CPS: Reviewing the past and looking into the future

It is no news that in days, the year 2015 will be over and the new-year will start. It is a time organisations do a year-end review of their activities to enablethem measure how much of their set goals have been achieved. With such information, they are able to plan afresh, re-strategise and set new goals for the coming year with clear timetable and mandates that would enable them succeed. This also goes for individuals because you must have goals set for yourself to enable you grow from one stage in life to another.

First of all, do a review of your performance in 2015, to know how far you succeeded in realising your financial goals towards protecting your future. How did your investments perform? How is your retirement plan working out and how committed are you towards saving for the future?

One important area that better guarantees your future if you are an employee or worker in a corporate organisation is making contribution into your Retirement Savings Account (RSA), which is jointly funded with your employer under the Contributory Pension Scheme(CPS).But for individuals who are not covered by the CPS, but probably belong to the micro pension category including artisans and informal sector workers, 2016 might be the year you have been looking for to have a structured and secured savings arrangement.

Pension regulator, the National Pension Commission (PenCom) is planning to come up next year with a guideline that accommodates micro pension group to be part of the CPS for more guaranteed future in retirement.

For employees already covered under CPS, this is the time to know how much you have accumulated in your RSA, how long you still have to work before you retire and what is likely to be your total accumulations when you retire. What it means is that you can actually have a picture of what your total accumulations would be as at the time you will be retiring. Most Pension Fund Administrators (PFAs) have a pension calculator that would enable you know this well ahead your retirement time.

This review is not for you to get disorganised. It is not for you to be discouraged. It is also not for you to be afraid, but it is for you to buckle up and tighten loose ends in your plans for the future. If what you have as your balance in the RSA is not satisfactory enough to enable you have the kind of life style you would want during your retirement, it means you have to increase your savings by increasing your contributions into the RSA.

The Pension Reform Act 2014 has made provision for Additional Voluntary Contribution (AVC). Additional Voluntary Contributions are extra funds you can opt to add to your mandatory pension contributions, or simply set aside as retirement savings. These funds would be deducted from your monthly emolument by your employer and remitted into your Retirement Savings Account (RSA) with your chosen PFA, along with your regular pension contributions.

AVC differs from other regular savings you may have, as it is deducted from your salary before tax. This is a significant advantage of the AVC, as it means the contributions are tax-free and lower your overall tax liability.

So, apart from what the employer has provided, there is an opportunity for you to enhance your pension savings through this platform so that by the time you are due for retirement, there would be substantial amount of money to make youretire comfortably.

According to the experts, it also has implication in the interim, if for example it becomes possible to buy mortgage with pension savings as being assured by the National Pension Commission (PenCom), because the larger the amount you have in your RSA balance, the larger the amount you can use as a proportion of it for collateral.

For instance, someone that has a N35 million balance in his RSA account will be able to get a quality mortgage than someone who has N15 million and you could make choice on which type of mortgage you want to buy. So, this becomes an incentive to save more because I know that when I get to a certain threshold it affords me the opportunity to qualify for a particular mortgage and if I don’t I may not qualify.

So, far and above what my employer is putting down for me, I could decide to make additional contributions. It has far reaching implications, not just at the point of retirement but also in the interim. AVC’s are pooled into RSA Fund and, therefore are invested and managed in the same rigorous manner as your regular pension contributions.

An additional advantage, and a major difference from regular pension contributions, is that you are at liberty to decide the amount you wish to contribute, in addition to the frequency of the contributions; e.g. monthly, quarterly, bi-annually or annually.

You can also withdraw from, or liquidate, your AVC at any time. Note, if a withdrawal/liquidation is made within five years after the AVC was remitted, there will be a tax charge as tax exemption only applies to contributions that remain invested for a minimum of five years.

In addition to boosting your retirement funds, AVC can also serve as a form of targeted savings towards specific projects, such as, mortgages, children’s school fees or a dream vacation.

The AVC scheme is fully backed by the Pension Reform Act, 2014. Therefore, you can be rest assured that your Additional Voluntary Contributions are safe and in the right hands.

All you need to do is inform the relevant department in your organization (e.g. Human Resources or Finance) about your desire to make voluntary contributions, stating the amount and frequency.

In the event you decide to withdraw from, or liquidate your AVC, all you need to do is complete and submit benefit withdrawal form with your PFA, attaching a passport photograph and letter requesting for your funds. Your application will be processed by your PFA and benefits paid within a short period of two weeks.

The CPS, which came into being following the Pension Reform Act 2004 and recently revised by the 2014 Pension Reform Bill, has promised to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due. The scheme is also meant to assist individuals by ensuring that they save to cater for their livelihood during old age, thereby reducing old-age poverty and also ensure that pensioners are not subjected to untold suffering due to inefficient and cumbersome process of pension payment.

In reality, what this scheme and your employer have promised you is at least a minimum standard of life in retirement. This is basic comfort, to ensure that you are not displaced or stranded in retirement. So, would you want to enjoy extra comfort or leisure in retirement? It’s you personal decision. Take a review this period and start bigger in 2016.