CPS: Taking stock of 2016 for stronger future

Anyone looking back or reviewing activities in the economy in the past one year, either as individual, group or government would have seen that not saving for the future is a great mistake that nobody should make. Nigeria as a country had the opportunity in the past to save and build capacity during the boom times when oil price was up the roof, so that in the event of dry time as we have had in the past months, the country could ride on with stored reserves to continue its responsibility as a nation.

But the reverse is the case and each and every segment of the economy, both government and individual households have had the pinch for failing to have a proper plan for the future.

Just as organisations and businesses take stock of their activities or review their operations at the end of a given year, individuals should also do so. And what makes it important for an individual is that it enables you appreciate your current financial status including investment, debts,retirement plans and state of your pension contributions.

Therefore, as an enrollee in the Contributory Pension Scheme (CPS), you need to look at your Retirement Savings Account (RSA); whether your current RSA balance, vis-à-vis what yourend balance would likely be when you retire; How long do you have to work before retirement; Is your Pension Fund Administrator (PFA) meeting your expectations in terms of returns on investment; Are you getting the right services and attention from you PFA; Is there any other thing you will need to do to improve on your RSA balance; Have you thought of increasing your savings rate through voluntary contribution and what decision do you need to take in 2017 to better your financial plan.

If you have reviewed thoroughly and your finding is that what you and your employer are currently contributing to your RSA with your Pension Fund Administrator is below what you would need to have a successful retirement, then you need to do something.

Doing something about it is a quick decision you can make in the New Year as you line-up your resolutions for 2017. It only requires that you adjust your expenses and increasing your savings.

The Pension Reform Act 2014 makes provision for additional voluntary contribution as vehicle to enable contributors augment their contribution to enhance their pension contribution.

So any individual desiring to enjoy pleasurable retirement should consider making additional voluntary contributions provided for in the Act.

The Act allows workers to make additional voluntary contributions into their RSAs beyond the minimum of 8 per cent deducted from the workers emoluments and 10 percent by the employer on monthly basis. This additional voluntary contributionis made from the employees’ salaries, that is, indirectly through his employer.

The Pension Act provides that “Any employee to whom 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 18 per cent employer and employee contributions into an individual’s Retirement Savings Account (RSA). Before starting the Additional Voluntary Contributions (AVC), 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.

It must also be noted that the employee is required to have an 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.

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.