Walking towards retirement…how involved are you?

Retirement is a very important period in once life. It’s a period during which a person is no longer working, meaning that income from paid employment ceases to come. So, the person would have to fund his personal expenses from a retirement plan or savings made during his or her active work life or a combination of sources.

Because of the importance of this period, it becomes important therefore that steps are taken with every sense of commitment towards ensuring that adequate preparations are made for it. So, If there is anything that should be very important to you as an employee, it should be your pensions because it determines how you live in your retirement.

Given the importance, it is most advisable that you take active part in knowing how your pension is managed, right from your employers table to the mangers of the fund.

Though experts in pension management, the Pension Fund administrators (PFAs) and the Pension Fund Custodians (PFC’s) under the supervision of the National Pension Commission (PenCom) are there to manage your pensions and ensure it is safe. Being involved and taking active part to understand what is going on by asking questions where necessary brings out the beauty of the scheme.

This is the beauty of the Contributory Pension Scheme (CPS) as provided in the Pension Reform Act 2004 and amended in 2014.

Being therefore a part responsibility of the employee to make contributions to the pension purse, he or she must always and keenly monitor developments in his retirement savings account being managed by his Pension Fund Administrator (PFA).

Against this background, it is important that the employee (contributor) takes interest in knowing who manages his pensions. Every employee has the right to choose any PFA of his or her choice, depending on sense of judgment.

In signing-on to a PFA, check to make sure that such PFA follows the rules and regulations of the pension scheme as established by the Pension Reform Act and you are convinced they would create value for you. Ask other people who use the same PFA to know what their experiences have been and check or put them side by side with other PFAs before making up your mind.

Watch out to see that the PFA you are choosing is okay and friendly, in such a way that you as a client are treated as such; that they will be willing to contact you if need be; you can call to talk to them; they would listen and attend to your enquiries; they will also communicate regularly through whatever platform and you can go to their website for your account balance and other enquiries.

Your PFA must be able to explain to you the benefits of the scheme, through series of programmes and platforms such that you appreciate what you are getting involved in. It is therefore your right to understand every aspect of your pension contribution including utilisation of the pension lump sum at the point of retirement.

Here you need to understand what programmed withdrawal managed by the PFAs and supervised by the National Pension Commission (PenCom) or annuities managed by life insurance companies and supervised by the National Insurance Commission (NAICOM) means in retirement and how they affect your individual characteristics.

It is also within your right to ask your PFA to provide you details of fund utilisation. If you look at your statements which you will get every three months, you will see that the number of units have increased with every contribution you make.

Make sure that every month, and not at year end, that your money is increasing and you are seeing progress in terms of fund size and returns on investment. Compare it with what other PFAs are giving to your known friends or colleagues that are on the same salary level with you. Always keep checking to ensure that your retirement savings account is improving. Check to ensure that they are doing well and if you browse the internet, you can check on their website with what others are doing. Make sure you want to deal with a PFA that have branches for service coverage, so that if you move from one local government or state to another, your PFA is there to serve you well.

Check that their locations are easy for you to reach, and that they send SMS alerts, give you statement of accounts and they are online.

The whole essence of the pension scheme being 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, gives the employee contributor rest of mind to continue his working career.

While this would provide the basic comfort in retirement, employees have the opportunity to boost their savings to guarantee a higher level of comfort in retirement. This is through a personal pension plan, which could be worked out with your PFA on request.

Until 2004, Nigeria had operated particularly in the public sector, a Defined Benefit (DB) pension scheme, which was largely unfunded and non-contributory. The system was also characterised as a pay-as-you-go (PAYG) scheme since retirees were to be supported not by their previous contributions but by annual budgetary provisions.  Because it was largely unfunded, the DB system led to massive accumulation of pension debt, which was estimated at more than one trillion naira. But with the coming into force in June 2004 of the Pension Reform Act as amended in 2014, a new and successful pension scheme was established.

The new scheme which is known as the Contributory Pension Scheme, as the name suggests, is contributory in nature, making it mandatory on employers and employees in both the public sector and private sector organisations with three or more workers to contribute 10 and 8 percent respectively of the emoluments of the employee into a Retirement Savings Account (RSA).

Apart from ensuring that every worker receives his entitlement as and when due, the other objectives of the scheme includes to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.