One message this column is driving is the fact that we need a long time to be able to plan effectively for retirement. It stems from one important factor that is driving pension provision globally, which is the ‘Aging Population’ phenomenon. It is a global trend that people are living longer now than we used to live 20 years ago. Life expectancy in Ghana in 1990 was 58.4 for females and 57.3 for males, fifteen years (15) down the line it has increased for 64 for females and 61 for males. Though Ghana still ranks very moderately, the fact remains that all things being equal we are living longer.
What implication has it got on our retirement? Other countries have had to increase their statutory retirement age. Since April 2006, the UK has practiced a system which consistently reviews the compulsory retirement age. In 2015 life expectancy was 65 for men and 62 for women (www.who.int/country/ghana). In fact in the UK, it is not compulsory anymore to retire at age 65, and one can keep working as long as they and their employer can agree. In 2010 France also increased their retirement age to 63 and it was mayhem, now it has moved to 67 if one can go up that age, or take retirement at age 62 if a work life of 41 years is fulfilled.
The import of all these statistics is the fact that we are living longer and these systems have responded by making people work longer so they can save longer. It should not be a surprise if this discussion should begin in Ghana very soon. In fact we see many retirees looking very well and able to continue working after 60. Some actually retire reluctantly. There are stories of people who with a ‘sharp foresight’ adjusted their ages downwards so as to keep working longer. Those in self-employed businesses have a bit of flexibility when it comes to that. Some few professions in Ghana also enjoy the extended retirement age option. If the opportunity exists for you to work longer, take it if health and other conditions are favourable. That is one way to make the most of retirement income.
The aging population phenomenon has come about mainly as a result of advancements in medical and other factors that constantly improve the general well-being of life. Some diseases that were deemed threatening 20 years ago are no longer so. Insurers continue to review what makes up the list of critical illnesses as more breakthroughs come up for their treatment. These are all welcoming observations but it comes with their own retirement planning responsibilities. At the current statutory age of 60 and the observations made, it is possible for one to live anywhere between 15-30% of their lifetime in retirement and that should be adequately provided for. This is the thought that should inform our urgency towards how we plan for that period. Starting early and staying on course is key. We are looking at decades of planning activity to take care of that period.
The national first tier qualifies an individual to receive monthly pensions after a total 180 months (15 years) of contributions. So granted that one wants to contribute continuously, the latest age they can start is 45 years. In another jurisdiction, there exist a scheme which allows parents to contribute towards pensions for their children which become available to the children from the early retirement age. This is a planning period almost equal to the lifetime of that lucky individual.
This is all to emphasise the need to put in a lot more time into whatever option one looks at for their retirement income. We have already discussed in the Retiring Richly series the need for entrepreneurs and the self-employed to build a business with principles that would ensure that the business is living long enough to take of them. We have also looked at how you can estimate expected benefits. If one contributes to a scheme and there has to be a break due to business situations, contributions should resume immediately the situation improves. For formalised self-employed all the 3 tiers of Ghana’s pension is available. For the informal sector self-employed the 3rd tier is the vehicle for them.
There are no period limits on it but the longer one can accumulate funds and monitor the performance the better for the individual. There is also a section of the population whose retirement option is their children. It could work but remains a very risky option. Yes we are living longer and most likely we would love the long life. We should however know that it comes with a direct responsibility of a long term and consistent commitment to your retirement planning. The best bet is to plan for the long haul of spending 30% or more of life in retirement. With expected pension benefits in mind and the commitment to a long term plan, your long life would be worth the while.
Author: Yaw Korankye Antwi
The author is a Pensions Expert and a Certified Risk Management Professional.