance and ask your trustees questions regarding the growth and investment of funds. Some contributors have never checked their statement, taken interest in annual general meetings (AGMs), and indeed don’t even know their trustee.
Especially for personal pension you have the option to move your fund to another trustee if the current trustee is not doing well.
- Low Income/Pensionable Pay
Low incomes continue to plague adequacy of pension funds. This is a situation the World Bank looks at seriously, in terms of tackling poverty. It may interest you to know that no mandatory scheme would be sufficient for you. It is imperative to look for other sources of income and slice portions of them into additional voluntary contributions. You may have an ‘aside’ business apart from your main income earner. You should consider placing just portions into a pension fund or an investment.
- Withdrawals from your Pension
I place this last because it carries so much weight. Pension funds grow more by the power of compounding. That is why age restrictions or certain conditions apply to withdrawal from pension fund. The pensions law, for instance, restricts us withdrawing from our mandatory schemes before retirement. You can only have access to your SSNIT only during normal or early retirement, or specific events like total incapacity, death and emigration. This is because pension is for long-term and nothing else.
The story is however different for the voluntary 3rd tier or personal pensions. Before retirement, you can access your 3rd tier funds with terms and conditions. However, if your intention is to save for additional funds for retirement, then leave the funds to grow. Withdrawing from the voluntary pension fund shoots down the potential for optimal growth. Such an action can be a thief (and a killer), especially if the funds are misused.
As most 3rd tier schemes approach their 10th anniversary, contributors are warming up to withdraw their 3rd tier funds. The 10th anniversary of the scheme allows you to withdraw your funds tax free. However, if the proceeds would not go into a venture that would ensure long-term financial provision, or a matter of life and death, then just leave the funds to grow.
Conclusion
These are not the only ‘thieves’, there are five other critical ones which I would share in my next edition. Though these are not all the ‘thieves’, efforts to arrest these seven will go a long way to optimise your retirement benefits from pension funds.
Yaw is a Lead Consultant for M-DoZ Consulting. He is a Pensions Expert and a trainer of Pension Trustees. He additionally runs Retirement Planning and Advisory Services.
Visit www.ghanatalksbusiness.com and listen to his podcasts and read more of his articles. Contact: 0248590955 for more engagements.
