CPS: If you do not really need the ‘lump sum’ don’t take it
The less amount of money you withdraw from your Retirement Savings Account (RSA) as lump sum, the more money you will have as your balance for retirement.
Like the wise saying “You cannot eat your cake and have it”. This is through to its meaning and applies to how much you protect your savings for that period in life called retirement.
A number of workers in the Contributory Pension Scheme(CPS) have retired with complaints that their monthly pension was far less than what they were expecting, whereas like the proverb, they had eaten their cake in the form of lump sum.
This means that at the time of retirement, they had applied through their Pension Fund Administrator(PFA) to withdraw a certain amount as lump sum from their RSA, and when the balance left is applied for pension payment either through Programmed Withdrawal or Annuity, it will no longer be enough as they expect.
Section 7(1) of the Pension Reform Act 2014 says a holder of retirement savings account shall upon retirement or attaining the age of 50-years, whichever is later, utilise the amount credited to his retirement savings account for the following benefits-
A. Withdrawal of lump sum from the total amount credited to his retirement savings account provided that the amount left after the lump sum withdrawal shall be sufficient to procure a programmed fund withdrawal or annuity for life in accordance with extant guidelines issued by the National Pension Commission, from time to time.
B.Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span; or
C. Annuity for life purchased from a life insurance Company licensed by the National Insurance Commission (NAICOM) with monthly or quarterly payments in line with guidelines jointly issued by the PenCom and NAICOM.
Another occasion where a contributor could take part of his contribution before retirement is in the event of job loss.
Sub-section (2) of 7 says where the employee voluntarily retires, disengages or is disengaged from employment as provided for under sub-sections 2 and 5 of subsection 16 of this Bill, the employee may with the approval of the Commission, withdraw an amount of money not exceeding 25 percent of the total amount credited to his retirement savings account, provided that such withdrawals shall only be made after four months of such retirement or cessation of employment and the employee does not secure another employment.
Sub-section (3) of 7 says where an employee has accessed the amount standing in his retirement savings account pursuant to sub-section 2 of this section, such employee shall subsequently access the balance in the requirement savings account.
What has been found in exercise of this section is that contributors who were disengaged or have disengaged themselves come for the 25 percent just to have it, even when some do not really need the money at that period.
Umaru Farouk Aminu, head, Research & Corporate Strategy, PenCom said retires should desist from withdrawing huge sums of money from their Retirement Savings Account if they want to enjoy a robust monthly pension.
He observed that many retirees have burnt their fingers with such decisions, adding that the quest to withdraw fabulous amounts as lump sum, leaving little in their RSA is responsible for the little monthly pension some retirees receive.
He called on retirees to take less lump-sum payout if they don’t have need for much financial needs, stressing that less lump-sum will help them keep more money in their accounts.
“People should take less lump sum unless they need it. If they do not need it, they should not take it.
It is important people really understand this. The more lump sum you take the less money you leave in your RSA and the lower your pension.
“People take much of their money and blow it and expect the little they left to perform wonders, which cannot happen. People should leave a lot of money behind so that they can have huge pensions,” he said.
Investigations have shown that some workers wait for their retirement benefit to build houses or start a business. This should not be as most a times, either that the money do not complete the house they have in mind or are lost to fraudsters.
And in that case, the essence of retirement planning is jeopardised and the retiree falls back to becoming a burden to others and the society. So, don’t allow this to happen to you.
The objectives of this scheme is to ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, States and Local government or the Private Sector receives his retirement benefits as and when due ; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
The provisions of this Act shall apply to any employment in the public service of the Federation, the public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.
In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organization in which there are 3 or more employees.
Notwithstanding the provision of subsection (2) of this section, employee of organization with less than three employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the commission.