PLANNING FOR RETIREMENT

Planning for post-work life is important as we must take our sustenance and well- being into our own hands and make adequate preparations that enable us have a well-earned rest after a long period of active service. Contributing to a pension scheme while you’re working and earning is a critical way to guarantee that you can sustain a reasonable lifestyle after years in active employment.

THE NEW THREE TIER PENSION SCHEME

The Pension Act of 2008 (ACT 766) as amended introduced a new tier 2 and 3 pension scheme to complement the SSNIT pension scheme. The Tier 2 is a mandatory defined contribution scheme where employees contribute 5% of their monthly salary. Tier 3, on the other hand, is a voluntary scheme where employees and/or their employer contribute up to 16.5% of their monthly income towards the employee’s pension.

THE THREE TIER PENSION STRUCTURE

THE THREE TIER PENSION SCHEME – BENEFITS

FeaturesTier 2Tier 3
PortabilityAll contributions and net returns on investments may be bequeathed as an inheritance.
Can be moved from one Scheme to another (tax free)
All contributions and net returns on investments may be bequeathed as an inheritance.
Can be moved from one Scheme to another (tax free)
AccessibilityCan be accessed at statutory retirement age of 60Tier 3 is accessible at any time
SegregationNeither government nor employer has access to the fundsNeither government nor employer has access to the funds
Income EarnedDepends on the quality of investments made by TrusteeDepends on the quality of investments made by Trustee
Tax Advantage (Contributions)Contributions made into your tier 2 are not subject to income taxContributions made into your tier 3 are not subject to income tax
Tax Advantage (Withdrawal)Withdrawals from your tier 2 upon retirement are not taxableWithdrawals from your tier 3 at any time after 10 years are not taxable
Retirement BenefitLump SumLump Sum
MortgageMay be used to secure your primary mortgage without any tax obligationsMay be used to secure your primary mortgage without any tax obligations
Use As SecurityCannot be used as security for borrowingsTier 3 assets may be used as security for borrowings

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