Pension Insight: What to do for a rewarding retirement

As the Nigerian workforce continues its growth and transformation, the imperative of robust retirement planning becomes increasingly pronounced. For those enrolled in the contributory pension scheme (CPS), the key to a secure and rewarding retirement lies in making informed financial decisions sooner rather than later. This article seeks to empower workers with knowledge on navigating Nigeria’s CPS, ensuring not just a prosperous but a worry-free retirement.

The CPS, established by the Pension Reform Act 2004 (PRA 2004) and subsequently repealed and re-enacted as PRA 2014, was designed to offer a sustainable and efficient retirement savings framework for both public and private sector workers in Nigeria. Encouraging active participation from both employers and employees, this system ensures the accumulation of a substantial retirement fund for workers.

In an era where economic uncertainties cast a long shadow, Nigerian workers must adopt a proactive stance in their preparation for retirement. The CPS provides a working framework for Nigerian workers to build savings for their retirement, ensuring financial security in the twilight years.

While enrolling in the CPS marks a significant stride towards a contented retirement, adopting a proactive approach is significant to securing a comfortable and financially stable future. Here are some essential steps to consider when preparing for retirement under the CPS:

Start Early, and Benefit More

The essential rule of retirement planning is to commence early. Early enrollment in the CPS allows for the compounding of interest on pension savings over time, even with modest monthly contributions, resulting in a substantial nest egg for retirement. It is important that, without delay, all employees are compulsorily made to open retirement savings accounts (RSAs), into which all pension contributions are remitted and invested for the purpose of paying retirement and terminal benefits. Workers in the informal sector, who are not covered under the mandatory CPS, are advised to enrol without delay in the Micro Pension Plan to derive the benefit of compounded returns on investment.

Determine Retirement Goals

Workers should envision their retirement needs and set clear goals for pension savings. Understanding how they wish to spend their golden years shapes savings targets and investment strategies. The PRA 2014 permits additional contributions beyond the 8% minimum contribution from the employee’s emolument. This allows workers to tailor their savings towards a more robust pension. Employers are also allowed to contribute more on behalf of their employees than the statutory minimum of 10%.

Understand the CPS

Thoroughly understanding pension plans, including minimum contribution rates, the Multi-Fund Structure utilised by Pension Fund Administrators (PFAs), and returns on investments by PFAs, is crucial. Seeking assistance from your PFA or the National Pension Commission can clarify uncertainties and enable informed decisions about retirement savings.

Stay Informed on Pension Policies

Given the periodic reviews and updates by the National Pension Commission (PenCom) on pension regulations, workers must stay abreast of changes that could impact their retirement savings. Keeping informed about pension-related news and consulting financial experts ensures compliance with the latest developments. For instance, it is advised that all RSA holders participate in the ongoing data recapture exercise by their PFAs.

Resist the Temptation to Withdraw Early

While emergencies may arise, early withdrawals from RSAs should be avoided to maintain the potential growth of retirement savings. To maximise compounding, workers should refrain from dipping into pension funds before retirement, except under critical circumstances such as permanent incapacitation.

Seek Professional Advice

Retirement planning, especially concerning investment opportunities, can be intricate. Consulting with PFAs or qualified financial advisors provides personalised guidance, aligning decisions with retirement goals, be it through Programmed Withdrawal or Retiree Life Annuity.

Consider Supplementary Retirement Savings

While the CPS is pivotal, exploring additional savings options such as savings accounts, real estate investments, and mutual funds enhances financial security. Diversifying income sources beyond pensions is desirable for retirees.

In conclusion, preparing for retirement under the CPS demands proactivity, financial literacy, and discipline. Embracing these principles will not only benefit individuals but also contribute to a more resilient and financially robust Nigerian society.

PenCom remains committed to the effective regulation and supervision of the pension industry to ensure that retirement benefits are paid as and when due.

Based on information by the National Pension Commission (PenCom).