When your RSA balance is small…

Just last week, Demola received an alert on his phone from his Pension Fund Administrator (PFA), that his Retirement Savings Account Balance as at the end of 2015 is ‘X’ amount of naira. Demola who had just returned from Christmas and New Year holiday where he spent money with friends and families immediately became sober. Anyone around him could quickly notice that something was wrong and that he was being disturbed. When his neighbour asked him what the problem is, his reply was ‘Men…, I need to do something quickly,…’

He has just realised that he was empty and if nothing is done to boost his pension savings;he could end up after leaving paid employment not having a reasonable amount of money to fall back on when retirement knocks on his door.

So, for Demola, not only was he not happy because the balance in his RSA was still very small to give him a comfortable life in retirement, he was also worried that he might not qualify for some of the benefits pension contributors will soon begin to enjoy for participating in the scheme, including access to primary mortgage home. Demola regretted that he was not doing anything before now to increase his pension contribution towards his retirement, whereas he had all the opportunity to do so through theAdditional Voluntary Contribution (AVC).

What further made Demola uncomfortable was that he had enough disposable income from his monthly salaries that he could have channelled a portion towards his pensions, but has been living like the rich and spending the whole money with friends on frivolities.

Now that Demola has realised himself, what could be done quickly to remedy the situation particularly that this is the beginning of another year when serious minded people were looking at their future and planning for it?

Demola should not panic. It is better to start late than never starting at all. There are many Demola’s out there who got similar RSA balance alerts, but ignored them and never realised they could do something to change their situation.

What it requires is for Demola to take the decision ofmaking a personal sacrifice,by contributingan extra amount of money into his RSA through his employer. Though it’s not going to be convenient for him given that he was used to luxury of having enough disposable income from his salary to spend every month, but it requires that Demola cut part of his spending and try to be a bit cautious in his life style.

Demola and his likes who want to change their situation should take this as part of their resolution in the New Year, that starting from this January, I will on monthly basis contribute an extra amount of money into my RSA. Just pass the instruction to your Human Resource Department or Accounts Department as the case may be, who will then incorporate it into theCompany’s payroll so that deductionstartsimmediately with January pay.

In the Pension Reform Act (PRA) 2014, 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. So, what will change the future for Demola and other people like that is not to rely on the basic contribution but make extra contribution through the AVC platform.

In this new journey, you have taken a decision to strengthen your future, you have taken a decision to bolster your retirement plan, you have succeeded in equipping yourself with the resources to access primary mortgage home when the National Pension Commission (PenCom), opens the door for contributors to utilise a part of their RSA balance as equity contribution for primary mortgage. Besides that,you will also have the opportunity to enjoy benefits including options for child education, vacation and pilgrimage if windows open in these areas in the near future.

AVC 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.

It 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 you retire comfortably.

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.