Pension always important, even in construction
After a few years of economic downturn and large-scale retrenchments, discretionary income is possibly almost non-existent after average Joe has paid for the necessary cost-of-living expenses, and possibly supported his or her next-of-kin with buying their groceries and covering other expenses too.
“However, it begs the question as to whether one should not for a short moment consider the implications of not “paying oneself first”, said Mr Enwich Kazondu, principal officer of the Namibia Building Workers Pension Fund (NBWPF). “It is really important to put money aside for when one is retired, even if it is just a little bit”.
Without any provision for retirement, it would make it very difficult for most to maintain their standard of living once they are retiring. In the financial services industry, one often refers to the 80 percent rule, which practically means that ideally one should have enough retirement savings that allow one to have a monthly income available that would be between 80 and 85% of what one is earning pre-retirement. That would mean, that if one’s monthly income was N$5000 before retiring, then one would have to have between N$4000 and N%4500 per month at one’s disposal during retirement.
“Considering that the old age pension for citizens over 60 in Namibia is NAD1400 per month, it is therefore critical, that everyone plans effectively and builds a large enough nest egg , to avoid that being left destitute and vulnerable at the end of their working life,” said Kazondu.
“However, we know there is a degree of scepticism about putting money aside and paying into pension funds. This possibly has to do with the previously announced legislation which had stipulated that 75% of benefits required to be preserved until after retirement. However, this is not enforced. On the contrary, members of the NBWPF can indeed have their fund credit paid out if they resign or are retrenched, which however would have tax implications.
“At the same time, there might be a general lack of understanding of the benefits of paying into a pension plan. On the one side, if the pension fund is provided through an employer, the employer would have to match the employee’s contribution and no tax would have to be paid on these contribution, as they are deducted before being taxed on one’s salary.”
“In the case of NBWPF for the construction sector, the employee pays 4% of his or her pensionable salary and the employer makes an equal contribution of 4%. Therefore, it is important to recognise that this benefit actually increases the value of one’s overall package”.
Regardless, there are some who feel that their money is not safe and that they prefer to have much easier access and oversight. Some pension funds, globally, fell also into disrepute due to their underlying investment decisions that were not prudent. However, that should not undermine the principle value of making use of pension funds to make provisions for one’s retirement.
Nevertheless, if the discretionary income is limited and managing one’s daily life becomes a balancing act, the first thing might still be to put some money aside in the case of emergency into a so-called emergency fund, and to pay off any high-interest bearing debts.
“We need to really become more aware not only of our current financial needs but also about what we can expect our spending needs to be in the future, when we are no longer earning an income. It is really a tough call to make, considering our current economic environment. But we always need to remember, it is never too late to start putting money aside. At the same time, the sooner one starts – even very early in one’s work life – the better, as the benefits of compound interest over the years, will do their work.
“Yes, we are also aware that pension fund contributions are not the only way to make sure that one has enough to live comfortably when one retires. Although pension funds are an optimal vehicle for what one aims to achieve, there are other options as well, but these are best to be part of an overall personal financial strategy, and it may well be prudent to seek advice from an independent financial advisor.”