This is the first of a series of financial education articles focusing on the need for a national retirement planning framework for Liberia and the benefits of such an undertaking. This piece provides a summary overview on the reasons for retirement planning, the nature of the process, and the basic role of key stakeholders. The objective of this series is to raise national awareness about the problems that result from inadequate preparation for retirement, in the hope that the government, employers and employees can take actions to prevent a potential national retirement crisis.

Why People Plan for Retirement?

Perhaps a good place to start the retirement discussion is to find out why we should plan for retirement at all. Retirement planning is necessary because many people live longer than their productive years. If we all could remain healthy and work to the end of life’s journey, retirement would not be an issue. But we know that this is not the case, because as we age we become frail, sickly and unable to work. Therefore, each nation needs to have an arrangement in place to ensure that its workers will have sufficient income to maintain a good lifestyle when they become old.

In developing countries, such as Liberia, many people overlook retirement planning because they expect their children to take care of them. The reality is that things have changed over the years to a point where many children are not willing or able to support their parents in retirement. Therefore, if you are one of those workers or executives who are relying on their children for retirement, we advise that you rethink this plan because it could fail, leaving you to face financial hardship in your old age. This is why it is important to plan for the future. As you look around Liberia today and follow the news, you will observe that pension and retirement problems are becoming more visible in our country.

Retirement planning is not only a personal responsibility; it is also a national obligation because Liberia will face many social problems without a strong retirement regime. Moreover, there are many complex issues that come into play in the retirement process, including the tax treatment of the savings and regulation of the different programs. Therefore, retirement security for our workforce will be accomplished through a national system. That system should provide incentives for employers to set up retirement plans, encourage participation from many employers, and provide a good regulatory framework to protect the interest of workers.

Roles of Stakeholders

Earnestly, some retirement plans do exist without government involvement. However, for a vast majority of the Liberian workers adequate preparation for retirement will not be possible without government involvement. The government has a stake in this process because it meets its objective of improving the lifestyle of its citizens. Government participation entails formulating a retirement system through legislations, enforcing the laws through monitoring and supervision of retirement plans and investments, and interpretation of the laws through the court system. We should not forget that the government itself is an employer and, in the case of Liberia, the largest employer. In this respect, the government has the added responsibility of helping its employees prepare adequately for retirement, which will send a positive signal to other employers.

Currently, the Liberian government is preparing a law that will create a pension program for its civil servants. This is a good thing as it sends a strong signal that our government wants its retired workers to live in dignity. But the government will have to step up its game and ensure that there is a law in place to help private employers set up retirement plans for their employees, in the same way that the government is doing for the civil servants. This is how things work in other countries.

Traditionally, employers have accepted the responsibility to facilitate retirement savings because pension plans are essentially a way to replace the income that is lost as a result of the worker discontinuing employment due to old age.  Additionally, some employers feel they have a social responsibility to help provide financial security for those who gave many years of hard work for the success of the company. The role of employers in this process includes, among others, the creation of the retirement plan, the making of contributions on behalf of employees, and the collection of employees’ contributions for remittance to the retirement plan manager. Studies have shown that employers derive plenty benefits from retirement programs in the form of good public perception, employee loyalty, and higher productivity from employees.

The requirements for employees/workers in this process are generally limited. For most retirement plans, the employee’s duties are part of the general employment contract. This means that retirement benefits are part of the employees benefits, which the employee is entitled to as long as he/she carries out the requirements of employment. However, there are some plans that place a lot of responsibility on the employee, including the duties of making contributions and choosing how the funds are invested. The key benefit that this process brings to the employee is the financial security of a comfortable and independent lifestyle during retirement.

Social Security

We cannot have a full conversation about retirement planning without mentioning social security because it is critical to this process and it is often misunderstood, even in societies where there is greater education about retirement savings. Firstly, the social security program is a government-run and compulsory scheme. Secondly, the program has many components, including disability insurance and retirement benefits for workers. When it comes to retirement income, social security is intended to serve as a foundation; it is not a guarantee for adequate retirement income. For example, currently the social security benefit for the eligible Liberian retiree is a minimum of 25% of the person’s average earnings, which is not sufficient to provide a comfortable lifestyle for most retirees. This is why employer-sponsored retirement plans exist, as is the case with the Government of Liberia’s proposed pension plan, under which retired government employees will receive monthly pension payments that could be as high as 75% of their pre-retirement monthly income.

Much has been said and written about the management of the social security funds. A critical area of the social security system is the investment of the reserves. We think that the current Liberian financial system is a long way from adequately addressing the structural, regulatory and competency requirements for managing capital assets, such as those of the social security reserve fund. Until we can do that we could continue to see major challenges with the social security program.

Conclusion

This article is meant to provide an overview on retirement planning. The articles that will follow should offer more details on this subject matter. The fact of the matter is that Liberia could face a national socio-economic crisis if too many of our retired workers experience financial hardship because of inadequate planning for the needs of old age. To prevent this crisis, we will need to pursue a coordinated national retirement strategy, which must start sooner rather than later. This is because it takes many years of hard work to meet retirement savings goals. The end result of our retirement planning process will make everyone a winner – employees, employers, our government, and our society at large.

About the author: The Mano Financial Group is a financial services firm specialized in retirement planning, investment management and executive compensation. We can be reached at 0770 338 438 / 0888 670 905 or email us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Note to the readers: The next article in this series will be published on 7/26/13 in this paper. That article will focus on the role of employers and workers in the retirement planning process.