“We live in a cash economy and therefore we need money to survive. A pension is necessary because old age comes with the challenge of being less productive. This means our ability to wake up every morning to go to work decreases, so a long-term financial plan is a huge necessity,” said Business Associate at Money Matters Pensions and Financial Consultants Thuto Morekisi.
According to Morekisi, a pension is income one receives when they can no longer earn a salary due to advanced age, an income for life!
Although many people believe that a pension is only possible when one has had a monthly paying job, Morekisi cleared the misconception by saying: “Local Pension Administrators have certain pension products which can be funded periodically to achieve the desired annual contribution by the end of the financial year”.
“There are two main variations of pensions worldwide. Defined Benefit Pension Funds are Final Salary Schemes where the employer defines the benefit payable at retirement taking into consideration the years served and the final salary used against a numerical factor. Defined Contribution on the other hand is a Money Purchase Scheme where the employer defines the contributions made into the plan. The Money which in this case is contributions plus interest minus expenses is then used to purchase an annuity or a pension,” Morekisi said.
Morekisi also highlighted that “Pension Funds operate within strict regulatory environments which go a long way in protecting the assets of members.” However, he said the real concern is that of Governance. “Weak governance structures can allow abuse of member funds resulting in lower pension payouts,” he advised.
Morekisi said individual investing in Personal Pension Plans in Botswana is impressively good. “This could be even better if more comfort was given to the investor through annual benefit statements and electronic access to allow personal monitoring of their fund growth,” said Morekisi. He feels the time is now overdue for government to introduce mandatory pensions by each employer unless a social security system is put in place because we all need an income in retirement, even before age 65.
“Pension Funds belong to a wider group of investments called Retirement Funds. It would be an incomplete narrative if we fail to mention Provident Funds which are the flipside of pensions in that one receives their full pot of cash at the date of retirement instead of a steady monthly payout for life as with the pension,” he concluded.