Happy ending with a timely retirement plan
By Romesh Angunawela
(This is the first in a series of expert articles on preparing for retirement
with proper retirement income)
Did you know that 58 % of the Sri Lankan labour force is yet without
a retirement plan? Are you among them? If so, it's time to get your retirement
picture in focus.
A proper retirement plan is of utmost importance, as it will enable
you to lead a lifestyle that you desire. It is estimated that in just 20
years Sri Lanka's 60 and over population will stand at 4 million from today's
figure of 1.9 million. It is also estimated that the under 15 age group
will amount to only 18.9 % of the total population to today's figure of
Q: What do the above figures signal to the workforce which is to
retire in 20 years?
A: Well! It clearly indicates that even those who are currently
covered under a government pension plan (E.g. PSPF, W.O.F. etc.) are also
in troubled waters if they don't plan early for their retirement as the
benefits under a retirement plan is being paid to the retirees off the
taxes that are collected from the current workforce. So, as mentioned above,
if the workforce is to deteriorate by almost 50 % and if the number of
retirees are to double, the government will not have enough cash to support
such payments unless the tax rates are increased, etc.
Q: How does retirement schemes work?
A: You take upon yourself to contribute to a retirement plan
on a regular basis (e.g. monthly, quarterly, yearly) or on a lump-sum basis
during your productive working years in order to provide you with an income
at retirement. However, there are important aspects to consider when choosing
a proper plan.
Q: How do I plan for my retirement?
A: As in all saving habits, the earlier you start to save the
better. (E.g. In the case of a 35 year-old and a 40 year-old planning to
put aside Rs. 5,000 per annum at the rate of 12 % per annum for their retirement
at age 60, the 35 year-old will accumulate Rs. 666,000 against the 40 year-old's
accumulation of only Rs. 377,000). The magic of saving starts to work when
you discipline yourself with a sheer dedication to save on a regular basis.
It is important to find out as to what kind of income would be sufficient
to lead a comfortable retirement. In this context, serious thought should
be given to the following areas:
* How much have you already saved for your retirement?
* How much do you expect to receive in government benefits/corporate
benefits (pension, etc.) at retirement?
* Do you have any future income potential (e.g. rent income, dividend
income, interest income, etc.)
* Do you feel that the answers to the above question will adequately
cover at least 70 % of your current income? If not, your plan needs to
be adjusted to meet the challenges of the future. There are also some hidden
costs that need your immediate attention. They are as follows:
* Life expectancy
* Cost of medical care
Inflation erodes purchasing power and it should not be ignored at any
cost. Sri Lanka's inflation has been as high as 26.1 % and it significantly
dampens investment returns. The best theory in protecting purchasing power
is to have your investments indexed properly.
Taxes can also reduce your disposable income at retirement and provisions
should be in place to protect such events.
Life Expectancy - People more often plan to live a shorter life than
what they ultimately end up living, and moreover, they plan their retirement
for such short terms and face a bitter struggle trying to support themselves.
(E.g. a person may structure his retirement plan to support payment only
upto his 70th birthday but might end up living upto age 80, facing a problem
of not being able to draw funds to support the additional ten years).
Sri Lanka's life expectancy for men and women stood at 56 and 55 years
in 1950 and is currently 71 and 75 years, respectively.
Cost of medical care should not be ignored as the cost involved is continuously
rising as you age. If no arrangements are made to have a proper health
scheme in place this can wipe out your savings. (E.g. surgery, post- surgery
treatment, etc. which can be costly and subsequently may require treatment
The de Silva's need to find out whether such income (Rs. 70,000) at
retirement would be adequate, taking into account the inflation rate, the
high cost involved in medical care, the availability of time to pursue
their hobbies (e.g. golf, vacations) and the significant concern that revolves
around the possibility of the government being able to sustain the expected
pension due to the demographic change that was discussed earlier. Therefore,
it is always best to look into the worse case scenario when planning for
your retirement and the de Silva's should plan for Rs. 70,000 at retirement
instead of the deficit of Rs. 44,500.
When structuring a comprehensive retirement plan one should take all
income and expenses into account. This can be broken into two areas - the
current and the expected income and expenses. It is important for the de
Silva's to look into their current monthly expenses as this will enable
them to find out whether they have a positive balance that could be utilised
to fund their expected income at retirement.
It is of utmost importance to find out whether the Rs. 20,000 that will
be saved on a regular basis will ultimately provide them with an income
of Rs. 70,000 in today's value when indexed for inflation.
However, if the de Silva's don't have a positive balance that they could
save for their future objective it is important for them to find out the
areas that they have unnecessary expenses, in order to limit such expenses
and to divert such money towards future retirement income. (E.g. If the
de Silva's have a current expense of Rs. 100,000 of which Rs. 20,000 is
utilised for entertainment).
Planning for retirement is crucial, and moreover, planning early for
retirement is, however, the best solution one could adopt in order to lead
a comfortable lifestyle. However, proper advice should be sought as retirement
requirements vary from person to person.
Package of incentives to boost exports
World Bank Fund strikes CO2 deal
Environmental ratings for vehicles
Intel launches new Pentium
Security group to safeguard shipping
Lanka Felts headgear tops safety awards
SLIM extends education arm
CTC wins National Safety Award 2001
Home improvements made easy by NDB
Low cost Internet access for villagers
Events and announcements
Shell LiveWIRE has "Bright Ideas"
Braathens, JKH to set up software centre
Sri Lankan firm launches new feeder service
IHDT workshop in Sinhala
Suntel partners Sampath Bank
Package of incentives to boost exports
Sri Lanka, hit by the twin effects of the ethnic conflict and a global
downturn, last week announced a package of incentives for exporters to
boost the sagging economy.
Trade and Industrial Development Minister, Ronnie de Mel, announcing
the new measures, said these would help to alleviate the problems of exporters.
The state-run Export Development Board (EDB), at the first meeting of
the revived Exporters' Forum, said the new package to the export trade
includes cheaper credit facilities and other benefits.
Under an interest rate subsidy scheme, the EDB will reimburse six percent
of the interest component on working capital and project-related loans
extended by commercial banks, which normally lend at 13-14 percent. "In
such a situation, the actual rate of interest to the exporter would be
7-8 percent," said Felix Yahampath, EDB chairman.
In the other incentive scheme, exporters are entitled to an incentive
equal (in Sri Lankan rupees) to the incremental value of their exports
over a three-month period effective from November 2001. This means any
exporter who has increased his export values over the three months to October
2000 compared with the preceding three-month period would be entitled to
a similar amount in rupees as a grant from the EDB.
Exporters of tea, rubber and coconut in raw form, gems, apparel and
diamonds will not qualify under this scheme.
But when exporters sought clarification on the incentive, the EDB agreed
to a suggestion by the minister that a high-level committee should be appointed
to work out the modalities of these schemes. De Mel said Sri Lanka's economic
growth rate would be one percent or less this year. "This year has been
a very difficult year. Growth rates would be one percent or slightly lower
compared to a comfortable six percent posted last year," the minister told
the Exporters' Forum.
The EDB has revived the forum which was very popular in the 1980s in
bringing together exporters and government officials with a view to solving
the problems of the former. Its next meeting is on January 30 and de Mel
hoped the process would continue even if he was replaced by a new minister.
De Mel, a veteran finance minister between 1977 and 1988, said 2000
was an exceptional year for Sri Lanka with export sector growth up 25 percent
and apparel sector growth up 24 percent. Exports have gone down and a drastic
overall fall is expected this year."
The minister said the international war against terrorism was adding
to Sri Lanka problems, which is already plagued by an 18-year ethnic conflict.
Tamil rebels attacks on the Colombo airport in July devastated the tourist
industry and led to Sri Lanka being tagged as a war risk country. That
sent insurance premiums sharply up on air and sea cargo in addition to
rising costs of air tickets.
He said the government was also close to finalising a US$ 75 million-credit
line from the ADB for small and medium enterprises. An official delegation
is due to visit Manila in the next few weeks in this connection.
Gross Domestic Product (GDP) figures in the first and second quarters
slipped to 1.4 percent and 0.4 percent respectively, compared to 7.3 and
6 percent for the same periods last year.
Sri Lanka has not experienced such low growth since 1956 and 1971, when
the annual rates fell to 0.7 and 0.2 percent, respectively.
Central Bank officials said last month growth for the year would be
around two percent. Private analysts, however, have forecast zero or negative
figures. The Ceylon Chamber of Commerce Economic Intelligence Unit has
a predicted 0.6 percent growth for the year.
WTO parley in Qatar a non-starter – Ronnie de Mel
Trade and Industrial Development Minister Ronnie de Mel tagged this week's
World Trade Organisation (WTO) talks in Qatar as a "non-starter" and told
the business community not to expect too much out of that meeting.
"This meeting is a non-starter. There is little or no impact that small
countries like Sri Lanka can make on meetings like this. All other trade
blocks have made their (powerful) responses except SAARC which Sri Lanka
belongs to," he said.
He was responding to a question from Ceylon Chamber of Commerce Chairman,
Chandra Jayaratne, as to what Sri Lanka's stand would be at the meeting.
The minister said while he was not attending the Qatar meeting, due to
the current election campaign here, Sri Lanka would be represented by officials.
Salient features of the EDB's export incentive scheme:
* Exporters of value added products who are able to increase exports by
10 % in a calendar month over the average of three previous calendar months
will be entitled to an incentive equal to the incremental value of export,
in rupee terms.
* It is hoped to implement the scheme for exports from mid-November.
The scheme will be valid for six months and reviewed thereafter.
* It is proposed to implement the scheme through commercial banks. Details
of the scheme will be worked out in association with the banks and the
trade and will be circulated to exporters by the end of the month.
* All exporters of value added export products except tea, rubber and
coconut in primary form, gems, apparel and diamonds will qualify for assistance.
* The EDB has already commenced implementation of a package of assistance
equaling Rs. 250 million to the apparel sector, the diamonds sector and
the gems and jewellery sector based on business development plans prepared
by these sectors. Therefore they are excluded.
Salient features of the interest rate subsidy scheme:
* The EDB will bear 6 % of the interest component on working capital
project related loans extended by commercial banks which lend at 13%-14%.
The responsibility of negotiating the loan lies with the exporter.
* EDB has had discussions with the NDB and the DFCC on this matter.
Details of the scheme will be worked out in consultation with the banks
and trade and will be circulated to the exporters before November 15.
* SMEs of value added export products except tea, rubber and coconut
in primary form, gems, apparel and diamonds will qualify for assistance.
* The scheme will be valid for one year and reviewed thereafter.
World Bank Fund strikes CO2 deal
The Prototype Carbon Fund (PCF), a private-public partnership operated
by the World Bank, said last week it had reached deals to purchase carbon
dioxide (CO2) emission reductions from Uganda and Chile, according to news
The deals are the first struck by the PCF in line with the Clean Development
Mechanism (CDM), details of which are currently being deliberated at U.N.
climate talks in Marrakech, Morocco.
The CDM is part of three mechanisms established under the Kyoto Protocol
that developed countries may use to lower the cost of meeting their emission
reduction targets. The World Bank is emphasising that sustainable development
of developing countries and efficient reduction of greenhouse gas emissions
would be compatible.
"We are creating a new mechanism that can enter the market," the World
Bank's Ken Newcombe, manager of the "Prototype Carbon Fund" (PCF), is quoted
as saying. "Emissions that our shareholders (the 17 companies plus the
governments of Japan, Canada, Norway, Sweden, Finland and the Netherlands)
intend to purchase are destined either to help meet their targets or, as
there are banks involved, they could inject them into global trade."
Presenting the scheme's first annual report, Newcombe gave examples
of where its $35 million resources were being spent - a plan to buy $3.9
million of emission reductions over the next 15-20 years from two small
hydro projects in Uganda.