The Nigerian Contributory Pension Scheme (CPS) started in 2004 and has grown consistently over the years, with total pension assets topping NGN14 trillion at the end of 2022.
The National Pension Commission (PenCom), which regulates the pension industry, has issued several regulations and guidelines intended to include almost every type of worker (formal and informal sector) into the scheme for the benefit of helping them have a good life at retirement.
As participants in the industry, it is essential that you employ some strategies or take some necessary steps in ensuring that you make the most out of the CPS. This will ensure and guarantee you a smooth journey toward retirement.
There are several ways to do this and we will be highlighting some of them in this piece.
Start early, Open A Retirement Savings Account
Open a Retirement Savings Account (RSA) with any of the PenCom-licensed PFAs as soon as you start earning income and wages and start to contribute as early as possible. Starting to save for retirement as early as possible is the best way to maximize benefits from the Contributory Pension Scheme. The earlier you start to save, the more time your money has to grow and the more money you will have when you retire.
Make regular pension contributions
Making regular contributions to your pension account is key to maximizing the benefits of the CPS. This helps to ensure that your account balance grows steadily over time. Employers of labour are mandated to remit at least 18% of a worker’s emoluments (which include, in the least, the Basic salary, Housing and Transportation allowances) 7 working days after the payment of such wages into the worker’s RSA with a PFA. These regular pension remittances will help the RSA holder to enjoy the benefits of steady growth on contributions enabled by the regular return on investments by the PFA’s investment of such funds.
Monitor your pension account
You should monitor your pension account regularly to ensure that everything is in order and that your contributions are being remitted and also that you are getting a good return on investment of your pension funds. As an RSA holder, you are entitled to receive periodic quarterly RSA statements from your PFA. However, you can equally request your RSA statement from your PFA as the account holder anytime if you need to. Luckily, most of the PFAs now have an online portal where you can log on to view your RSA balance live or even download their mobile applications upon registration. It is important to check your RSA statements regularly and review them to ensure that all your contributions are being remitted correctly and timely too.
Explore Voluntary Contributions
The CPS makes allowance for voluntary contributions (VC). A voluntary contribution is an additional form of pension contribution made by the RSA holder into his RSA on a monthly basis in addition to the regular mandatory pension contributions. Making additional voluntary contributions to your retirement account will help you build up a larger retirement fund and maximize the benefits available therein. Consider increasing your contributions by a few percentage points each year to help your pension fund grow faster. Contact your payroll officer and instruct them to deduct the amount you intend to add as VC from your monthly emolument (subject to a maximum of 1/3) and add to your regular pension remittances due to you and remit to your PFA. Read more on the benefits of Voluntary Contributions including Return and Tax implications here
Seek professional advice
The pension industry is a specialized one that requires proper education and professional guidance to enable you get the most out of it. If you are unsure of how best to do a thing or need any advice regarding the Nigerian Contributory Pension Scheme, it is a good idea to seek the advice of pension advisors and finance professionals. They will provide the best advice on how to maximize the benefits of the scheme and clarify the grey areas so that you can make an informed decision. PensionTalk is ready to help in this regard. You can contact PensionTalk here for your pension questions.
Plan early for Retirement
It is crucial to start making retirement plans as soon as you can. To assist you in making the best retirement plans possible, think about seeing a financial counselor or pension specialist. This will enable you to get the most out of your benefits, particularly those provided by the Nigerian Contributory Pension Scheme. We have published extensively on how to plan for retirement by a pension expert here.