When we talk about pension schemes, many people only think of occupational ones organised by employers.
Little do we realise individuals can arrange one for themselves.
On a particular accession, I was in the company of my boss who asked me, on a personal note, whether I had joined a pension scheme.
His concern was from the fact that my job was contractual, hence by its nature, I was paid gratuity each time it expired every three years.
He shared with me on the need to start saving for my life after retirement now when I still had the energy to run around.
He went on to say many people have failed to live a decent life after their working life because they did not plan while still working.
This was not just wise counsel but true in most cases.
With all due respect to retirees, their social wellbeing could have been enhanced if they planned well through pension schemes.
One may be asking why one should bother joining a private pension scheme if they already belong to an occupational one.
There are two angles we can take to answer this question.
Firstly, we need to establish that occupational schemes are arranged according to the income levels of someone.
That being the case, one may not be contributing enough to the scheme and as a result his pension may be unable to meet his expenditure after retiring.
There are predominantly two types of pension schemes namely: Defined Benefits and Defined Contributions.
Over 80 per cent of pension schemes in Zambia are defined contributions.
This means one cannot tell exactly how much they will be receiving when they retire as opposed to the defined benefits scheme.
The former is totally dependent on the investment returns from the contributions of members which may either be by the employer only or both employer and employee.
You can see that belonging to an occupational pension scheme is no guarantee of a ‘hefty’ because one does not know exactly how much they will receive hence having a private scheme complements the occupational one, i.e. to those who belong to one.
Personal pension schemes can be arranged by individuals who may not be satisfied with the benefits offered by statutory or occupational schemes.
New developments within the pensions industry are umbrella pension or retirement schemes.
Simply put, an umbrella retirement fund is a single fund in which different and unrelated employers (and their employees) participate.
An umbrella fund is particularly attractive to small employers such as small and medium enterprises, who cannot justify a stand-alone fund for their employees, and who can benefit from economies of scale by risk pooling.
Secondly, pension schemes are only accessible to those who are employed on a permanent basis.
Therefore, those on contract have no pension scheme arranged by their employer.
That gap necessitates the need to have private schemes.
Another point worth noting is that unlike in an occupational scheme where the employer decides how to arrange a scheme, a private one has to be decided at individual level.
This gives such a person the liberty to choose a viable pension scheme which has potential to earn better returns.
Arranging such schemes creates guaranteed income when one retires. The major challenge we face is that we pay little attention if at all to life ahead of us.
Like I belaboured to share in the two previous articles, as Africans we are too consumption oriented.
We want to consume everything today without much thought about tomorrow.
Arranging personal pension schemes is prudent planning for the future. This can also be done by the self-employed or those not in formal employment.
Well, I like what Sun Tzu, a Chinese warrior and philosopher wrote more than 2,000 years ago in his book, ‘The Art of War’ translated by Thomas Clearly that “Plan for what is difficult while it is easy, do what is great while it is small…..”
Comments: webster@picz.co.zm or webster_tj@hotmail.com or on face book search for Insurance Talk-Zambia page or call/text 0977 857 055 [The Author is a Chartered Insurer with 12 years industry experience]