By Moshood Ayeni
What is certain to happen is the future. As long as you are still alive, it will definitely come. Wishing it away is being unrealistic. It therefore means that the right thing to do today is to strategically plan for it and it must be deliberate too. Therefore, it means that whatever plan it is you have for the future, you must be clear about the objective of such plan. This will allow you to have a clear understanding of your expectations, possible challenges or scenarios and possible ways to deal with them.
Having said these, having a pension plan today is also about planning for the future. You wonder why? Let us delve right in!
What is Pension and its historical perspective in Nigeria?
Pension, as we might have known, is simply as series of periodic retirement income received by a retired worker as a reward of working in an establishment for a certain period of time. To qualify for pension, it means you must have worked for it and satisfy a series of conditions under the payment of such pension.
In some climes, they have special social security packages for the less privilege and vulnerable ones such as old, physically challenged, etc who do not have to have worked for an establishment before they are given pension.
In our own case in Nigeria, we do not have that privilege enjoyed. The closest to that is what we have in Ekiti State during the Fayemi first time administration where he gifted ₦5,000 to the elderly every month. Osun State did same for some time.Generally what we do have is a situation where before you can receive pension, you must have worked for it.
In Nigeria today, the retirement age is between the age brackets of 60/70 years or 30/35 years in service, whichever comes first. So, if Mr Folarin has worked in an establishment for a certain number of years and he gets to a certain age and retires, then, he will continue to get paid on a monthly basis even while not working. The amount that he receives on a monthly basis is called Pension.
Historically, the idea of pension in Nigeria dates back to the 1940s with the promulgation of the Pension Ordinance of 1951 (with a retrospective effective date of January 1946). There have also been several attempts at regulating the pension industry in both private and public service.
For the private sector, the National Provident Fund of 1961 which later morphed into what we know as the NSITF (Nigeria Social Insurance Trust Fund) in 1993.
In the public sector, pension has been governed by the Pension Act of 1979, which was amended in 1990 and later referred to as Pension Regulations of 1991.
It is important to note that compliance level was very low especially in the private sector. A lot of people ended up working for so many years without any pension at retirement. In the public service, however, the situation was not entirely better as pensioners are owed pension for longer periods leading to cumulative arrears in addition to corruption and embezzlement.
That is why, before now, the word pension when mentioned is synonymous with pain, agony, regrets and the likes.This is changing and that is why we need to get informed about it and make necessary plan now. The earlier the better.
The New Era
The Nigeria Contributory Pension Scheme (CPS) came on board in June 2004 with the passing into law the Pension Reform Act 2004 by Olusegun Obasanjo led Federal Government.
The CPS changed the whole pension industry terrain.With the new scheme, every worker in Nigeria either in the private or public sector is entitled to have a pension plan. It does not matter if you are a self-employed or fully employed in a white collar job. Even if you are a foreigner, there is an option for you.
The new scheme is contributory meaning that both the worker and employer contributes into the pension fund on a monthly basis. This is in contrast to the old scheme that had been in place.
At the moment, the MINIMUM percentage of contribution of the employer and employee is 10% and 8% respectively of the monthly emoluments (i.e. Basic Salary, Housing and Transport allowances). As at the end of 2019 the total assets of the Contributory Pension stood at 10.2 trillion naira (approx. $28 billion).
Preparing for the future with your pension
The uncertainty associated with the future can never be accurately provided for. Even in mathematics, when something is uncertain, it means you cannot even assign probabilities to its likely outcome because it cannot be reliably predicted. The best you can do is to control the variables within your power to reduce the impact of the future uncertain event.
The same goes with planning for the future. Just because the future cannot be reliably predicted, in fact you cannot ascertain what would happen in the next few minutes, the best we can do is to make provisions within our control to limit the impact of the outcome.
For example, if the atmosphere suddenly becomes cloudy and from all indications, it seems it is about to rain, the best we can do is to make provision for the rain through means within our control. Such as having an umbrella close by or shutting the windows, etc. Those are ways of reducing the impact of an uncertain event.
This same ideology is applied to planning for the future. One of such ways is having a pension plan in place so that at the time we are not even working or are retired, we can fall back on something to keep life going. So that even if we will get some kind of reprieve or reliefs from somewhere else, at the minimum, we know that without those ones forthcoming we will survive. That is basically the intention behind this.
The good thing about the new pension scheme is that it makes provision for pre-retirement as well as post-retirement plan.What then are the ways you can plan the future with pension.
The stages of planning the future with pension are into two folds:
1) Pre-retirement stage
2) Post-retirement stage
We shall discuss more about the Pre-retirement stage
This is the most important stage and this applies to our topic of discussion today. It does not matter whether you are a graduate or undergraduate. What is important is that as long as you are in the working population bracket, you should be very concerned at this stage and guide your pension plan aggressively and deliberately too.
Interestingly, there are benefits you can derive from having a pension plan even before you retire. And talking about pre-retirement benefits of a pension account, you should then be asking what exactly can my RSA account do for me now?
What your RSA can do for you now?
Before we talk about the future, it is also relevant to know what our RSA can do for us now. Maybe that can spur us on to guide our RSA jealously from today onward.
So what can your RSA do for you now? Let’s talk about a few!
Did you know that you can technically use your RSA as an Investment vehicle via the Voluntary Contributions (VC) route/MPP? – Your VC can be withdrawn 2 years after and be rest assured that it would have grown considerably. Plus if this is withdrawn after 5 years, you will not pay any form of tax on such income earned. It is even quite flexible for those on the MPP as you are allowed to withdraw up to 40% of your savings before retirement starting 3 months after your first contribution.
Did you know that you can withdraw up to 25% of your RSA if you are out of job for at least 4 months? – For folks that are out of job for at least four months, they are allowed up to 25% of their RSA balance to be withdrawn for their use on application.
These and many more are the benefits you can get from owning an RSA even before retirement.
Now talking about making sure that we get the best out of our pension plan and avoid all self-inflicted troubles, we need to do the following:
a) Ensure that you open an RSA as soon as you start to earn income or salary
If you are in a paid employment this is compulsory especially if you are up to 3 in such organization. Also if you are self-employed, you are advised to register through the Micro Pension Plan (MPP). Either way, you are covered.
At the point of registration, ensure you supply the right information about you. This is crucial as any discrepancy from your data at the time of benefits claims always prove problematic. Then ensure you keep your PIN number assigned to you safely somewhere for easy retrieval. You should also ensure to get your login details to allow you have real time access to your pension account for effective monitoring.
b) Do not open more than one RSA
With aggressive marketing techniques used by the PFAs, it is very much likely you are approached by more than one PFA for RSA registration.
Please do not open an RSA with more than one of them. Multiple registrations create problems such as multiple PINs, etc. This will definitely cost you at the time of claiming any form of benefits.
c) Always ensure that your contributions are remitted on a monthly basis and regularly
Thanks to technology, you should now be receiving credit alert on your mobile phone once your contribution is credited for a particular period.
By law, contributions are supposed to be credited into your account not later than 7 working days after salary was paid or 24 hours after you made lodgement (if you are self-employed). This means that if, for example, salary was paid on the 20th of a particular month, your deducted contribution should hit your RSA 7 working days after that day. Also, if you are under the Micro Pension Scheme, your account should be credited not later than 24 hours you made the contribution.
1. it is an advantage to start early contribution as this will help you attain the proposed minimum qualification of 15 years contribution period to automatically qualify for minimum pension.
2. It also help to boost your RSA balance to allow you get a considerable amount at retirement.
d) Ensure that you receive RSA statement every quarter
PFAs are mandated by law to send to you your RSA statement every quarter of the year i.e. March, June, September and December. If you have not been receiving your statement then something is wrong. It is either you have changed address or your PFA is flouting the law. It is important you receive your statements of account so that you can critically review whether your contributions are credited as they should and also to monitor the performance of your PFA and decide whether you want to stay with them or go somewhere else with your money.
e) Boost your RSA with Voluntary Contributionsl
The contributory pension scheme allows contributors to save additional amount called voluntary contributions. This is to enable a further enhancement of your retirement benefits. By saving additionally, you are preparing your future on a good foundation.
Also note that the new regime allows for withdrawal of such VC for whatever reason but this can only be done after 2 years and it cannot be more than 50%. Some have used this as a means of investment planning over the years because the amount saved usually gives return that is higher than what you will get somewhere else.