CPS: Riding with the time

The Contributory Pension Scheme (CPS) which started over 10-years ago following the enactment of the Pension Reform Act 2004 and amended in 2014 has succeeded in building employee confidence for a successful retirement.

This means that employees either in the public or private sector that joined the scheme from inception haveboosted their retirement worth by 10-years of a coordinated savings and investment returns. It also means that they could walk up the retirement ladder with some respite that there is already something to fall back on.

The pension law has also expanded the benefits of the scheme, providing opportunity for contributors to withdraw from their retirement savings (RSA) towards equity contribution for payment of residential mortgage.

Section 89 (2) of the Pension Reform Act (PRA) 2014 provides that a Pension Fund Administrator may, subject to guidelines issued by the National Pension Commission (the Commission), apply a percentage of pension fund assets in the retirement savings account towards payment of equity contribution for payment of residential mortgage by a holder of Retirement Savings Account (RSA).

According to the Act, the minimum rate of pension contribution is 18 percent of monthly emoluments, where 8 percent is to be contributed by employees and 10 percent by employers. However, an employer may choose to bear the full responsibility of the scheme provided that in such a case, the employer’s contribution shall not be less than 18 percent of the employee’s monthly emoluments.

Keying into the CPS cannot be overemphasised because as the industry grows, the scheme will provide other opportunities including child education and dream vacation etc.

Riding with the time means that as you join the scheme, you will be in position to better your future and get prepared for a blissful retirement which the scheme is given to offer.

There is opportunity for Additional Voluntary Contribution called AVC. These are extra funds you can opt to add to your mandatory pension contributions. 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, 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.

Riding with the time also means, you key into this AVCplatform to enhance your pension savings so that by the time you are due for retirement, there would be substantial amount of money to make your retirement more pleasurable.

According to 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.

So, far and above what your employer is putting down for you, you 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.

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.

With this pension law in place, every worker in Nigeria covered under the scheme is now assured of blissful retirement. Now, go ahead to open a Retirement Savings Account in your name with a Pension Fund Administrator of your choice. This individual account belongs to you as an employee and will remain with you for life even if you change employer or PFA.

So, if you have been in employment before and within the last 10-years and during this period you have not keyed in, then you have lost a precious time. Mathematically,you have been short-changedby 10-years of what should have been your retirement worth.

Time is of essence, because time lost can never be regained, particularly when it comes to retirement planning. Rather than not starting at all, start now. It is still not latebecause you could still make a lot of difference in building your retirement bank.

Take a look at your present age and how long you have to remain in employment. That will give you a clear picture of how long you have to make contributions into your retirement savings account.

If you have not joined the moving train by contributing into your retirement savings account alongside your employer, then demand for it because it is your right and the law protects you.

The objectives of the CPS was 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.

It is also 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, where there are three 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.