This article discusses submissions by Yaw Korankye Antwi, a Pension Expert at a webinar held by Ghana Talks Business.
Pension Adequacy was explained in the first part of this article as “how much you are consuming now, as against how much will be replaced in retirement”. This is determined by your needs such as food and shelter, your lifestyle which includes tastes and preferences, and the amount of income that is being replaced.
Adding to this, he stressed that during retirement, a certain portion of your income is replaced. However, “how much of it, is the problem”. Hence both the young and old need to ask themselves the relevant questions such as;
- How much of my income will be replaced when I retire?
- Will my retirement income be adequate for me?
This piece discusses the sources of retirement income and possible earnings from these. This excludes Tier 1 which was discussed in the first article.
Sources of retirement income
Pension Contribution into 2nd Tier
This is a “contributory Occupational Pension Scheme mandatory for all workers. 5 percent of gross income is contributed for workers.” It pays out your lump sum on retirement. “The lump-sum benefit for the 2nd tier is not guaranteed. It depends on how much you contribute during your work life, investment returns, the cost of managing the scheme and of course how funds it is managed”, he further said.
Using the same analogy in the 1st Tier, if you contributed for 360 months, Yaw Korankye estimates that you could receive a lump sum that could provide you between 16% – 20% of your gross income, assuming your lump sum is to be broken down into monthly pension benefits.
The reason for this estimation, as he explained, is that “we do not have annuity products in Ghana. You can, therefore, invest your lump sum with a financial institution, who will then pay you returns monthly, quarterly or annually.”
Pension Contribution into 3rd Tier
This is a voluntary scheme that includes all Provident Funds and all other Pension Funds outside Tier 1 and Tier 2. You can contribute up to 16.5 percent of your gross salary to the 3rd tier. Yaw Korankye believes you should be able to contribute at least 10 percent of your gross salary to the 3rd tier during your work life. That being said, if you contribute 10 percent for 360 months, you could receive an estimated 40 percent of your gross salary, assuming your lump sum is to be broken down into monthly pension benefits.
This tier just like the 2nd tier is not guaranteed. “The comfort it has in there is that, contributions are put into tiers that are highly regulated, with separated service provider functions. You can join without fear of losing your money through the collapse of just one service provider,” Yaw Korankye stressed.
This is a scheme put together by employers where employees can contribute directly from their payroll. They vary and are sometimes for the short-term. Yaw Korankye urges employees to take advantage of workplace schemes even though it might cut short their disposable income.
With financial assets, your earnings are determined by your level of investment, how your investments are managed, the returns, and the risks involved. These financial assets may include mutual funds, fixed incomes, equities, and property.
Having a Business as an option for retirement income will depend on the state of the business. In the late ’90s or early 2000s, communication centres were a booming business but with the saturation of mobile phones in today’s economy to use the communication centre as your source of retirement will disrupt and halt contribution to your pension fund. Hence, using business as a source of retirement income is not guaranteed.
Soliciting or taking money from Family as a source of retirement income is never guaranteed. Family members may not always be there to help with your contributions.
About Yaw K. Antwi
Yaw is a Pensions and Management Consultant with M-DoZ Consulting and an Executive Director of M-DoZ Retirement & Investment Club. M-DoZ runs retirement & investment planning sessions for companies, churches, trade associations, groups, e.t.c. The club runs financial advisory clinics and helps its members to plan for retirement. Joining the club is free. Call now on 0201196080 and book a retirement planning session for your staff/group. firstname.lastname@example.org; follow on Facebook and Twitter