analysis is a technique used in the corporate world to measure
where an organisation is at present, compared to where it
should be in terms of long-term goals.
We can use this technique to see if we are on track with
our long-term goals.
We can take a first cue from the provisions for pensions
and pension savings in the recent budget.
Of immediate impact to those who are still saving for retirement
is the increase in the deductible allowance for contributions
to pension and annuity plans.
This used to be $12,000 per year, and will be raised to
This represents a recalculation of what is required now,
in order to retire in comfort. The recommendation is that
we have to more than double our savings.
Put another way, if a young person aged 43, was saving $1,000
per month for his pension, he should now be saving $2,084
each month. In fact, the implementation of this savings
measure is so critical, that the Government is giving an
incentive: a refund of up to 25 per cent of pension savings.
How will this manifest in the long term? A 43-year-old saving
$1,000 per month, at competitive rates, will accumulate
$1 million by age 65. This would give him a lumpsum upfront
of about quarter million dollars at age 65, and a cheque
for $6,500 every month for as long as he lives.
This implies that we will need more than double that amount
in order to maintain his comfort in old age.
Let's compute actual figures based on today's rates and
incentives. If he puts aside $25,000 for his pensions each
year, the total accumulation will be in the vicinity of
Such an accumulation would have cost him $416,250 over the
years to age 65.
In 22 years' time, from that $2.1 million, he would receive
an upfront lumpsum of $525,000 and a cheque for $14,400
every month, until death.
There is also a guarantee provision that allows the monthly
cheques to be paid to somebody else, a beneficiary, if the
retiree dies before ten years has elapsed.
The cheques will be paid to somebody for a minimum of ten
years. If the retiree does not die, but continues to live
to 100 years, the monthly cheques will continue to him for
Of course, it also is possible to select a longer guarantee
period of, say, 15 years or a shorter one of five years.
There was another signal in the budget about the urgency.
It came from the immediate upward adjustment of the old
age pension, now renamed the Senior Citizens Grant.
In addition, the NIS pension payment will double from $1,000
per month to $2,000 per month from 2008.