Economic Growth

Pension is a sum assured to employees at retirement who ought to have dutifully used their active life in labouring for an institution. It acts as a form of social security that provides retirement income security against old age poverty, economic inequalities, and other uncertainties. Employees who have worked in a given organization for some years earn some benefits payable to them by their employers at retirement, such as either a pension or gratuity.

Pension payments are from pension funds or schemes, which are programs that act as a medium for income redistribution among the aged or retirees after a specified number of service years. In some countries, particularly the developed ones, pensions are usually spread to other classes of individuals aside from the retirees, like the ageing population and the dependants (widows and orphans) of a primary income-earner in a household in the unlikely event of death or invalidity. Pension plans established are to protect the above group of people against old-age risks, poverty, and other uncertainties. Further, they facilitate a saving culture among current workers to boost national savings.

Extensive research revealed that only a few people in a country would readily act on how much to save towards retirement. Most individuals do not recognize the significance of saving for a pension in the initial stage of their working lives since they cannot see themselves in old age. They set different preferences, such as raising their youngsters, schooling, housekeeping, etc. Thus, they tend not to save towards retirement willingly or usually begin saving almost later in their lives. Moreover, because some individuals tend to underrate their life expectancies, they keep a small percentage of their earnings for pension. Therefore, even when they decide to begin saving early in their working lives, they do not earn enough to fund their needs in old age and turn to seek governmental support or count on their relatives for their needs.

Such reasons are why several governments globally have designated mandatory pension systems to push their locals to save towards retirement. These pension savings are not the usual investment action since most individuals trust the management and administration of their funds for a long time (15 or more years in the case of Ghana), expecting to obtain a regular source of earnings when they retire at old age. Thus, pension management has been a crucial topic for most states, businesses, and the globe due to the financial, demographic, and other inherent promises in Defined Benefit (DB) schemes.

In Ghana, contributing to a pension scheme is mandatory for all formal workers, and, though optional for informal workers, they are advised constantly to sign up for a pension scheme to secure their future with a smile. The pension funds raised are invested in several investment instruments, which reflect the various sectors of an economy.

The importance of pension funds in economic growth cannot be over-emphasized. The long-dated nature of these funds makes them best suited to be deployed to a business for it to go through its entire growth cycle, giving shareholders maximum returns and contributing immensely to the nation’s development. The various investment options available for the deployment of Pension Funds all have a direct or indirect positive impact on the economy. The traditional investment options, mainly the fixed Income and equity markets, if opted for, give individuals and companies the much-needed funding to either expand their operations or serve as an ever-reliable investment option whose returns go into making lives better.

The real estate market thrives on long-dated funds due to the capital-intensive nature of the sector and the high cost of consuming the finished products (homes) by prospective clients. With long-dated funds available, both developers and consumers have the time to better deliver on their respective expectations. Through carefully studied data and literature, it could be said that the biggest beneficiary of Pension Funds should be the alternative investment option. This option gives investible funds such as Pension Funds the option to invest in various sectors of the economy, with these investments going directly into the development of the economy. The pension sector remains one of the best contributors to the development of the economy, though it must be said that it also carries commensurate risk. Risk-mitigating factors put in place make it the sector with potential returns for investees.

Therefore, Alternative investments ought to be given much more attention, as they serve well the role of pension funds in economic development. In all, Pension Funds are that piece that not only completes the growth and development of a nation but also helps sustain it.

Written By: Ms. Joyce Shardey