Personal pension arrangements have proven to be effective in creating retirement income for its patrons globally. Ghana now has its own personal pension system.
Personal pension emerged in the Ghana financial space as part of the 3-tier pension scheme. Hitherto, this arrangement was not part of our society. Various financial institutions paraded their products as solutions to long term financial planning. In the absence of a proper pension regime it was acceptable. However, with the coming of the 3-tier pension, personal (and group personal) pension should be the best option.
The major mitigating factor against individuals and their retirement is the apparent lack of knowledge in the workings of pensions which directly affect them. This is what this feature seeks to address.
What is Personal Pension Scheme?
The ACT 766, section 106 (b), defines personal pension scheme as any pension scheme to which the contributor contributes personally to provide benefits payable on retirement or death. Organisations, groups and associations could also set up the group personal pensions for persons belonging to those entities.
It is therefore an avenue for an additional pension contribution for formal sector workers. For informal sector persons it could as well be the only pension arrangement. However, it is voluntary. It gives the opportunity for people to personally take responsibility of their financially secured future.
The reason we need to understand personal pension is what it can do for individuals both in the formal and informal sectors.
Personal Pension: A Solution for Formal Sector Persons
It is an avenue for the formal sector individual to contribute more within the 16.5% tax-exempt contributions. This is more the case when the formal sector worker (or their employer) do not contribute or partially contributes into the 3rd tier voluntary. If the formal sector individual does not contribute at all into a 3rd tier pension, they can instruct their payroll to deduct their contribution from their salary to remit to a nominated trustee.
The contribution could be anything up to 16.5% of their gross salary into the scheme before taxes are applied. They could still contribute beyond the 16.5% tax-free limit, except that contributions beyond the 16.5% of the gross taxable wage would be taxed. This has the potential to boost your retirement income beyond your expectations. Alternatively, employees with other businesses could contribute into a private personal pension scheme from the other sources of income.
Some trustees have the capability to effectively collect contributions via mobile money. ‘My Own Pension’ Scheme by the United Pension Trustees (UPT) is one typical fit. It is one personal pension scheme in Ghana which contributors could do so easily through the MTN mobile money.
Personal Pension: Solution for The Informal Sector Persons
This is a potent avenue for informal sector persons to contribute into pensions. As already mentioned, it is time for individuals to take responsibility for their own future. The informal sector especially need to rely on the 3rd tier pension for their long-term financial security. Since they are already well hooked into mobile money, contributing to the typical momo-linked personal pension account should be very easy to adapt. The system has proven to be effective and convenient for the contributor. There are a lot more benefits with contributing into such a scheme which would be explained in other discussions.
It is time for people to understand the personal pension concept and engage with it to build some tangible wealth for their retirement. Again, considering how the value of the 3rd tier schemes have grown since its inception, it is worth trying it.