Pension plan within and outside employment

Bola Adegbaju

Often times we talk about pension plan but we don’t really understand the real meaning and the purpose which is primarily, to make provision for ones retirement or old age.

Let me mention that any time you hearA the word ‘pension’, it literarily means retirement. So a pension plan is a retirement plan that requires an employer, employee or individual to make contributions to a pool of funds set aside for future benefits.

Many entrepreneurs have resolved to the fact that they are not qualified for pension because they are working for themselves. They are neither employees of one private organization or any government establishment. In fact some believe that it is only civil servants that are entitled to pension, as it used to be before the Pension Reform Act 2004 was established, now repealed by Pension reform Act 2014.

Howbeit, I will like to state that Pension plan is not meant for salary earners alone. As a matter of fact, a small scale business owner can earn pensions in his/her old age if there is a plan.

My interactions with some employees revealed that employers are not making provisions for their employees’ pensions according to the law and nothing is being done by the government. The truth is that there is no enforcement of this law.

I am therefore putting up this to encourage every individual to make a private arrangement for his/her pensions, even if your employer has a provision for you. The two ways of making this arrangement can either be through the Contributory Pension Scheme (as stipulated by law) or the Personal Pension Plan.

1.Contributory Pension Scheme:

Where there are more than fifteen(15) employees in a private organisation, the employer is mandated to ensure the employees register with a Pension Fund Administrator (PFA)of their choice, who will open a Retirement Savings Account (RSA) for them. The provision of the Act applies to any employment in the public service of the federation, FCT, states and local governments. The monthly contributions is supposed be paid into the employee’s retirement savings account by the employer throughout the period of employment.

You cannot make any withdrawal except:

• You are 50years
• You retire and lump sum will only be given provided the amount left after lump sum will be sufficient to procure programmed withdrawal or annuity
• When advised to retire based on total/permanent disability of mind or body.
• When advised to retire based on mental /physical incapability.

In case of retirement, you are to advise your PFA of your retirement six months before so that they can know whether you are choosing programmed withdrawal or annuity.

If it is resignation and you join a new company, you will advise your PFA of the new employer and your new employer continues with the monthly remittance.

You are also allowed to take only 25% of the amount in your retirement savings account while you are searching for another job.

If you resign and start your own business, you have to wait till you are 50years to get you RSA fund.

Note that the minimum contributory rates  from any employer to his employee’s retirement savings accounts as stated in the Pension Reform Act 2014 should be 10%  of the employee’s monthly emoluments and 8% from the employee himself. This means a total of 18% of the employee’s monthly emolument should be remitted to the RSA of the employee every month.

2.Personal Pension Plan

If you are a business owner(entrepreneur), then you will need to make a private arrangement by yourself.

For those who have been in one employment before, this private arrangement can be with your existing Pension Fund Administrator. For someone who has never registered with a PFA, you need to do so or purchase a retirement plan from a life insurance company. Only Life insurance Companies are licenced to do this. You will have to agree with the PFA or insurance company  on the amount you will be paying and the frequency of payment for that period of cover.

Pension, retirement plan, annuity, programmed withdrawal or whatever name we call it, is a means of enjoying ones old age if put in place.

We all should try to put a plan in place.