Giving retirement a lifeline in Namibia

One of the more exciting announcements in the 2019/20 budget tabled last year was that the government intends to increase the pension fund contributions that can be deducted from taxable income to the lower of N$150 000, or 27.5% of the income, from the current limit of N$40 000 per...

14 May 2020 | Business

Never has it been more important to assess your financial position and ensure that your financial future and retirement strategies are in place.

Liberty Life Namibia - There are many things that one has to save for, and even though when you start working it seems like too far away, retirement savings is key and should not be avoided.

Never has it been more important to assess your financial position and ensure that your financial future and retirement strategies are in place.

The panic and fear which the Covid-19 pandemic is causing is unprecedented in our lifetime and has resulted in chaos on stock markets across the globe. Not only are we seeing wild swings on individual, so called “blue chip” companies, but we are seeing large losses on stock exchanges as a whole, resulting in billions of losses in as little as a few days.

We have already witnessed some quantitative easing taking place, with the Federal Reserve cutting interest rates to basically 0%, the South African Reserve Bank following with a 100 basis points (bps) cut on 19 March and the Bank of Namibia has followed suit.

However, people tend to avoid this and push starting to save for retirement later in their lives. This has proven to be a disaster as research shows that only about 6% of retirees can retire comfortably throughout their retirement.

More recently, research has shown that with the structural changes that we’ve seen in the investment environment, individuals should now be saving closer to 20% of salary on a monthly basis to achieve the same outcome.

Benefits

According to the Financial Literacy Initiative (FLI), 89% of salaries in Namibia are used to service debt, leaving very little disposable income for the household, let alone savings.

This seems to indicate that the bulk of Namibians do not have enough long-term saving plans in place for future use.

Retirement, especially for young people, can seem so distant, however, it is important to plan in order to maintain your quality of life before retirement.

The benefits of saving towards retirement in a registered retirement vehicle are many and well documented and include:

• Ease of saving through payroll deductions: The contributions paid into a group retirement plan are directly deducted from the employee’s salary, thus making it much easier to save. It is proven that individuals will put more money aside when the effort of saving is taken away.

• Immediate tax saving: The contributions deducted directly from employees’ salaries are made with pre-tax monies. Therefore, employees don’t have to wait until their income tax return is filed during the following year to recover a tax overpayment. Saving taxes with each contribution paid into the plan will contribute to higher returns over time.

• Access to leading investment managers: The funds offered through group plans are run by managers whose expertise is recognised in the industry and who are continuously reviewed and monitored by the trustees of the group plans.

• Investment solutions for everyone: Whether you are an expert or a novice in financial matters, group plans offer various approaches for meeting your retirement objectives. Several tools and services are also available to guide you in the selection of investments.

Ensuring a financially positive future

Retirement contributions to a Namibian-registered pension, provident, preservation or retirement annuity fund are tax deductible and provides you with an opportunity to contribute more towards your retirement savings.

One of the more exciting announcements in the 2019/20 budget tabled on 27 March 2019 was that the government intends to increase the pension fund contributions that can be deducted from taxable income to the lower of N$150 000, or 27.5% of the income, from the current limit of N$40 000 per annum. The intention is to enable employees and self-employed to save more for their retirement.

An increased compulsory savings threshold can bring about the following benefits:

• Higher tax relief benefit, meaning more money for you and your family at retirement

Saving more towards retirement results in more funds being available at retirement that can provide a substantial income to sustain and maintain a household.

• Opportunity to save more towards compulsory savings plan

Savings towards your child’s education is a dream a lot of parents have. With a higher tax threshold one can now make this a reality. Getting a higher tax relief allows for more money to be available to be channelled to compulsory savings products such as education savers.

• Boost for the investment industry in Namibia through increased investment

Encourages and stimulates investments that is conducive to economic growth. Furthermore, this will result in more funds being available to stimulate domestic economic development by utilising the contractual savings and enhance economic growth and development by utilising savings in the local economy, which would translate in a broadened domestic economic base and increased employment opportunities

It is said that the first person to live 150 years has already been born. You are probably going to live longer than you expect and that is why one must ensure to live as well as you can for as long as you can.

It is possible that many of us will see 80, 90 or even 100 plus. One is never too old to start and with the proposed amendments, creating a conducive environment, there is no better time than right now.

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