Retirement

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The Retirement Concept

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In this period of uncertainty, where we have been recently hit by a pandemic, which has caused the lives of many, an economic crisis, which has affected people’s lives through higher unemployment and reduced or loss of income, and a domestic debt exchange program, that has left several bondholders devastated and could collapse several businesses, it has become mandatory for everyone including you to re-look at their finances in the short and long term. The big question now is: “How prepared are you if today was the last day you could work and were forced to retire today?

To answer the question, if you haven’t thought about retirement yet, then the time to do so is now. If you are in your 50s or 60s, it’s your reality check. And if you are in your 30s or 40s, it is your wake-up call. Don’t wait to get closer to the retirement age of 55 or 60, as in the case of Ghana, to start planning.

In the planning process, do not forget to consider your life expectancy, that is, how long you would like to live before death. Don’t be deceived into thinking that retirement is linked to only old age. You could be forced to retire due to invalidity or unemployment.

Writer: Ms. Joyce Shardey

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Eric Boampong: Young professionals should consider personal pension plans

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In Ghana, the need for retirement savings has become increasingly crucial for young professionals. Traditional investment options such as bank savings accounts, bonds, and mutual funds do not provide adequate returns to meet the high cost of living during one’s retirement period. This is why personal pension plans have emerged as a more attractive option for young professionals in Ghana.

In this article, we will explore why personal pension plans are a better option for young professionals than traditional investment options and what the data from statistical services and regulators say about the topic.

First, personal pension plans offer young professionals a more secure and stable investment option. Personal pension plans’ risk has a diversified portfolio that mitigates market fluctuations risk. The contributions to personal pension plans are invested into a wide range of investment portfolios, which professional Fund Managers manage.

These portfolios provide a higher rate of return over time, as opposed to traditional investment options, which only offer low interest rates. Personal pension plans also provide life insurance coverage, a significant benefit for young professionals looking for a comprehensive investment option that protects their families in the event of their death.

Under Section 112(5) of the National Pensions Act,2008 (Act 766) as amended,  “A withdrawal of all or part of a contributor’s accrued benefits under a provident fund or personal pension scheme (a) on or after retirement shall be tax exempt; (b) shall be subject to the appropriate income tax for contributors in the formal sector before ten years of contributions and before retirement; (c) shall be subject to the appropriate income tax for contributors in the informal sector before five years of contributions and before retirement.”

In Ghana, personal pension plans offer a tax-free option for retirement accounts. This means that contributions to personal pension retirement accounts are exempt from taxes, and any interest or returns generated by the investment portfolios are also tax-free.

This is a significant advantage over traditional investment options, which are subject to taxes on the returns generated. Young professionals looking to maximize their retirement savings should consider personal pension plans as a tax-effective investment option.

Moreover, personal pension plans offer flexibility and convenience in managing retirement savings. Young professionals can easily access their accounts online and monitor their investments anytime. Depending on their financial circumstances, they can also contribute monthly, quarterly, or annually to their personal pension plans. This flexibility makes it easier for young professionals to manage their retirement savings and stay on track to meet their financial goals.

The data from statistical services and regulators also supports the argument that personal pension plans are better for young professionals than traditional investment options. According to the National Pensions Regulatory Authority (NPRA), personal pension plans have recorded higher growth rates than traditional investment options, such as bank savings accounts and bonds. For example, the average return on investment for personal pension plans was 12% in 2020, while the average return for bank savings accounts was only 4%.

This demonstrates the higher rate of return that personal pension plans offer, which is particularly important for young professionals looking to grow their retirement savings over time.

The data also shows that personal pension plans have a higher participation rate than traditional investment options. In 2020, the number of personal pension plan subscribers increased by 15%, compared to a decline of 2% in the number of bank savings account holders. This demonstrates that young professionals are increasingly recognizing the benefits of personal pension plans and are choosing them as their preferred investment option for retirement savings.

In conclusion, young professionals in Ghana should consider personal pension plans as a more secure, flexible, and convenient investment option for their retirement savings. With higher rates of return, tax-free benefits, and easy access to investment portfolios, personal pension plans offer a comprehensive solution for young professionals looking to secure their financial future.

There is data from statistical services and regulators that support the argument that personal pension plans are a better option for young professionals than traditional investment options. Young professionals who want to take control of their retirement savings and ensure a comfortable standard of living in their golden years should consider personal pension plans as their preferred investment option.

Source: myjoyonline