The thinking of youths about planning for retirement and saving towards this important age has changed. Omobola Tolu-Kusimo writes that the introduction of Contributory Pension Scheme (CPS) has redirected the focus of young employees.
Most people plan for retirement late, leaving issues about their old age care until the last few years of their working life, findings have shown.
To this end, experts have said the coming of the Contributory Pension Scheme (CPS), following the Pension Reform Act 2004, which was amended in 2014, is good for young employees who are conscious with planning for their retirement through the compulsory contributions.
They advise that planning for retirement should start early. Under the CPS, workers can participate on their retirement.
From the choice of Pension Fund Administrator (PFAs), to more voluntary contributions and well-planned withdrawal modes, workers can plan and ensure a safe and secure retirement.
Other issues such as owning a home, taking life insurance policies, writing a will, and setting aside for their health care in retirement are issues that young workers should be concerned with.
Workers planning for their retirement should also monitor the performance and activities of their PFAs, and other financial advisors. They must be aware that the choice of a PFA is a serious decision that should be made after serious consideration.
Many workers have chosen PFAs based on some reasons, and many others have followed the “band-wagon”, without enquiry.
An enquiry into the PFA’s experience and track record in investment management, financial resources, quality of ownership and management as well as quality and transparency of customer service and reporting should be made before a choice is made.
Pension Fund Operators Association of Nigeria (PenOp) President, Mrs Aderonke Adedeji, explained that the law guiding the CPS allows workers to switch PFAs at least once in a year without any reason, meaning that people who may have made sub-optimal decisions on the choice of PFA can easily and change to another PFA.
She stated that the opening of the pension transfer window by the National Pension Commission (PenCom) is being expected soon as the operators and regulators conclude data cleaning.
She said another issue in planning retirement while working revolves around changing jobs and redundancy.
She said:“For the upwardly mobile worker, changing employers under the CPS poses no challenges at all. The RSA is portable, and all that will change is that your old employer would stop contributing, and your new employer will be informed of your account details, and will continue contributing on your behalf.
“Taking an early retirement is also something that a lot of young workers consider today. People in very high energy professions like banking suffer burn outs and fatigue after years of working, and wish to retire at about 45 years or so to settle for a less demanding personal or family business.
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Decisions like this are becoming increasingly popular. People should plan adequately towards an early retirement, and where they want to run a private family business, should thoroughly research it, so that it doesn’t become another high-stress activity like their previous employment was.”
Managing Director, ARM Pension Managers, Wale Odutola added that the Act also makes provisions for the following two scenarios: “An RSA holder who disengages or is disengaged from employment before 50 and is unable to secure another employment within four months of such disengagement is entitled to 25 per cent of the RSA balance in order to cushion the burden of not being in employment.
Such an individual, after obtaining another job, can continue with the RSA. If there is no further employment, the individual will have to wait until he/she is 50 before being allowed to access the remaining RSA balance.
“On the other hand, an RSA holder who has willingly retired before 50 will not be allowed to access the RSA balance until they attain 50, except such an individual is employed in the private sector, where the policies of that particular company allows for a retirement age of earlier than 50.
In this case, the RSA holder will be considered a normal retiree and will also be allowed to access the RSA balance based on any option he/she chooses.”
Odutola said another issue is the retirement planning while one works, is death-in-service, as well as death during retirement. He noted that the Act also provides that where a contributor dies during employment, the balance in his RSA will be transferred to his known beneficiary as named in a will, his/her spouse or children, his named next-of-kin, or the administrator of his/her estate as determined by the probate registry.
“The same provision also applies to retirees who have started receiving retirement benefits through a programmed withdrawal, and die.
This provision of the Act makes it uniquely different from the administration of retirement benefits under the old public service scheme, where pension payments cease and are not made to a retiree’s beneficiaries at their death.
“The Act also provides that employers provide a compulsory life insurance cover for each employee for up to a minimum of three times the employee’s total emoluments.
The proceeds of the life insurance will also be paid to the employee’s beneficiaries, at death,” he added.
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