• Monday, July 22, 2024
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Enrolling in contributory pension scheme, what to benefit

pension

Whether you like it or not, you are sure to retire one day. A time will come when you are not expected to work long hours trying to make ends meet. As one gets older, age begins to catch up and by the time we attain the age of fifty year up, we are already in the retirement phase of life where we are expected to do much less.

Planning for one’s retirement should not be delayed because it is a period one needs to be comfortable. This is the time one is expected to survive on what one has kept, saved or invested. As a matter of fact many personal finance experts opine that a retired person must ensure that retirement does not bring substantial lifestyle changes, where one begins to live on less than what one was accustomed to. You must plan for your retirement right from the first day you start work.

Now the Contributory Pension Scheme (CPS) already in place in Nigeriais one vehicleto effectively plan your retirement. According to Wikipedia.com, “A pension is a fund into which money is added during an employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments.” Please find below range of benefits on why you need to sign up for the CPS today:

It’s saving towards your future

You will require resources to navigate through life even in retirement. Enrolling in a pension scheme enables one to start putting money aside in a special account towards retirement. While retirement might seem a long way off, you need to start taking steps towards it now as your earning capacity will drop as you get older.

These funds can hardly be touched before retirement

We all face challenges keeping money aside, not to talk of keeping them till we retire. A pension scheme deducts a certain percentage of your earnings and keeps them in a Retirement Savings Account (RSA) which you can only access if you are fifty years old, or if you are unemployed for at least four months then you may access twenty-five percent of it.

Joint contribution by you and your employer

Your employer is bound by law to contribute the equivalent of ten percent of your earnings, while your contribution is eight percent. This means a healthy eighteen percent is channelled towards when you can no longer work.

Funds are kept with PFAs

According to the National Pensions Commission(PenCom), the“Pension Fund Administrators (PFAs) have been duly licensed to open Retirement Savings Accounts for employees, invest and manage 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 it, 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 amended in 2014.

Retirement funds are invested

PFA’s manage your pension contributions on your behalf. They invest the monies in equities and other investment securities and assets to ensure that you have increased value for your contributions when you retire.

Portability

There’s nothing to fear or worry about when changing employment. It’s as simple as your current employer stopping contributions which can then be taken up by your new employer.

Easy access to information from your PFA

PFAs provide online and offline tools to enable you gain access to all the information regarding your funds and their present values so you can easily get abreast of your pension situation. They provide every depositor with a Personal Identification Number linked to their accounts.

Tax Exemption

The current Pension Reform Act 2014 clearly mentions that any interests, profits, dividends, investments and other income accruable to pension funds or assets are not taxable.

Regular payment of retirement benefits

Since the contribution into the Retirement Savings Accounts is the property of the individual, he or she is no longer at the mercy of government and is assured of regular payment of benefits.

Transparency

The scheme promotes transparency because it is a requirement that PFAs publish their rates of return, regular statements of contributions, earnings and annual audited accounts.

Robust Monitoring

The scheme entails the establishment of the National Pension Commission (PenCom) to regulate, supervise and ensure the effective administration of pension matters in Nigeria. The Commission will ensure the safety of the pension funds by issuing guidelines for licensing, approving, regulating and monitoring the investment activities of Pension Funds Administrators.

Separation of PFA from Custodian

Although they both deal with pension fund assets, the functions of the PFA and Custodian are so clearly delineated that it is difficult for either to misuse the pension funds’ assets to the detriment of the contributor. At no time will the PFA have the custody of contributions of the employee. The contributions go directly from the employer to the Custodian. On the other hand, the Custodian will not invest the pension assets except at the order of the PFA.

Nearly every organisation is eligible

The law provides that organisations with three or more staff are eligible to establish a pension scheme for their staff.  It is a violation of the law not to do so. It is a right of every employee to be paying pension contributions while in active employment.

Vehicle for additional savings

The Retirement Savings Account can also accept additional voluntary contribution from the employee apart from statutory contribution of 8 percent by the employee. This can be arranged with the employees’ accounts or admin departments for inclusion into the payroll.

No Investment Risk

A big advantage of this pension plan is that it’s heavily protected from investment risks. You won’t see a drop in your retirement benefit. Even if your employer goes bankrupt, your pension is still safe.

Payments for Life

When you reach retirement, your pension plan will give you monthly payments for the rest of your life. It’s as if you’re still getting paid by the company even though you’re no longer working.

Currently around six million workers in the formal sector have opened RSAs, in a country where the working population is over sixty million which means that nine out of ten workers are not taking advantage of this opportunity to save for their retirement.

It’s time for more employees to engage their employers to join the pension bandwagon as the benefits of registering all employees in the current pension scheme in Nigeria will be of utmost benefit to both parties. Employers will get more committed employees due to the addition of this benefit as their morale will be increased. Pension enrolment is definitely a win-win for both sides.