Pensions fall short of securing retirees� future
Isaac Pinielo | Friday March 3, 2017 15:54
Many financial experts at the recent BPS annual conference said a retiree needs between 60% and 70% of his final salary as a pension in order to maintain their lifestyle.
“This target pension ratio, referred to as a ‘replacement ratio’ is expected to be enough for the retiree provided he has no debt and no dependants at their date of retirement,” says BPS chairman, Peter Hikhwa.
He takes his cue from South African retirement expert, Bruce Cameroon who holds the view that an average person in South Africa retires at 61 with a monthly pension equal to 29.6% of their last pay cheque.
In Botswana, it is estimated that fund members retire at 52 on average, with a pension equal to 30% of their final salary.
Given that locally, the average ‘replacement ratio’ is extremely low compared to the ideal ratio, Hikhwa calls for focus on how the existing situation can be improved.
“In seeking a solution the question that should be posed to the boards of trustees and other concerned stakeholders, is what measures can be taken to improve or eliminate the problem,” he said. In an attempt to provide a general answer, Hikhwa said trustees have to realise that the single most important objective of a retirement fund is to ensure that the member retires comfortably. He said this therefore means that all parties involved in the management of a retirement fund must be cognisant of this fact, as well as direct their focus to the member.
Director in the retirement funds department at the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), Bopelokgale Soko is of the view that the pension systems need to provide adequate, affordable, sustainable and robust benefits.
“The main objective of pension is to provide members with income during the post employment period,” she said.
She concurs with the World Bank when it says, “All people regardless of their level or form of economic activity must have access to benefits that are sufficient to prevent old-age poverty on a country-specific absolute level.”
According to Soko, pension coverage in Botswana is very low, noting that from a working population of 1.1 million only 237,482 people are covered. She said in order to address issues of adequacy, coverage and sustainability, pension systems must be a shared responsibility of government, the private sector and the individual. “Government is required to provide basic pension for every citizen and employers are required to create a pension system for their employees, normally funded by both the employer and the employees,” she said.
In addition, Soko said there is need for an individual pension system where individuals are required to provide additional voluntary contribution. She said government will cover the unemployed and the poor, private sector or employers will cover the employed.
She said the pension incomes should enhance the adequacy of the pension income.
Soko further indicated that the legislation places the responsibility of managing the pension funds to ensure adequacy of the pension income on trustees, noting that trustees are required to manage the pension funds in the best interest of the members.
“Contributions are one of the main role of the trustees that directly affect the level of pension savings and ultimately the pension adequacy,” she said. She also called for extended contribution periods on pension funds as they may lead to adequate pension income.
According to Soko, Botswana should emulate Singapore, which has increased retirement age to from 65 to 67 years in 2017 and provides incentives for employers who have employees of over 65 years.
Mosimanegape Molefi of Kgori Capital said it is important to realise that members have expectation of a lifestyle in retirement.
He decried that pre-retirement advice and information is important but not availed enough. He said a study by HSBC Personal Banking and Online Banking shows that 27% of pre-retirees never received advice or information about retirement.
“We need to appreciate that forms of advice are formal and informal including family & friends, professionals, media, books and online,” Molefi said.
He said informal forms of advice and information are mainly as a result of insufficient advice from formal sources, view that advice and information from formal sources is too complex, and natural tendency for members to compare their benefits against each other.
He noted that informal advice or information creates risks for members and their beneficiaries as each individual’s retirement circumstances are unique.