A Retirement Savings Account (RSA) , just as the name suggests, is an account opened and operated specifically to cater for retirement benefits such as pension and related benefits at retirement. Such account usually has a medium to long term view because the it is usually only accessible fully at retirement of the account holder sometime in the future.
This therefore means that, holders of such account should see the account as “an investment type of account” with characteristics of fluctuating movements northward and sometimes southward over the period.
Pension contributions made on a periodic basis on behalf of the RSA holder is invested in a pool of funds. Investment such as Fixed Deposit, Bonds, Treasury Bills, Equities and so on will all form part of what is driving the balance in the RSA as they constitute the bulk of what the fund is invested into. With their expertise, the Pension Fund Administrators (PFAs), who invest on behalf of the RSA holder, grow the RSA balance thereby increasing the Return on Contributions Invested (ROcI).
With this in mind, it is safe to say that in most cases, the balance or the performance of the pension fund in terms of ROcI also largely depends on the macro and micro economic situation of their operating environment.
In an economic boom, for instance, pension funds investments and by extension their Investment returns, will most likely be heading in the North direction. The opposite is likely to be the case when their is economic downturn such as in a recession.
However, as professionals, the PFAs are expected to use their professional leverage and the vast understanding of the investment environment to reduce to the bear minimum the impact of such adverse economic circumstance. Downward fluctuation in the short run should not necessarily mean that there is a problem. It may generally be due to the market conditions which would only be temporary.
In 2020, for instance, despite the harsh economic situation occasioned by the COVID-19 and economic recession in Q3 of 2020, the PFAs ROcI averaged 16% to 21%. This beats the inflation rate which closed at 15.75% as at December 2020.
In addition to this, it is worth noting that the PFAs operate in a highly regulated environment. This has also helped to reduce the exposure to high risk investment and help protect RSA holders fund. A balance is maintained in terms of investing pension funds in both fixed and variable instruments through strict adherence to issued investment guidelines and close monitoring from the pension industry regulator, The National Pension Commission (PenCom).
The bank balance on the other hand is not meant to change sporadically. Any changes noticed should typically be due to additional savings and credits, withdrawals and charges on the account which should be known to the account holder. If it goes down, it should be as a result of withdrawals authorized by the account holder. Unlike the pension account balance, it can be predicted accurately. Bank account is also accessible immediately and can be withdrawn at the bequest of the account holder.
There is a clear difference between the RSA balance and Bank balance and therefore they should be looked at from different lenses.
The RSA holder should be concerned mainly about the growth on contributions and also consistent/complete remittances of periodic contributions into the RSA. The growth can be easily calculated by deducting from the current balance all his contributions to date. A holder of RSA should have a futuristic view and should be more concerned about consistent growth measured by the performance of the PFA’s ROcI.
A Retirement Savings Account (RSA) should not be treated like a bank account, they are different in terms of purpose, use and operations.
