Retirement Planning – Pension Options
Personal Finance

“Retirement, a time to do what you want to do, when you want to do it, where you want to do it, and, how you want to do it.” Catherine Pulsifer 


Photo from Advance Capital Management

What do you do when you hear the dreaded question, “Are you prepared for retirement?” Most people in formal employment are so scared at the thought of retirement that they don’t even want to think about it, but not doing anything is the worst mistake one can make.


Not so long ago, I bumped into a former colleague who retired some four years ago and it was clear that he wasn’t doing very well financially. During his working life, this colleague used to drive a nice car, wore nice clothes and occasionally enjoyed a single malt; but now he is a shadow of his former self walking from Kulima Tower to our offices on the southern side of Cairo Road almost every other week to try and get something from former colleague. This gentleman had committed his whole working life, putting in a total of 24 years with his former employers and one would expect that he walked away with a good retirement package.


In a conversation with friends at the office, I shared the plight of this former work colleague. What came to light is how he had started contributing to the employer pension scheme quite late in his career. This could partly be because this scheme was previously optional; thank goodness it’s now compulsory for all permanent stuff.


A number of people have found themselves destitute after retiring simply because they did not plan their retirement well enough or misused their pension proceeds through carelessness, bad investment, gambling (though not a big problem in Zambia), got carried away after seeing a lot of money for the first time etc. Others were simply not ready to retire and couldn’t cope with life after working.


As a child, I experienced firsthand the stresses of losing steady employment income when my father lost his lucrative job as Chief Accountant at a time when he had no investments, no pension and only a few Kwachas in his bank account. My Dad had to move his young family from the popular suburb of Northmead to Matero on the western side of Lusaka. This was his last option if at all he had any. Although too young to fully grasp what was happening at the time, my siblings and I certainly drew valuable lifelong lessons from the experience.

Preparing for retirement is one of the investment strategies that individuals should undertake earlier in their life or careers. Retirement planning is not only for people in formal employment but for entrepreneurs running their own businesses as well. In whatever line of work, you are involved, there comes a time when you need to start slowing down and eventually stop working completely. This can only be achieved if you have some financial resources stashed away for a rainy day; after all we all want to live a good life after retirement.


Investment planning involves identifying your personal objectives of what you need to achieve at the end of it all. In investment planning one has to first assess their current financial situation, list investment objectives, determine one’s time horizon i.e. current age and age of your planned retirement, types of investment; short, medium and long-term investments. Investment objectives should also be clearly spelled out whether its financial security, maximization of returns, and risk preference. Investment planning is a wide topic but for this article, I will concentrate on retirement planning and tackle the details of investment planning in the next two articles. This article will cover pension scheme options available in our local market and how one can enroll.


Retirement planning is the process of determining income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets. Future retains are estimated to determine if the retirement income goal will be achieved. In the simplest sense, retirement planning is the planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life. The non-financial aspects include lifestyle choices such as how to spend time in retirement, where to live, when to completely quit working, etc. A holistic approach to retirement planning considers all these areas.1


The emphasis one puts on retirement planning changes throughout different life stages. Early in a person’s working life, retirement planning is about setting aside enough money for retirement. During the middle of your career, it might also include setting specific income or asset targets and taking the steps to achieve them. Once you reach retirement age, you go from accumulating assets to what planners call the distribution phase. You’re no longer paying in; instead your decades of saving are paying out.2


One of the ways in which people can plan for retirement is through setting up a pension plan. The focus of this first article in the series of articles on Retirement Planning will focus on pension planning.


In finance language, a pension is defined as a fund into which a sum of money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments in the future. A pension may be a “defined benefit plan” where a fixed sum is paid regularly to a person, or a “defined contribution plan” under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance package; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.


Pension is not only for people who are in formal employment through occupational pension schemes but for everyone who would want to have a comfortable future be it SMEs, marketeers, Bus drivers etc., everyone can plan for retirement. Whenever the topic of pension schemes is being discussed, many only think of pension schemes that are arranged by employers for their permanent and pensionable staff. One of the ways and maybe easiest way to use pension as a retirement plan is to enroll into a pension scheme.


Three types of pension schemes exist in Zambia currently and these are statutory pension scheme, Occupational pension scheme, and private pension scheme. The statutory pension schemes include National Pension Scheme Authority; NAPSA, Local Authority Superannuation Fund; LASF, Public Service Pension Fund, PSPF, and Workers Compensation Fund.


The National Pension Scheme Authority NAPSA administers the mandatory statutory scheme and all employers are obliged to register their employees with NAPSA and the authority will allocate a Social Security number to each employee. For other employment sectors such as local authorities and public service, LASF and PSPF mentioned above administer their pensions respectively. NAPSA contribution is mandatory for all employees whether you are enrolled in an occupational pension scheme or not.


Occupational Pension Plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement. The employer may also match a portion of the worker’s annual contributions, up to a specific percentage or amount. In Zambia most employers match the employee contributions between 8% and 20% of the employee’s basic earnings.


For the employee, occupational pensions are good not only because they are a tax efficient way of saving for retirement, but also because the pension will grow faster as a result of the employer contributions rather than just relying on an employee’s own contributions. Occupational pension schemes can generally be categorized as being either defined benefit or defined contribution. A defined benefit pension plan (DB) sets out the specific benefit that will be paid to a retiree. This calculation takes into account factors such as the number of years an employee has worked and their salary, which then dictates the pension and/or lump sum that will be paid on retirement.


A defined contribution pension (DC) is an accumulation of funds that makes up a person’s pension pot. A person contributes a portion of their salary to a pension scheme. Ideally, although not always, their employer also contributes and these contributions are invested in a fund in order to provide retirement benefits. There is tax relief on this type of pension and the benefits at retirement will depend on a number of different factors such as the contribution levels, how they perform, plan charges and fees and the annuity rates available when you retire.


A Private or Personal Pension Plan is a personally owned pension, held in the owner’s name. Unlike an occupational pension plan where one’s employer also makes contributions, here only you make contributions to the plan. This plan is suitable for anyone looking for various saving options for their retirement and has worked well for those who are self-employed, and those employed but their employers don’t offer any additional pension plan aside from the statutory pension. With this scheme, you have control of how much you contribute towards your pension.



Although you may not have a direct influence on where your funds will be invested by the fund manager, it is important to get an understanding of the investment policy and strategy of your fund manager. Traditionally, pension funds have invested in two main asset categories (bonds and equities) with a long-term investment perspective in line with the duration of their liabilities. It is however not unusual to find a well-diversified pension fund portfolio that covers other assets such private equity, real estate etc. Mukuba Pensions, ZSIC, NAPSA, etc. have huge investments in real estates across the country. Diversification is absolutely necessary including some offshore investments.

Apart from investment policies and strategy, an investor in pension funds need to understand the governance structures of the fund managers. A pension funds is expected to have a board of trustees that possess skills and expertise diverse enough to make sound decisions to safeguard the interest of the fund participants.


About the author

Edwin Goli Mulenga is Chartered Accountant, Corporate Banker, Investment Advisor and Public Speaker with an extensive track record of working with multi-stakeholders and cross-sector groups in local and international organisations.

Edwin has a good network of business professionals in various business segments corporations, multinational companies, development organizations, aid agencies, financial institutions, SMEs, professional bodies and government.

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