Analysis: MAXWELL PHIRI
I WOULD like to appreciate and recognise the great work pension schemes are doing in Zambia especially National Pension Schemes Authority (NAPSA), Public Service Pension Fund (PSPF) and other major players dealing with various schemes.
Pension houses are mandated to ensure that retirees are in safe hands after their tour of duty in their respective services.
Equally, kudos to employers who have been very faithful in remitting their pension contributions on behalf of their staff on monthly basis to respective pension houses and hence making retirement a reality to the gallant men and women, who I call the Human Retirees Capital (HRC) and have spent many years in various fields serving this nation.
Having elaborated about the pension of our old folks, however in today’s article, I would like to focus and charge the millennial work force (these are workers whose proposed birthdate is between about 1980 and 2000).
Seasons change and so do the dynamics of the economics of every country. I would like to emphasise to the millennial workforce that despite having a leg in the statutory pension schemes such as NAPSA, PSPF and other pension house in the country, it is advisable to have a separate pool of personal funds, which should be established to ensure that you secure your retirement. All you need is to set aside 10 percent of your income through a bank standing order on monthly basis to a personal retirement scheme account.
I am not in any way suggesting that you stop remitting to statutory pension houses, all I am encouraging you is to have a supplementary personal scheme run independently with a view of firming up your pension security, which you will be dearly in need of when you retire.
You cannot do away with the statutory pension schemes if you are in formal employment because one of the major benefits is that the employer is mandated to contribute to the statutory scheme on your behalf a certain factor of your basic salary.
It is worth noting that pension has been classified into a three-pillar model. Let me briefly describe the three-pillar system which underpins the general model of pensions:
• The first is the State-run public pension that is part of the social security system. In principle, it aims to provide a minimum income, is based on solidarity and is normally financed on a pay-as-you-go basis, without constitution of large reserves;
• The second is the supplementary pensions provided collectively by firms or socio-professional groups. It aims to provide a deferred income in addition to the first which offers a sufficient rate of replacement of earned income.
• The third pillar consists of all the savings put aside by an individual for his old age. These are personal savings that need to be distinguished from precautionary saving for a nearer future.
My interest is the third pillar to millennial workforce, which is made up of purely individual savings towards retirement savings. If you start early with your monthly personal savings towards the third pillar, compound interest will work to your advantage.
Any savings is savings, and saving even relatively small amounts of money establishes the habit and the process.
Many brokerages now offer no-minimum, no-fee retirement accounts. You can get as little as K100 or K250 deposited into your retirement account.
It is important to look at retirement saving as a non-stop, life-long habit. It can be tricky to scrape together the cash to make a contribution. Do not set yourself up for failure. Save a little each month, ideally using an online or bank standing order to credit your retirement account, which can be held by the insurance firm or any viable private insurance firms on the market.
The idea of accumulating hundreds of thousands of funds in a retirement nest certainly can seem intimidating. Here are a few more points about retirement savings strategies:
• How much money you will need to save for retirement will depend on your desired standard of living, your expenses and your target retirement age.
• To determine the size of the retirement nest you want, you will need to:
1) Decide the age at which you want to retire.
2) Decide the annual income you will need for your retirement years.
3) Add up the current market value of all your savings and investments.
4) Determine a realistic real rate of return for your investments.
5) Obtain an estimate of the value of your company pension plan.
6) Estimate the value of your social security benefits.
Retirement is personal and leaving it in the hands of the employer alone may not yield the necessary of expectations of a smiling retiree.
As a millennial worker, start supplementing your statutory pension with personal saving towards your retirement with your first income. There is life after retirement awaiting!
For the millennial workforce, I say keep the dream alive by ensuring that you start your personal savings for retirement early, besides the statutory savings.
Remember my passion is not to see you retire destitute and financially broke, but retire as a smiling retiree.
The author is director – human resources and administration at Rural Electrification Authority.
Analysis: MAXWELL PHIRI