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Retirement Plans

Retirement funding in Botswana is a relatively new concept in the formal sector, although, as stated in the history of pensions section, it has always been there in an informal way, e.g. by investing in children and cattle.  The more modern and formal way of retirement funding is provided for by various types of retirement fund structures as seen below:

 

 

Pension Funds

 

Pension funds can either be on a final salary (defined benefit) or money purchase (defined contribution) bases. Pension funds are registered with the Regulatory Authority of pension and provident funds, and approved by the Commissioner General.

 

 ‘Defined Benefit Scheme’ is a pension based on the final salary of the individual and the number of year’s served - typically two thirds of final salary after a maximum of 30 years service. This type of fund generally best suits professional institutions with permanent staff such as banks, insurance companies, government departments, etc. and tends to provide proportionately higher benefits to the most highly promoted individuals in the scheme in the most tax efficient manner.

 

‘Defined Contribution Scheme' is a pension purchased in the form of an annuity based on the aggregate of all contributions and investment returns made in respect of the individual employee to the scheme. Funding is made by way of fixing the contribution rate at inception. This type of fund generally best suits industrial concerns where salaries remain relatively ‘flat’ over the whole of their working life and thus excludes managerial staff.  The annuity may be provided by the fund or from a life assurance company.

 

Additional Voluntary Contributions

 

Most scheme rules have been amended to allow members to make additional voluntary contributions into the employer scheme so as to augment their pension at retirement. This option allows flexibility in that contributions may be varied at each fund anniversary to either increase, decrease or pause them. Members need to be made well aware of this useful option.

 

Retirement Annuity Funds

 

This is an insurance product with policies taken by individuals. It is similar to a defined contribution scheme, except that contributions are made from taxed funds – claimable at the end of the year.

 

Provident Funds

 

Provident Funds’ are similar to defined contribution pension funds except that they provide a tax free lump sum payment at the date of retirement, which the individual should suitably invest to provide for his welfare.

 

Preservation Funds

 

Early exit from pension schemes result in non-encashable funds that arise from pre-retirement age withdrawals. These funds may be held in a preservation fund until the member reaches retirement age. Preservation Funds permit one withdrawal and one installation but do not accept continued contributions into the fund. These funds are invested in secure instruments and made available to the member at their selected retirement age (minimum age 55).