Whose
interest do you serve? Is it your own alone or that of your own and that of
your fellow?
Day after day, toddlers become teens. Month after
month, teens become adults. Year after year, adults become old. In a natural
system of human life, man passes through stages of life from birth to death.
Living life without planning as a human being makes
the ant that stores food during harvest seasons and has enough to eat during
drought, a wiser animal. We cannot but must accept that as mortal beings, we
would grow old and a time will come when we would not be able to work actively,
hence we should store some “food” for consumption when we become old. Many,
however, would like to consume everything today, saying that life is all about
today and adding that tomorrow will bring its own.
In the civilized world of man, leaders of some
countries like the United States of America instituted some financial schemes
that they thought would help workers of various organizations in their country.
This began in the industrialization age and most of the decisions of these
so-called financial schemes purported for the benefits of the contributors were
taken by the-powers-that-be mostly without the knowledge or involvement of the
supposed beneficiaries. These financial decisions most probably were taken with
utmost good faith for the beneficiaries but as man is getting complex every
minute, the decisions that were taken by politicians became and backed by laws
that do not catch up with the complexity of entrepreneurs and the-fast-changing
spirits of entrepreneurs with a zeal to innovate and come out with something
new every minute. Entrepreneurs have been always outwitting politicians and
that is why politicians are called bureaucrats. Entrepreneurs are intelligently
sophisticated and dynamic.
Governments would always come out with decisions
regarding the citizenry but not all of these decisions would be beneficial to
the well-being of the people.
Governments all over the world have realized that the masses always
depend on governments for many decisions. Even personal decisions that affect
them directly and government has no clue whatsoever, they want government to
take those decisions for them and in that case government, being a political
setup that needs power every year, would try to do something for the people and in
trying, governments mostly end up taking some of these decisions. Such
decisions look good superficially but in the long run the people get
shortchanged but the laws would have been established and could not be changed
easily especially where governments now become the beneficiaries, then those
laws would stay in the statute books for zillion years.
The institution of occupational pension schemes
could have been a blessing the way it began. It was completely different from
how it is done today in the 21st century and beyond.
Social
Security Contributors
“I didn’t know that painters and writers
retired. They’re like soldiers – they just fade away.” (Lawrence
Ferlinghetti)
In Ghana, social security contributions are done by
the employer, which contributes 13% percentage and the employee, which
contributes 5.5% making a total of 18.5% to the fund for the benefit of both
the employee and the employer. You would understand how the employer,
especially the government actually, greatly benefits even more than the
employee as we go along.
Who
benefits more, Employee or Government?
We are made to believe that the 13% contributed by
the employer is not your money but money from the employer, so it is given to
you free of charge. Do we have anything free on earth? If it is that free then
why don’t they contribute some for the destitute in the streets, who need some
financial help but do not get? I know you would say the laws do not allow that,
but why don’t they make the laws to allow for that? It is because, the employer, the government
for that matter is the greater beneficiary, it has conditioned you to believe
that it is seeking for your best interest but indirectly it is seeking for its
own interest for more money from you in various ways to spend on productive and
unproductive ventures.
The truth is that the total of the 18.5% is the
employee’s money yet many employees are ignorant of this and keep saying that
my organization contributes 13% for me. The Bible says for lack of knowledge
people perish. Since the masses always refuse to learn, they would always lack
knowledge in many areas that do not require even in-depth learning. Social
security contribution is another form of tax and it is the employee’s money
that is being taxed. It cannot therefore be true, that it is the employer that adds
the 13% free of charge. It is a form of tax deducted and some given back to you
later down the years when its value would have been devalued by inflation and other
economic money eaters.
Now, the law in many countries says, though, it is
your own money you are contributing, you cannot touch it till you are old
enough to be wise to handle that much before some percentage is given to you to
go home to waste it by returning it to them or till you are in your grave so it
could be given to someone you chose or did not choose to waste it and return it
to them.
As you contribute the money for many years before
some part is given back to you, government gets paid monthly by you to help it
embark on some projects; let’s say investment projects purported to increase
the value of your money. However, in occupational pension scheme laws, most
contributors do not get increased returns in the form of compound interests,
yet their money would be used for investment projects that yield compound
interests. Who gains more?
Lump
sum given to contributors without training
I keep asking the question, why is it that money is
being kept aside to be given to people later in life but these people, who
would be the beneficiaries of the money, are not given some kind of training on
how to manage their hard-earned money?
Once, some lump sum would be automatically given to
a contributor later down the years then some training should be given to such a
person periodically to help him/her make wise use of the money in order to live
a dignified life if that was the real purpose for which it was contributed.
Training in Entrepreneurship and Financial Literacy
is not given to these people and all they do is leave their money with the
banks that give them peanuts as interests or they people would try to invest
into projects that they never have knowledge about them and later fail
woefully. I have learnt there is no bad investment, but there is a bad investor.
You cannot wake up and invest into any venture that you do not know inside out.
You would fail badly.
While, no knowledge is gained in Financial Literacy
and or Entrepreneurship and other critical every day subjects, people retire
and within a short time all their retirement money is given back to governments
through ignorance and lack of training on money matters. Who benefits more?
Provident
Fund
Under the new Pension Act in Ghana, provident fund,
which is a voluntary fund contributed by the employee and again by the
employer, though actually contributed by the employee is also given to fund
managers to manage for contributors.
I do not know why those who copied this old thing which
seems new in Ghana think it is the best for Ghanaians? Many employees in those
countries that first introduced these schemes know very well that it is never
the best way for them. Their own money is handed over to third parties by the
powers of some laws while they stand somewhere and watch their money being manipulated
by outsiders. If they want to withdraw their money before five years (informal
sector) or ten years (formal sector) as is the case in Ghana now, then taxes
are paid thereby tying many not to withdraw because the law says that you would lose once you withdraw before
these years depending on the sector you find yourself. Why should people be
restricted to getting their own money that they have voluntarily contributed?
Once, social security is said to be handled by
governments on behalf of the contributors and governments are supposed to seek
for the best interests of the citizenry, it would be assumed decisions of
governments would favour the masses. Though most governments’ decisions do not
favour the masses, and it is not surprising that governments are changed often
through elections or illegal violence in many countries because the people feel
unhappy about governments’ actions and inactions.
What about private entities that are licensed by the
governments to collect these provident funds from organizations to manage them
for their contributors. Provident fund, being a private initiative and
voluntary contributory fund should not be tied to government laws that take
years to change. Everybody knows that laws enacted do not changed easily and
take time and some even remain in the statute books forever, though man does
not live forever. God has made change permanent; yet man has refused to admit
that change is permanent.
Provident fund is by law in Ghana supposed to be
managed by pension fund management companies licensed by the National Pension
Regulatory Authority (NPRA), yet no option is given to organizations that even
have competence, expertise and financial intelligence to manage their own
funds.
Governments
in Control
The National Pension Regulatory Authority (NPRA) has
been set up by a parliamentary act to help pension fund management companies to
manage tiers 2 and 3 as the Social Security and National Insurance Trust
(SSNIT) manages the tier 1. All
pension manager companies would have to be legally licensed by the NPRA to be
able to operate as pension fund managers. As these companies pay for licenses
that are renewable then government would continue to regulate them by charging
them increased license fees.
The fund managers, being financially literate, would
pass all these costs to the employee or the contributor in the forms of fees.
The employee would now help create jobs for many people and especially the fund
managers and that is how come fund manager companies have sprung up since 2010,
as the act was passed in 2008,but gave one year, 2009 as grace period for
onwards transmission. Many pension fund manager companies have been set up
recently to compete to manage cheap funds from contributors but as to whether they
all have the technical know-how and financial intelligence to manage the
employee second and third tiers, only time will tell.
Greatly, government is in control and those pension
fund management companies that would mess up would be punished and made to pay
huge penalties to the government and that would be that another source of some
kind of revenue for government, as many are expected to do well not for the
real benefits of the contributors, but their own survival, the government would
continue to be the greatest beneficiary, as the funds are controlled by
organizations being controlled by the government.
We know that where you have no control over your own
money or asset you have no real say about its use or misuse. The employee, who
actually owns the funds, is being mandated by this new pension act to:
·
Know
information about your payroll deduction arrangements with your employer.
·
Know
how much is deducted from your contribution or how much contribution you pay to
the scheme.
·
Know
contact details of trustee of scheme, such as name of representative of
company, phone and fax number and email.
These are all the employee needs to know, not even
do but only know, yet without the employee working, all the other stakeholders
cease to exist. How come, the one supposed to be the most powerful is being
relegated to the ground? These three bullet points above do not say anything about
the real interest of the employee and these do not empower the employee to take
decisions on his, own sweat, his own money.
Contributions are done individually according to
each basic salary, yet the individual has no power to take decisions on the
money he/she alone has contributed, those, who did nothing for the fruition of
the cash are the ones, that even have power and authority to decide for the
employee. The absolute power should have rested with the contributor to decide
what s/he wants to do with his/her money but the irony of man-made life is what
prevails.
Types
of occupational Pension Schemes
“It appears history is going to keep happening, despite our
hopes for retirement.” (Gregory Maguire,
Out of Oz)
Defined
benefit plans
According to Wikipedia “A traditional
defined benefit (DB) plan is a plan in which the benefit on retirement is
determined by a set formula, rather than depending on investment returns. A
traditional pension plan that defines a benefit for an employee upon
that employee's retirement is a defined benefit plan. In the U.S., corporate
defined benefit plans, along with many other types of defined benefit plans,
are governed by the Employee Retirement Income Security Act of 1974 (ERISA)
Traditionally, retirement plans
have been administered by institutions which exist specifically for that
purpose, by large businesses, or, for government workers,
by the government itself. A traditional form of defined benefit plan is
the final salary plan,
under which the pension paid is equal to the number of years worked, multiplied
by the member's salary at retirement, multiplied by a factor known as the accrual rate. The final accrued
amount is available as a monthly pension or a lump sum, but usually monthly.
The benefit in a defined benefit pension plan is
determined by a formula that can incorporate the employee's pay, years of
employment, age at retirement, and other factors. A simple example is a Dollars
Times Service plan design that provides a certain amount per month based on the
time an employee works for a company. For example, a plan offering $100 a month
per year of service would provide $3,000 per month to a retiree with 30 years
of service. While this type of plan is popular among unionized workers, Final
Average Pay (FAP) remains the most common type of defined benefit plan offered
in the United States. In FAP plans, the average salary over the final years of
an employee's career determines the benefit amount.
Defined Pension Contribution
Defined Pension Contribution
“Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined. A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula which usually depends on the member's salary and the number of years' membership in the plan. A defined contribution plan will provide a payout at retirement that is dependent upon the amount of money contributed and the performance of the investment vehicles utilized.”
“Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans. Such plan designs have become increasingly popular in the US since the 1990s.”
Defined
contribution plans
Wikipedia again explains that “In a defined
contribution plan, contributions are paid into an individual account for each
member. The contributions are invested, for example in the stock market, and
the returns on the investment (which may be positive or negative) are credited
to the individual's account. On retirement, the member's account is used to
provide retirement benefits, sometimes through the purchase of an annuity which
then provides a regular income. Defined contribution plans have become
widespread all over the world in recent years, and are now the dominant form of
plan in the private sector in many countries. For example, the number of
defined benefit plans in the US has been steadily declining, as more and more
employers see pension contributions as a large expense avoidable by disbanding
the defined benefit plan and instead offering a defined contribution plan.”
The
Future of occupational Pension Schemes
“A
corporation's responsibility is to the shareholders, not its retirees and
employees. Companies are doing everything they can to get rid of pension plans
and they will succeed” (Ben Stein)
As we live in the information age and information
abounds away from just a tap on a button, people get easily informed through
various means of sharing information.
This century is the beginning of mass
entrepreneurship where everyone would be their own employers and people would
determine how much they would want to pay themselves. As people determine how
they want to pay themselves, they make sure they would not pay huge sums of
money monthly or periodically to organizations they do not have control to
manage the cash for them.
The amount of pension occupational contributions
will reduce as people get financially wise by knowing that the best people to
take control and decisions on their hard-earned cash are they, themselves. Once
the people have the power to determine how much to pay themselves, they would
give themselves small basic salaries and pay small social security
contributions, so that they could plough back what is left into their
businesses for growth and expansion for better returns.
Again, until people feel that they are getting the
value for their money as contributors and be content with the services of
pension fund managers old or new companies, people would find legal means of
contributing meager amounts as social security for themselves and keep back the
bigger part in their businesses for better investments to yield more income.
It is a known fact that even today, in 2014 many
organizations, even government institutions, some autonomous, some
semi-autonomous are not paying social security contributions of some members of
staff, they being permanent or temporary staff. Many private companies are even
doing worse even in 2014, many companies do want to be paying these
contributions and want to employ workers as contract staff, being renewable or
not. When would it become convenient for employers to want to pay for the
social security contributions of their members of staff?
Organizations are now adopting ways and means of
cutting employee costs to the detriment of the employee.
The jobs that are there have been taken over by robots
and monkeys. Monkeys are trained to work in some instances like human beings
and you know they would not demand for wages as far as you feed them well. Haha!
We already know what robots are doing. They have replaced human beings in some
fields. Hmm!
The future of occupational pension schemes look
bleak and it will never be long, say the next thirty to fifty years, when many
pension fund management companies in most countries will go bankrupt as they
will need more money from their own investments or funds from the government to
pay existing and entitled pensioners because the amount of pension
contributions would have reduced drastically to sustain them. That is why many
financially intelligent people say workers’ social security schemes are
licensed ponzi schemes. If all contributors stop contributing in even a month,
I bet you pension fund managers would find themselves wanton to pay pensioners.
What about if all contributors stop contributing for a year or two? Disaster
will break loose and pensioners will go to their graves earlier. I know they
would try to defend themselves by saying that they are prepared to handle
pensioners’ pensions but for how long could they continue if the amount of
pension contributions reduces quickly compared to what has already been
collected and needs to be returned to contributors or pensioners.
The
future of occupational pension scheme:
“We cannot continue. Our
pension costs and health care costs for our employees are going to bankrupt
this city” (Michael
Bloomberg)
·
Governments all over the world are
distancing themselves from many social issues and very soon they would distance
themselves from the social security issues of the worker. Governments these
days do not even want to employ and if they are not employing then how many
private companies would have the capacity to employ people in masses in this
information age, where super technology exists and performs faster and more
efficiently.
·
Many government institutions would be turned
private and employ few efficient people to deliver.
·
Many private organizations do not want
members of staff to be unionized to form formidable bargaining powerhouses, so
these companies deal with workers individually and pay peanuts to workers
individually. Social security amounts are therefore dwarfed in such
organizations.
·
Many organizations are now employing
workers on contract basis for periods and contracts are drafted in such ways
that social security for those workers would not be paid.
·
This is a century of entrepreneurship
and many people would be their own employers, and for that matter they would
determine how to pay themselves. They would declare small basic salaries to pay
small social security contributions. No law would compel an organization to pay
more than it can afford.
·
People are becoming financially literate
and financially intelligent that they would like to manage their own money,
rather than give it to someone else to manage it for them. People want to be
deeply and daily involved in decisions concerning their money but this does not
happen with pension management as individual contributors do not have capacity
to get involved in decisions about their money. They just have to trust the
government and its licensed fund managers for results, good or bad. Results,
appreciable, constant or devalued.
·
Robots and computers have already helped
reduced the number of people engaged in any organizational setup; hence few
people are employed contributing small amount for social security.
·
In
this century more organizations will become internet based and would make so
much money with just one or two employees. Though these companies would be
multi-billionaire-dollar companies, they would pay zilch as social security
because they would not need to employ physical human hands to make money. Online
businesses have come to stay and people would do almost everything online from
their homes, all the people, who would have been employed with such businesses
would not be needed. Social security contributions are cut and reduced.
·
There are bureaucratic practices in
getting one’s pension contributions on retirement in some countries like Ghana,
even in the 21st century, where software and systems help make
things easier and convenient and participatory for all stakeholders, the fund
managers still waste contributors time, energy and money on many unnecessary
procedures before giving one’s money to one.
·
People feel the fund managers are not taking
good care of their hard-earned money and that the returns they get after many
years of contributing do not match what their sweat should have produced. Contributors
would have to depend on the independent work of professional auditors to know
the welfare of their funds. Accountability and transparency become difficult
when managers are different from owners. Third party independent opinions have
not always been the best as cases such as those of Enron and WorldCom and
others were seen.
·
People now know the differences among
security, comfort and freedom and they would opt for comfort and freedom by
planning for them instead of security. Security is meant for people in prison
or prisoners not pensioners who want to have free air to enjoy life before joining
their ancestors. If you plan your retirement on your social security
contributions alone, then it is like you actually agree they should turn you, a
pensioner into a prisoner with security secured around you. You would be
helpless and hopeless and not even your children or the government of the day
could get you out of that prison because it would be beyond their own financial
means to do that.
The
way forward for workers
Life will call you back home from the fields of work
when you can no longer afford to be in the fields for anything good. Retirement
seriously stares in the eyes of persons, who still hold unto the old ways of
earning income through actively involved directly and paid monthly. People who still
think that way and only want to depend on that alone for a living would be stressful
when they retire.
Times have changed, as I said earlier on this
write-up that God has made change permanent yet man refuses to admit this and
always clings to things that have been changed by nature. People, who do not
like change and hold unto old ways of doing things wake up from their sleep
only to realize that it was not night this time round.
Employees work wholeheartedly for organizations
expecting good retirement benefits when theirs is due. Some organizations
really have very appreciative packages for workers, who retire from active
service to them but these benefits would not last if those workers do not have
what it takes to keep those packages for the longer purposes for which they
were given.
The way
forward for any employee working now and knowing very well that retirement is
imminent is to realize that their occupational pension scheme alone would not
sustain them happily. What it takes to sustain the happiness after retirement
would be to learn to invest. Investing is a game learned over time to get
experience and not just because one has money and can invest. People should:
·
Take classes in financial literacy to
help one become financially aware and financially literate.
·
Attend investment classes. Remember,
there is no bad investment but there is a bad investor. Would you wait to
become that bad investor on retirement?
·
Attend practical entrepreneurial
seminars, etc.
·
Take classes in subjects pertaining to
money.
·
Read books on money, investments,
finance, accounting and economics.
·
Listen to investment programmes on radio
or CD and or watching TV programmes on investments and financial matters.
·
Attend seminars and classes on health
issues.
·
Learn to be emotionally intelligent so
that when your retirement package goes down the drain when you decide to invest
it without investment experience and knowledge.
·
Attend short courses that educate you on
a wide range of issues. Keep learning many new things before you go on
retirement.
Godwin-Xavier Ayeebo is a Financial Literacy Activist, an
Accountant, a Writer and Founder of Financial Literacy Training Institute,
(FINALTI
©2014,
Godwin-Xavier Ayeebo
Email:
finaltigh@gmail.com
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