Most people planning towards their retirement start late, leaving issues about their retirement until the last few years of their working life. Leaving retirement planning till this stage is dangerous. Successful retirement planning is best achieved by starting early on in your career, and perhaps right at the beginning to be on the safe side.
Retirement Planning should start while you work. Under the new contributory pension scheme workers can actively participate in decisions regarding their retirement. From the choice of Pension Fund Administrator (“PFA”), to additional voluntary contributions and well planned withdrawal modes, workers can plan and ensure a safe and secure retirement. Other issues such as owning a home, taking life insurance policies, writing a Will, and setting aside towards your health care in retirement are issues that young workers should be concerned with.
Workers planning towards their retirement should also seek to monitor closely the performance and activities of their PFAs, and other financial advisors. Workers must be aware that the choice of a PFA is a serious decision that should be made after serious consideration. Many workers have chosen PFAs based on subjective reasons, and many others have simply followed the “band-wagon”, without proper enquiry. A proper enquiry into the PFA’s experience and track record in investment management, financial resources, quality of ownership and management as well as quality and transparency of customer service and reporting should be made before a choice is made. The law guiding the contributory pension scheme allows workers to switch PFAs at least once in a year without any reason, meaning that people who may have made sub-optimal decisions regarding the choice of PFA can easily and conveniently change to another PFA.
Another issue in planning your retirement while you work revolves around changing jobs and redundancy. For the upwardly mobile worker, changing employers under the new contributory scheme poses no challenges at all. The RSA is portable, and all that will change is that your old employer would stop contributing, and your new employer will be informed of your account details, and will continue contributing on your behalf.
Taking an early retirement is also something that a lot of young workers consider today. People in very high energy professions like banking suffer burn outs and fatigue after years of working, and wish to retire at about 45 years or so to settle for a less demanding personal or family business. Decisions like this are becoming increasingly popular. People should plan adequately towards an early retirement, and where they want to run a private family business, should thoroughly research it, so that it doesn’t become another high-stress activity like their previous employment was.
The Act also makes provisions for the following two scenarios:
- An RSA holder who disengages or is disengaged from employment before the age of 50 years and is unable to secure another employment within four months of such disengagement is entitled to 25% of the RSA balance in order to cushion the burden of not being in employment. Such an individual, after obtaining another job, can continue with the RSA. If there is no further employment, the individual will have to wait until he/she is 50 years of age before being allowed to access the remaining RSA balance.
- On the other hand, an RSA Holder who has willingly retired before the age of 50 years will not be allowed to access the RSA balance until they attain the age of 50 years, except such an individual is employed in the private sector, where the policies of that particular company allows for a retirement age of earlier than 50 years. In this case, the RSA Holder will be considered a normal retiree and will also be allowed to access the RSA Balance based on any option he/she chooses.
Another issue that comes to mind regarding retirement planning while you work, is death-in-service, as well as death during retirement. The Act also provides that where a contributor dies during employment, the balance in his RSA will be transferred to his known beneficiary as named in a Will, his/her spouse or children, his named next of kin, or the administrator of his/her estate as determined by the probate registry. The same provision also applies to retirees who have started receiving retirement benefits through a programmed withdrawal, and die. This provision of the Act makes it uniquely different from the administration of retirement benefits under the old public service scheme, where pension payments cease and are not made to a retiree’s beneficiaries at their death. The Act also provides that employers provide a compulsory life insurance cover for each employee for up to a minimum of three times the employee’s total emoluments. The proceeds of the life insurance will also be paid to the employee’s beneficiaries, at death.