Pension plans are used by employees to accumulate tax-sheltered savings in order to receive income during retirement. The money is usually invested in various vehicles such as mutual funds including stocks and bonds of local and foreign companies from which interests are yielded and added to the mutual savings of the employees.
In the past, the contribution to pension plans was done mostly by public firms with many private firms paying little or no attention to that. However, a policy shift in the millennium has improved what people knew as pension earlier.
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The National Pension Act that establishes the National Pension Commission (PenCom) now mandates all employers both private and public firms to ensure their employees are compulsorily enrolled in a pension plan.
The emphasis also gave rise to many intermediaries called the Pension Fund Administrators (PFAs) that serves as pensioners’ bank just the way commercial banks operate.
In the past years, surveys have shown that many employers contribute to their employees’ pension plan, which strongly encourages the enrolment figure.
Several types of plans can be offered by employers. An assessment of each employer’s needs is required to determine which type of plan is the most appropriate. Workers are encouraged to key into the redefined pension scheme so they can have a fund for retirement.
The Daily Trust reports some benefits of having a pension plan. For someone who puts in at least 35 years of work experience, retirement should be a time to have some income flow from the Retirement Savings Account (RSA). A robust RSA guarantees a retiree rest and not a period for seeking for odd jobs to make ends meet or become dependent on their children.
You need a pension plan to maintain the same standard of living after retirement:
Your pension plan will nicely complement earning needs in the future. Pension helps to provide retirement income to enable you have fund for your itineraries when you retire.
A fringe benefit from your employer: Pension in Nigeria is a contributory scheme. Your employer contributes a part while you contribute the other part. According to the 2014 Pension Reform Act, employers contribute 10 per cent while employees contribute eight per cent of the monthly salary as pension. This has been made mandatory by PenCom and all employers ought to key into it. Besides the financial security it offers after retirement, it is a form of deferred pay appreciated by employees. For the employer, having a plan can make it easier to attract and keep competent employees.
Investment, a cushion against job loss
The PenCom has said one can withdraw up to 25 per cent of the pension fund if he or she remains unemployed for four months after losing the previous job. In this period of recession, many had lost their jobs but consider if they had a pension plan that had lasted for four to five years. They could easily get from N200,000 and above from their PFAs as seed money to start up a turn-key business. If they are diligent enough, they could get yields from the capital and become self-employed in no time.
Encourages saving culture
The pension scheme has a plan tagged the Additional Voluntary Contributions (AVC). It encourages you to save more through your RSA. The Pension Act says you are entitled to withdraw from your AVC any time before retirement. It is also tax-free if withdrawal is after five years. So if one has been putting some AVC in your retirement account or if you start now, you too can withdraw from that at any point before you retire.
As retirement nears…
When it’s closer to retirement, the process of documentation begins, actually from six months before you retire. For civil servants, they have to go for the Bond verification exercise organised by PenCom. The exercise is to enable PenCom to consolidate their account and ensure their accrued rights are paid immediately once they retire.
For private sector employees, your PFA has to confirm that all contributions due to you have been made. This process is called ‘consolidation of account’. After this is done, the process of actual payment should take about three weeks.
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