CPS: Giving workers opportunity to boost their pensions

Every worker either in the public or private sector needs additional voluntary contributions to get maximum comfort in retirement. While it is true that the implementation of the contributory pension scheme introduced by the Pension Reform Act 2004 has provided a guaranteed pensions in retirement, it will be instructive to point out here that it is still not out of place for every individual wanting to enjoy pleasurable retirement to consider making additional voluntary contributions as provided for in the Act.

It is in realisation of the fact that we need to always augment our pension contributions that the Pension Act makes provision for additional voluntary contribution. The Act allows workers to make additional voluntary contributions into their RSAs beyond the minimum of 7.5 per cent deducted from their emoluments on a monthly basis. These additional voluntary contributions must, however, be made from the employees’ salaries, that is, indirectly through his employer. It is believed that direct lodgments may be used as a means of laundering money. Section 9 (5) of the Pension Act provides that “Any employee to which this Act applies may, in addition to the total contributions being made by him and his employer, make voluntary contributions to his retirement savings account.”

Additional Voluntary Contributions is the discretionary contribution made above the mandatory 15 per cent employer and employee contributions into an individual’s Retirement Savings Account (RSA) and cannot be more than 100 per cent of employee’s emolument. 

Before starting the Additional Voluntary Contributions, however, you need to look at your anticipated cost of living and level of expenditure when you retire, your monetary requirement to maintain your standard of living in retirement, how much time do you have left to work before you retire and what your pension value will amount to when you retire.

After taking into consideration the above listed factors, decide on the extra amount of money you want to contribute on a monthly basis. After you have established your general retirement goals, determining how your financial resources will be invested and later used can help ensure a comfortable retirement.

How to make additional contributions

Additional Voluntary Contributions is the extra contribution employees are free to make outside the statutory pension contributions stipulated in the Pension Reform Act 2004.

It must also be noted that the employee is required to have a RSA to start the Additional Voluntary Contributions. It attracts the same investment returns as your statutory pension contributions.

Again, you do not need a fresh registration to get started.

It will be helpful to stress that voluntary contributions are additional personal contributions that can be made alongside your RSA. Remittance of voluntary contributions must also come through your employer to your Pension Fund Administrator. To make this easy, the payment schedule provided to the employers has a column indicating voluntary contributions, and this column will be filled with the amount of your choice if you have elected to make this additional contribution.

However, in view of the fact that Voluntary Contributions are not mandatory, it could be any amount of your choice. The voluntary contributions made will be remitted into your existing RSA PIN and your statement of account will also show the details of your voluntary contributions to enable you monitor the growth of your voluntary contributions.

How to withdraw voluntary contributions

In accordance with the circular issued by the National Pension Commission (PenCom), all withdrawals from Voluntary Contributions Accounts can only be accessed after obtaining a “No Objection” approval from the commission. This means payments from Voluntary Contributions Accounts can only be made by Pension Fund Administrators (PFAs) upon application for and receipts of this approval.

Employees also have the benefit of accessing their Additional Voluntary Contributions any time before retirement. However, enjoying a tax free withdrawal applies only after five years of making contributions. This implies that all PFAs are mandated to apply the current Personal Income Tax (PIT) rates on all voluntary contribution withdrawals where the voluntary contributions to be withdrawn are less than five years old. Voluntary contributions that are withdrawn after five years from the date the contribution was made will be tax free which means it will be paid without deducting tax.                                                                                     

Conclusion

It is a fact of life that after many years of active service, man will have to retire in line with his condition of employment and the dictates of nature. Whether we like it or not, that time is coming when an agile man today will not be able to do any laborious job he was used to, because the body would have become weak. At such a stage in man’s life, he will have to rely on reward from his past sweat. This is essence of retirement planning. 

How an individual will spend his retirement years is entirely up to him especially as we are the architect of our fortune or misfortune due to our freedom of choice. Retirement years could be the period in man’s life, filled with travel and all the leisure activities he never had time for while he was working. Whether retirement will be pleasurable or not will be determined by how well the individual concerned had planned in advance for this old age.

It should be borne in mind that it is not enough to just make your retirement savings account your most significant investment asset. Depending on the level of your income and the corresponding commitments, and indeed your ability to save for the rainy day, workers should set aside towards other investments to provide for their comfort in retirement.