Retirement Plans

Retirement Plans

Retirement funding in Botswana is a relatively new concept in the formal sector, although, as stated in the ‘history of retirement funds’ 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 licensed by the Regulatory Authority (i.e. Non-Bank Financial Institutions Regulatory Authority) and approved for tax purposes by the Commissioner General of Botswana Unified Revenue Service (BURS).

’Defined Benefit Fund’ provides a pension (in the form of an annuity) based on the final salary of the individual member and the number of years 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 Fund’ provides a pension (in the form of an annuity) based on the aggregate of all contributions and investment returns made in respect of the individual member of the fund. 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 retirement fund rules have been amended to allow members to make additional voluntary contributions into the employer fund 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 fund, except that contributions are made from taxed money but the tax is 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 funds 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).