Retiring with a plan
The eight-year journey of Nigeria’s pension reform has yielded commendable results: 5.2 million workers are covered, and there is a total of N5.3 trillion in contribution. There is room for improvement as only 8 percent of Nigeria’s working population is covered.
Covering Nigeria’s hugely informal economy will be no easy task. There are more people in the informal sector – self-employed, artisans, employees working in micro-enterprises that employ less than five people (companies with at least five employees are mandated to join the contributory pension scheme).
The pension industry wants to expand pension coverage in the informal sector by 10 million, stretching the total to 20 million in five years. Increasing participation and coverage of pension funds promotes capital formation, financial sustainability and, above all, provides a social safety net. Nigerians mostly rely on family and friends as mechanisms for coping with disability, death, retirement.
In response to these risks, Mansard Insurance plc, licensed by the National Insurance Commission (NAICOM) to underwrite life and non-life insurance businesses, unveiled an investment vehicle (Mansard Deferred Annuity Plan) that assists people to accumulate funds as regular savings during their productive working lives for the purpose of earning regular income for life from their chosen retirement age.
Though the investment plan is not an alternative to the statutory pension scheme mandated by the Pension Reform Act of 2004, it is a long-term investment vehicle that guarantees easy and immediate regular income after retirement. Unique features of the product include a savings accumulation phase to be determined by the annuitant and a disbursement phase, which commences at retirement or the annuitant’s chosen age or age 60, whichever comes first.
The investment plan is designed in a way that part withdrawal of up to 25 percent of the accumulated principal is allowed once in five years during the accumulation phase and up to 35 percent of the accumulated funds as a lump sum at retirement.
Another unique feature is an option to choose spouse annuity type, wherein the annuitant’s spouse can continue to receive an income for life upon the demise of the annuitant during the disbursement phase. The new product comes with a free life insurance cover of up to N1 million during the accumulation phase.
As most Nigerian workers live from hand to mouth with mounting cost of basic necessities, many workers have more than their fair share of dependants that make it impossible for them to save. Having a voluntary retirement plan prior to retirement is a situation most Nigerians need to take seriously. They can do this through saving a fraction of their wages toward their retirement.
Continued awareness, to change in attitude towards saving, is critical for the economy; individuals who are disengaged from a productive life face problems that a retirement plan can solve. Across the globe, annuity plans guarantee the account holder at least 100 percent of the contributions, even if the underlying investments in the annuity fail to perform up to expectations.