By Adaora Ude
Thanks to the Pension Reform Act of 2004, Nigerian workers have something to look forward to at the end of their ‘working life’ and for the rest of their ‘living life’.
It is a way to encourage Nigerians to save towards their pensions and have a ‘little’ nest egg of some sort; not that a lot of people expect to rely on their pensions, judging from what the pension industry has been in the past. Pensioners have slumped and died on queues or had to be turned back when they eventually got to the point of payment because of improper documentation and verification.
However, the new scheme actually makes that nest egg possible. Imagine retiring today with 63 million naira saved up in your pension plan? This may sound unbelievable, but with this new scheme, this is realistic.
Yet, a lot of Nigerians are clearly not accepting the idea of retirement especially the older work force, and the primary reason for that is the potent fear of the unknown! You meet ‘baba
” especially in the public sector falsifying their ages just to allow for more time in active service. Even younger workers in the private sector too! How do you explain someone’s answer to “how old are you?” being “errr do you mean my real age or official age?”
This is the reason why it is important to plan your retirement. Here are a few pointers and what you need to know when opening one:
- Identify a PFA (Pension Fund Administrator) with a solid background, good return on investments and excellent service delivery and open a Retirement Savings Account (RSA) with them.
- Obtain your PIN (Personal Identification Number) from your PFA and forward same to your current employer. That PIN is yours for life and it is a mobile account, which means that if you change employment, that PIN moves with you for the next employer to take over liability of crediting your account on a monthly basis.
- 15% of your total emolument is paid into your pension account. 7.5% from you and at least, 7.5% from your employer. Total emolument is defined as your basic salary, transport and housing allowances. An employer can choose to take on the full burden 15% or even more but they cannot go below 7.5%
- This contribution can only be accessed when you have reached the retirement age of 50, which is the default retirement age as provided by the Act or the retirement age of the organization where you worked at the time of retirement; whichever is later. However, if you are out of a job for a period of 6 months without any contribution made into your account, you have access to 25% of the balance of your account. The remainder of 75% will wait until you retire.
- One can actually beef up their RSA by buying into the AVC (Additional Voluntary Contribution) option where you can, with the help of your PFA as financial advisers, make more contributions to beef up your account balance or just save towards a future project. You can however, have access to this portion of contribution anytime you want. The only clause is that if you want to withdraw your AVC within a 5 year period, it will be taxed. After 5 years you can take your AVC contributions if you so desire – tax free!! Doesn’t that sound great?
- You can also have a pension plan if you are self employed or belong to an association. You deserve a pension plan too and the law has made it possible for such category of persons to open a Retirement Savings Account with a PFA as well.
- Your PFA has to invest your contributions and make yield returns for your funds. There are specific asset classes and fixed percentages of funds that can be invested and the process is regulated by the National Pension Commission, PENCOM. For the regulatory body, their priority is getting the scheme right and safety of contributor’s funds and so right now, the asset classes are strictly regulated with FG Bonds having the highest percentage of investment ratio for Fund Administrators. Why, you might ask? Because it is low risk and relatively safe and right now, safety of the funds generally supersede high returns.
- Inasmuch as your contributions will go to a next of kin in case of death (which is a possible occurrence) it is advisable that one has a will in place to take care of affairs such as this. Nigerians have not totally come to terms with the importance of having a will but it is a “lifesaver” for the ones left behind. For instance, where one dies intestate (without a will), his next of kin will require a letter of administration in order to access the deceased’s estate and that takes ages to get. Also, that beneficiary is expected to give up 10% of the benefits to the state! Therefore, it is important to prepare a will and tidy your affairs.
Let your Pension Fund Administrators manage, administer and grow your account whilst giving you periodic updates on the status. Let them sweat it out amongst themselves to give you the best of service. Let them help direct you and point you in the right direction when it comes to retiring well. Investing in your child’s “football” career shouldn’t be your pension plan; it isn’t foolproof. Peradventure he pulls a ligament and is unable to play ever again, what happens to your pension plan then?
Work hand in hand with your PFA, open an account NOW!
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This article was first published on 11th November 2013 and updated on May 28th, 2014 at 2:15 pm