There is always an earnest expectation at the outset of everyone’s career that someday, one will be able to retire comfortably, having been able to do enough savings and investment during ones’ working life. However, this noble life objective immediately becomes elusive as one gets his/her first paycheck. Meanwhile, ones’ first paycheck plays a critical role in retirement planning because one needs to build a culture of savings and investing from the beginning of working life.
Finding a job after school is the preoccupation of most final year students especially in our part of the world. With the ever-increasing rate of unemployment, the anxiety about getting a job after school gets heightened year after year. As the problem exacerbates, the call for entrepreneurship has intensified with the hope that it will significantly reduce, if not resolve the unemployment canker which is gradually becoming a national security threat.
Difficult as it may seem, some graduates gain employment after graduating with great hopes of making strides in their careers within the shortest possible time. Apart from hard work, many believe furthering one’s education is a sure way of advancing in the chosen career.
Another observation is that many entry-level staff do not necessarily get employment in areas that align with their career objectives. The quest and anxiety to be employed lead them to settle for available job offer made to them with the hope of getting their dream career-related job in the future. The experience, commitment, results and years of work are contributing factors in determining the salary and career growth. Interestingly, there is a cliché that higher education results in higher salary. But that is not entirely the case since some jobs naturally have relatively low levels of salaries across board.
Furthering education, even though much desired, is very challenging for many entry level workers whose remuneration are rarely enough to meet their subsistence needs. Employment benefits are not necessarily designed with the peculiar needs of entry-level staff who are fresh from school in mind.
The National Pension Plan
The National Pensions Act, 2008 seeks to provide pension benefits to ensure retirement income security for all workers. The law is applicable to all category of workers in Ghana; it does not discriminate between young professionals, foreigners, educated or uneducated.
The eligibility age for the new Pensions law is fifteen years. There is a requirement for a portion of an employment income to be deferred for retirement. The total mandatory contribution towards retirement is eighteen and a half percent (18.5%) of one’s total salary, made up of five and half percent (5.5%) contribution by the employee and thirteen per cent (13%) by the employer.
The law also allows for an additional voluntary contribution of up to sixteen and a half percent (16.5%) for tax relief purposes. Many establishments have introduced such voluntary contribution schemes to augment the contributions on the mandatory schemes. Most institutions allow between two to five years before they become accessible. These voluntary contributions are tax deductible but with withdrawal restriction of ten years. However, any withdrawal before the ten-year period attracts a fifteen percent (15%) tax.
Financing the educational plans of entry level staff
While the belief that the undergraduate degree could help secure a job, learning does not have to stop after people are established in their careers. Workers, especially entry-level staff, may want to go back to school to advance or diversify their job-related skills, work toward a higher-paying position or for personal fulfillment. However, funding for this category of staff could potentially be challenging with the seemingly insufficient earnings from employment.
With the ever-increasing demands on the cash flow of most institutions, institutions may be cutting back on overheads, which include but not limited to employees’ education benefits especially for programs that do not have any direct bearing on the business.
The source of funding for such pursuits may thus be restricted to personal savings, support from relatives and bank loans.
Within the context of rationalizing overheads and in the light of the foregoing, it will be useful to recalibrate the components of employees’ remuneration packages to reflect the phase in an employee’s career life without necessarily increasing the cost to the company.
Unpacking employees’ remuneration packages
Remuneration packages have been designed to have both short-term and long-term benefits. With the truism that employees at the beginning of their careers require more funds to be able to fund their education; an important ingredient for their career progression, and other immediate pressing needs such as housing, it is our considered view that it is imperative that human resource professionals begin to explore the possibility of redesigning remuneration options that are very appropriate for one’s phase in life. Many investment portfolios incorporate an automatic life-staging model to reflect the risk level that is appropriate for one’s stage in life. For example, as one grows and inches close to retirement, fund managers migrate the funds of their clients from risky asset classes to conservative ones.
This philosophy could be replicated in designing remuneration systems as well easing the financial burden on entry-level staff.
The conversation has just started and there needs to be a broader discussion around the topic. In a future episode, there will be proposals set the pace for this broader discussion.
Management Lessons (Takeaways):
- Younger employees have immediate financial needs ranging from survival to career development; these are different from the needs of relatively older employees (post-employment financial security).
- Employers must be interested in retaining the best talents for their organizations’ competitiveness into the future.
- Employers designing their additional voluntary pension schemes with the needs of younger employees in mind would be critical to the development and retention of the best talents.
- Contact the experts with your objective in mind, they are there to help.
About the Writers
Eric Osei-Abankwa is currently the Managing Director of Kimpton Trust Limited – a company licensed and registered by the National Pensions Regulatory Authority – providing leadership for all aspects of the company’s operations with emphasis on long-term goals, growth, profitability and shareholder value maximization.
Eric is a Chartered Accountant with the Institute of Chartered Accountants (Ghana) and a member of the Chartered Institute of Taxation (Ghana). He holds an Executive MBA degree with emphasis in Finance from the University of Ghana Business School and a Bachelor’s degree in Administration (Accounting Option) from the same School. He also has a certificate in Pensions Management from the African University College of Communications (AUCC) Pensions Academy.
Eric Annin has a multi-dimensional career spanning from Financial Management, Development Administration and NGO Management. His competencies are in Pensions Administration, Investment Management, Corporate/Managerial Finance, Strategic Concept Development, Project Development, Marketing Management and Statistical Analyses.
Eric Annin holds a B.A. (Hons) Degree in Political Science from University of Ghana and MBA (Finance) from GIMPA Business School. He has also benefited an International Visitors Program by the US State Department where he undertook an NGO Management Program in the USA.