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These gratuities will kill you at retirement!


retire-richTeboho Makoetlane

I READ a quote in one of Norman Vincent Peale’s classics during my high school days. “The weakness of the powerful is their superiority.” The Power of Positive Thinking was a bit complex for a high school student to grasp, but this one stuck with me and this is the first time I observed it in motion. Retirement, like death is not a respecter of persons. In fact, death can be seen as a different form of retirement. Whether you are a man of the cloth, a thief, a commoner, a chief whip in government, non-profit or corporate – all man will leave their occupations, sometimes to pursue new ones. No matter how retirement is dressed and manicured, it shall surely confront every person who is busy working now – whether employed or self-employed. The term work should not in any way give entrepreneurs an emotional painkiller to avoid this impolite message because even running your own business is work and at some point rest shall be necessary.

For the crème of the corporate ladder, there is an Employee Benefits invention called a Gratuity – the cruellest invention ever! Most employers use it as an enticement for officeholders of high profile jobs and from a distance it looks like a good benefit. A gratuity is non-funded most of the time and is payable at the end of a contract term as a percentage of the last annual salary multiplied by the number completed years in the contract. This amount is usually large and has created a culture of short-termism in many employees, successfully swaying many away from the old retirement religion. Whether you are a believer or not, when all has been said and done, we can roll an eight side dice and only two outcomes will be recorded – death or retirement. If you are lucky, we will record retirement, then death. Executive compensation schemes and strategies will always be superior but we should avoid making irrational assumptions like the following;

  • Executives and managers are good stewards of personal finances.
  • Executives and managers know alternative ways of investing money.
  • Executives and managers are not impulsive and therefore do not need a guaranteed monthly pension income.

There is little evidence that their positions in society and organisation have given some human beings financial superiority. Executives and managers still obtain loans like normal people, they impulsively buy this and that every now and then, and most of all, they eat, drive and dress exorbitantly. In their defence I can hear one reader saying, most of these executives all invest exorbitantly in other ventures which are not necessarily traditional in the context of retirement planning. That is possible but then again we know how as Basotho, we love following someone’s trend without the wisdom of their research. Most of the elites who obtain gratuities at the end of their contract terms build Liduplex and their own residential property for their families. Here is the behavioural flaw of thinking that property can be a retirement investment in Lesotho:

  • Basotho are not sellers of property. Those who do it are mostly forced by circumstances beyond their control. We attach so much emotion to it and this will hinder the characteristics of an investment to unfold in that property. For a retiree, an investment is anything that generates cash or can be easily converted into cash. I do not see property fitting in that description because bomalome le balimo would not allow that. Therefore property is still a ceremonial asset in Lesotho and most African countries.
  • In the long run, it is the desire of every Mosotho to build. The rate at which people are building Liduplex is almost equal to the rate that people build their own houses. Equal to the above is also the rate at which duplexes are advertised for sale in local newspapers. Why? Most of these duplexes are built in less developed communities and have probably charged the same amount of rent since completion – there is no growth in income or revenue. Introducing inflationary increases in the rental is necessary for keeping up with increases in the prices of goods and services and for a retiree, this is extremely important.

This article could be addressing the so-called elite but the behavioural inconsistencies in making financial decisions are inherent in all people – in fact I believe they become magnified with status and money. It is therefore important to protect oneself from the consequences of such inconsistencies by participating in a pension fund or policy which will provide a guarantee of post retirement income. People who lived and worked in Zimbabwe around the Black Friday (14 November 1997 when the Zimbabwe dollar lost 71,5% of its value against the United States dollar.) through 2000s might not necessarily appreciate the fact that retirement annuities are a better retirement income alternative. While we understand that economies and political landscapes can change overnight, sober planning is required because no one can time the market. One of the reasons why executives and managers are paid a gratuity instead of keeping them in a pension fund is because their service contracts are short (2 – 5 years). However, over a period of time you will realise that the contract was renewed a couple of times and eventually the employee loses on the magic of compound interest had the gratuity equivalent been invested on a monthly basis. In closing, obtain advice regarding retirement wealth building strategies and commit now!

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