1.0 LIFE STAGES
The different stages in life have their attendant financial needs and implications.
From Birth to early twenties (0-22years) before the start of one’s working life, an individual is
financially dependent on parents or guardians who usually shoulder all financial responsibilities.
Normally, one becomes financially independent and works for a living during the early twenties
to late fifties (22years to 55years). This spans through to the retirement stage (usually from
60years) when one tends to live on income that is saved up during the active years of work.
Our emphasis is on life in retirement when options are limited and it is time for accountability.
The big question is …how was retirement planned? Or was it planned at all?
There are various ways to plan for retirement, namely; investing in businesses, property,
financial instruments, having ordinary bank savings and investing in children. In the last point,
some people choose to invest heavily in the education of their children with the hope that the
children would also return the gesture and care for them in retirement, although it has not
proved effective in all cases.
One very effective way to plan for retirement is contributing into a pension scheme that yields
retirement benefits. There are situations in which some retirees may take home very low
pension benefits, which could give the impression that the whole contributory pensions “thing”
is not worth the while. A number of reasons accounts for the low pension benefits and these
will be explained in due course. It is however important that one takes appropriate steps to
mitigate the factors that account for low pension benefit in order to ensure a better retirement.
The essence of a deliberate pre-retirement plan cannot be over-emphasised and this should
include contributing into a pension fund. It helps spread risks and offer income security in
retirement just in case other options do not materialise as expected. Contributing into a fund
might as well be one’s major option. A lot of benefits come with it whether as a formal or
informal sector worker and also whether one is employed or self-employed
We will all live to see retirement one day and it is not optional. The only option is death, which
obviously is the less preferred option. Life in retirement is therefore not to be left on auto-pilot.
The previous article discussed the different means of retirement planning and the options
available. The conclusion and recommendation was that contributing into a pension fund
remains one of the major and most reliable options in retirement planning.
In the Ghanaian pension system under the old order, SSNIT acted solely as trustees and
managed the pension contributions of Ghanaian workers. However, there has been a reform
under the Pensions Act 766, which has additionally permitted private entities called trustees to
collect contributions and manage pension plans.
There is now the existence of a 3-tier Pensions Scheme in Ghana which is regulated by an
Independent Body called the National Pensions Regulatory Authority (NPRA).
Contributions for the 1st tier are still managed by SSNIT while the 2nd and 3rd tier
contributions are managed by private trustees, with each tier having its own contribution
structure and benefits.
One point of interest is that every contribution towards pensions attracts tax benefits, since
such contributions are normally exempted from tax. Pension contributions are usually deducted
from gross salary before taxes are applied; hence an individual pays less tax in making more
contributions towards their pensions. Though amount per transaction may not be much, such
small amounts contributed over long periods and of course invested well would yield
Under the Pensions Act 766, contributions for 1st and 2nd tiers are mandatory for formal sector
workers but the 3rd tier is voluntary. Informal sector workers cannot contribute into the 1st and
2nd tiers but can make very good use of the 3rd tier.
The point of emphasis again is that an opportunity to contribute financially towards retirement
should never be overlooked or undervalued because the benefits are enormous.