Retirement can become a nightmare if you are not paying attention now. Adequate planning for your financial needs in retirement is key, reports, Omobola Tolu-Kusimo
Whether one is retiring according to the rules, or by expediency, the most important factor to consider is preparedness. Most people planning towards their retirement start late, leaving issues about their retirement until the last few years of their working life. But leaving planing for retirement till this stage is dangerous.
Most retirement educators advise that serious preparation should commence about 20 years to the time of retirement. However, from the recent developments in the labour market, it cannot be too early to start preparation for retirement from the first day of employment. Such an arrangement will certainly benefit both the employee and the employer. If the former understands that his future is assured, he is more likely to remain stable and render loyal service to the latter.
For Nigerian workers, who are especially challenged by low levels of income and savings as well as huge family and social responsibilities, retirement planning can be more complicated. Some of the social issues affecting effective retirement planning in Nigeria include the size of our families, polygamy, additional responsibilities of an extended family, and inadequate access to medical facilities.
In addition, Nigeria does not have an operable social security system that takes care of the aged, the young unemployed, and most disturbingly, the disabled, meaning that all these categories of people constitute an additional responsibility on the worker and his or her resources.
Under the Contributory Pension Scheme and with the improved law, Pension Reform Act, 2014, guiding the scheme, retirement planning has taken a new and more promising dimension. The new scheme is compulsory for Nigerian workers in the private and federal public sectors, and is being embraced by many state governments, ensuring that workers receive their benefits as at when due, and establishing a uniform administration and regulation of retirement benefits in Nigeria.
Retirement as stipulated in the Act is when an employee attains the age of 50 or the retirement age of the organisation, whichever is later. At this point, the employee is able to access 100 per cent of the balance in his or her Retirement Savings Account (RSA). This balance can be accessed either by a programmed withdrawal with your PFA or by purchasing an annuity scheme from an approved insurance company.
The Managing Director, Stanbic IBTC Pension Managers, Demola Sogunle said retirement planning should start while you work. He noted that under the new contributory pension scheme, workers can actively participate in decisions regarding their retirement. From the choice of Pension Fund Administrator (PFA), to additional voluntary contributions and well planned withdrawal modes, workers can plan and ensure a safe and secure retirement.
He said other issues such as owning a home, taking life insurance policies, writing a will and setting aside towards your health care in retirement are issues that young workers should be concerned with.
He stressed that workers planning towards their retirement should also seek to monitor closely the performance and activities of their PFAs, and other financial advisors. “Workers 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 subjective reasons, and many others have simply followed the bandwagon, without proper enquiry.
“A proper 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. The law guiding the contributory pension scheme allows workers to switch PFAs at least, once in a year without any reason, meaning that people who may have made sub-optimal decisions regarding the choice of PFA can easily and conveniently change to another PFA,” he stated.
Sogunle said another issue in planning your retirement while you work revolves around changing jobs and redundancy. For the upwardly mobile worker, he said, changing employers under the new contributory scheme poses no challenges at all adding that 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.
He posited that taking an early retirement is also something that a lot of young workers consider today. He said 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. 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,” he said.
Sogunle also stated that while an employee is still at work, there is need for him or her to establish a retirement plan. According to him, retirement planning involves all activities from your first employment, up to and after your retirement geared towards ensuring that you and your needs are well provided for in the retirement phase of your life. In drawing up a retirement plan, it is critical to identify when you will retire, what you will do during retirement, what kind of income you will need in retirement and what kind of income you can expect in retirement.
He advised that depending on your outlook, and personal circumstances, people may choose to retire early, say before 50 years, while others will retire later, just at 60 years, or for however long their terms of employment permit.
He said: “Many factors including your state of health, desire to pursue other activities, and very importantly the level of financial resources and responsibilities will affect the timing of your retirement. For some others, however, the timing of retirement is not entirely up to them. Sometimes accidents, ill-health, and employer-distress may lead one to a premature retirement.
“During retirement, some people choose to continue in very active work, supporting their communities, participating in politics or even running a full time business. Others on the other hand, choose to limit themselves to very light activities, if any at all, and prefer to spend their retirement traveling, visiting children and grandchildren, among others. It is important to plan ahead on how you will like to spend your retirement, and prepare yourself mentally and financially for whichever route you choose to follow.
“Planning adequately for your financial needs in retirement is also very important. It is therefore, necessary to ascertain ahead of time, how much income you will need in retirement. In planning towards this, one may have to gauge his family responsibilities, state of health, and expected life expectancy. For example, if you still have children of school age during your retirement, your financial needs will outstrip those who do not. If you already live in your own house and will not be paying rent during your retirement, then your financial needs will differ from someone who does not own a house.
He further advised that once you have ascertained your financial requirements in retirement, it is necessary to estimate your income streams to be available in retirement. “For someone who has planned his retirement early enough, this could consist of income from investments such as dividends, capital appreciation, rental income as well as pension and other retirement benefits. Estimating your sources of income is important to enable you plan how to meet your living requirements in retirement,” he said.
He said an employee can be retired through mandatory, voluntary or compulsory retirement and on medical grounds. He explained that compulsory retirement occurs when an employee is being disengaged or terminated from active service in accordance with the terms and conditions of service, before attaining the age of 50 years while mandatory retirement occurs when an employee disengages from active service at the retirement age or completion of the length of service based on the terms of his or her employment after attaining the age of 50 years.
“A retiree in this category will be entitled to the balance in his or her RSA and this could be disbursed either in block payment, provided the balance in the retiree’s account is less that N550,000.00 or as a combination of lump sum and programmed withdrawal payments or lump sum and annuity payments purchased from an insurance company.
“Retirement on medical grounds shall be when an employee disengages from active service based on the advice of a suitably qualified physician or medical board certifying that the employee is no longer mentally or physically capable of carrying out the functions of his/her office due to total or permanent disability either of mind or body.
An RSA holder retiring on medical grounds can access the balance in his/her RSA account. This could be disbursed either in block payment (provided the balance in the retiree’s RSA is less than N550, 000 or as a combination of lump sum and programmed withdrawal payments or annuity).
The Managing Director, Leadway Pensure Limited, Mrs. Ronke Adedeji said for public sector employees to access retirement benefits, the employee will need to attend the National Pension Commission (PenCom) verification and enrollment exercise, the year before the retiring year. This she said will ensure the remittance of accrued benefits rights.
