March 18, 2025
Most pension schemes, by design, are structured to offer private products or services for both the formal and informal sectors through occupational and individual setups. This is mainly done through the three mainstreams of contributions into a pension scheme namely employer, employee, or sometimes voluntary. Whilst employer and employee contributions are guaranteed, on the other hand, voluntary contributions are optional because it is dependent on an individual’s commitment and willingness to save.
A pension scheme operates in two stages: the accumulation and de-accumulation stage. During the accumulation stage, contributions from members are paid into the fund and, to facilitate the spread of risk, invested in various sectors such as government securities, corporate bonds, fixed-term deposits, equity, and offshore investments. De-accumulation occurs when an individual begins to receive pension payments, causing the value of the pension fund to decrease. The component of voluntary contributions presents an option to individuals within a pension scheme to maximize additional marginal returns on the funds that are to be invested.