Save more…get big pension package

Everyone has a dream future, and we plan for this future depending on what our dream is. This is also applicable to individuals’ retirement plan. Depending on how you want to spend your retirement, there are certain questions you will need to ask yourself.

For instance, how much would I need for my retirement? What would I want to be earning monthly? Will I like to go on vacation annually? What other leisure activity would interest me? What about my healthcare needs? Do I have adequate healthcare insurance? Will I still be paying school fees in retirement? Are my children old enough to take care of themselves? Will my spouse and I be depending on my pension to pay our bills?

By the time you have provided answers to all of these and many more questions not listed here, you would have known whether or not your present pension plan would be able to take care of all these needs or whether you would need to make Additional Voluntary Contribution (AVC).

If you are lucky to be working in an organisation that has more than three employees and also complies with the Contributory Pension Scheme (CPS) being supervised by the National Pension Commission (PenCom), then you have made a step forward.

But if you are not part of the scheme, then you have a challenge on your hands, and the only way out is to meet a financial adviser who will guide you, depending on your circumstance, and on what pension plan you could arrange for yourself.

The CPS, which came into being in 2004 and which was 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.

As the pension industry grows, the scheme will provide opportunities for primary mortgage, child education, etc. The additional contributions you make could be used to plan for your child’s education. If, for example, you withdraw a certain amount of money targeting your child’s education, five years down the line you can access it if need be, and it is tax-free, but if the need doesn’t arise you leave it in your balance.

The CPS, right from inception 10 years ago, foresaw that some employees might have need to plan for bigger pack and so created opportunity for Additional Voluntary Contribution so that while still in active employment, workers could make additional savings. As experts say, if you want more money in retirement, then save more.

According to Section 9 (5) of the Pension Reform Act 2004, 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.

To this effect, the employee wanting to make additional voluntary contribution would liaise with his employer to remit a certain additional amount of money alongside the statutory pension contribution to his chosen PFA.

The money alongside the statutory contribution is invested by the PFA and returns generated are credited into the contributor’s RSA. After five years of making this contribution to the AVC, the employee contributor is permitted under the law to request the money if need be, and it is tax-free.

With this pension law in place, every worker in Nigeria covered under the scheme is now assured of blissful retirement. To achieve this, every worker is required by law to open a Retirement Savings Account in his/her name with a Pension Fund Administrator of his/her choice. This individual account belongs to the employee and will remain with him for life even if he/she changes employer or PFA.

While an employee may only withdraw from this account at the age of 50 or upon retirement thereafter, he can withdraw a lump sum of 25 percent of the balance standing to the credit of his RSA if he/she is less than 50 years at the time of retirement and could not secure a new job after six months from leaving the last job.

Similarly, he can withdraw a lump sum if he is 50 years or above at the time of retirement and the amount remaining after the lump sum withdrawal shall be sufficient to fund programmed withdrawals or annuity for life.

The scheme regulated by PenCom requires that the funds be managed by licensed PFAs whose responsibility includes opening Retirement Savings Accounts for employees, investing and managing the pension funds in a manner as the commission may from time to time prescribe; maintain books of accounts on all transactions relating to the pension funds managed by them, provide regular information to the employees or beneficiaries and pay retirement benefits to employees in accordance with the provisions of the Pension Reform Act 2004 as revised in 2014.

According to the Act, the National Pension Commission (PenCom) was established as a “corporate body with perpetual succession and a common seal”. The principal function of the commission is to regulate, supervise and ensure the effective administration of pensions in Nigeria.

In terms of the different roles and positions in the commission, a strict adherence to experience and ample qualifications can be observed throughout the Act.

The commission is mandated with issuing the guidelines for the investment of the pension funds. These are constantly being monitored and adapted as the need arises or the environment changes. Due to the fact that all PFAs and PFCs need to be licensed and regulated by the commission, other functions such as establishing standards, rules and guidelines for the management of pension funds are ascribed to them.