Retirement conversations can be extremely daunting, regardless of where you are on the retirement journey or ‘timeline’. For young professionals starting out their careers, saving for retirement is not a priority because they believe there’s still enough time to save – why worry about it now? For people retiring in thirty-six (36) months or less, the uncertainty and anxiety of ‘what’s coming next?’, ‘have I saved enough?’ or ‘what will occupy my time after I retire?’ is stressful.
Why are retirement conversations important?
Retirement benefits provide income security when retirees leave their professional jobs and transition into a new post-retirement life. To build up enough capital to retire financially secure, it’s imperative to have retirement planning conversations early, save and avoid money mistakes such as cashing out retirement benefits. Retirement should be bliss for retirees, a time to re-discover life post retirement, sadly, however, estimates indicate that only six percent (6%) can afford to retire financially secure, which is very concerning. Because of lack of knowledge, inadequate retirement savings and pre-retirement planning, the reality of retiring financially secure is rather bleak.
Because pension funds are among the most complicated things to understand, the retirement series will focus on simplifying the financial jargon, spark conversations that will help Basotho better understand and prepare for retirement. In truth, the responsibility to plan and retire financially secure lies with you and not the employer. So, where do we start?
There are different types of retirement funds to consider for example occupation funds and non-occupational funds.
What are occupational funds?
These are retirement funds established by an employer to provide retirement and risk benefits for employees. Both the employer and employee must contribute a certain percentage e.g., 12.5% and 7.5% respectively toward the employee’s retirement fund – what is called a defined contribution (DC) fund.
For occupational funds to exist, there a must employer-employee relationship and can either be a pension or provident fund. Depending on the rules of the fund, a pension fund allows you to receive up to thirty-three (33%) percent paid cash as a lump and sixty-seven (67%) to buy an annuity (pension income) when a member retires. A provident fund provides hundred percent (100%) of the benefit when you retire or allows you to use part of it to buy an annuity. Both pension and provident funds have advantages, disadvantages, and applicable tax implications to consider.
Non-occupational funds
Non-occupational funds provide individuals the opportunity to save for their retirement. Unlike occupational funds, there is no employer-employee relationship. Individuals can save for their retirement or increase voluntary savings using funds such as the retirement annuity, preservation or beneficiary funds offered by asset management and insurance companies. Both occupation and non-occupational funds must be registered and licensed by the Central Bank of Lesotho (CBL).
Because the responsibility to ensure you are saving enough for your retirement lies with you, let’s have more retirement conversations. I encourage you to educate yourself about the different funds and understand how they impact your retirement planning. Speak to your human resource officer about the type of fund you’ve joined or visit www.alliance.co.ls for more information.
