How safe is it to have a pension plan in Nigeria?

A lot of people are Skeptical about pension plans in the
country because they don’t want to lose their money.
People certainly have doubts about these things and that
is obviously why only less than 10% of the workforce has
enlisted in the new Contributory Pension Scheme (CPS).
But is there really anything to worry about? Is it safe to
commit your money to a Pension Fund Administrator (PFA)
and expect to get it back? There’s certainly a lot that
people need to know about how the CPS works and how
safe it is for them to have a pension plan.
The first thing here is that there is a Regulator, National
Pension Commission (PenCom) set up by the government
to oversee the entire Pensions industry in the country.
Their job is to make sure your Retirement Savings Account
(RSA) is secure with the Pension Fund Administrator you
choose and that you are kept informed, treated properly
and your money keeps yielding return. So if anything
happens, the Commission is empowered to step in and
sort it out for you so you never get to lose a single naira.
Safety (Checks and Balances):
Besides, people who think their PFA will divert their money
need to know that PFAs DO NOT keep your money, let
alone use it for private purposes. All they get are
administrative fees of Maximum N100 per RSA remittance
and 1.6% annually of the asset value.
Pension funds in Nigeria are in the custody of Pension
Fund Custodians (PFCs); financial institutions approved by
the Federal Government and owned/backed by banks with
huge capital base, experience and unassailable
professional integrity to handle such funds.
The PFCs can only advise the PFAs within the regulatory
investment guidelines of PenCom on the financial
instruments to grow the funds. The law establishing the
pension industry is airtight and PenCom guidelines
stringent. All payments made by the PFCs are based on
instructions from PFAs which are approved by PenCom
first.
Process:
When your employer deducts a fraction of your salary (10%
from the employer, 8% from the employee of your salary as
pension contribution, they pay this money to PFC who
then notifies the PFA that you’re registered with that the
funds have come. Your PFA then updates your accounts
with them and there is no room for suspicion. So even if
your PFA ever goes under which is highly improbable, your
money is safe with the Pension Fund Custodian (PFC).
Moreover, every PFA is mandated by law to maintain a
Statutory Reserve Fund that is a extra safety measure just
in case anything goes wrong with the PFA. It’s with this
money that they get to meet up any outstanding
obligations to the contributor such as the payment of
immediate retirement benefits or if PenCom steps in and
asks them to pay up pensions that are due.
Access to Pension Funds
Even at that, there are people who think the government
might take from their pension money. But of course the
government doesn’t involve itself in the affairs of the
pension firms and certainly won’t have access to your
pension. PenCom is the only government body that is
involved here and they only regulate and make sure your
money is safe.
Pension funds are generally tamperproof. Even when huge
pension funds are made to play a role in national
development, it is mainly through the issuance of
government bonds where the risk involved is minimal.
Operators ensure the funds invested are SAFE, LIQUID,
YIELD RETURNS.
You can start taking from your retirement savings when
you retire or when you are 50 years old depending on your
agreement with your employer. So normally a pension plan
is basically like a savings account where you get to keep
your money over time and then take from it later. Your
RSA is different from your other bank accounts in that you
cannot take from it until your retirement. This makes sure
you don’t eat into your savings and jeopardize your own
retirement.
Exceptional payments before Retirement
But the good part of joining the CPS is that you could
actually get up to 25% of the balance in your RSA if you
ever lose your job and can’t get another one within 4
months. So you can get by with some of your money until
you get back on your feet, and if you have to pay for
healthcare or if your daughter’s university tuition is due
while you’re between jobs for instance, your money will be
readily available to you.
If death should occur before retirement, the balance in the
RSA account is paid to the beneficiaries in the Will. If no
Will exists then the beneficiaries listed in the Letter of
Administration will be paid.
Updates on Account
What’s also good is that your PFA won’t just collect your
savings and keep you in the dark. They’ll be in touch with
you and send you regular statements about your account
and how well the investments they are making on it for
you is doing. So at every point you’ll know how much you
have in there to keep you assured that your money is safe.
This is actually the way it works.
Even retirees must receive alerts on or before the 24th of
every month to show the inflow of their pensions.
Whistleblowing
A lot of employers don’t open RSAs for their employees
and these employees don’t bother to seek to open one for
themselves because of their skepticism. But really it’s very
important for Nigerians, especially young professionals, to
think about the future and all workers open an RSA where
they can put aside something regularly for the future, so
they can have something solid to fall back on to continue
looking after themselves and their families when they
retire.
If an employee’s salary is being deducted with pension
contributions by his/her employer but the funds are not
being credited to his RSA, he must inform his PFA who
will confirm when last funds entered his RSA, if any. If the
pension contributions are not up-to-date, the employee
MUST inform PenCom who will take the necessary steps
to ensure the employer pays back that money into the
employee’s RSA. Same thing goes for employees whose
employer does not have any plan in place.
Simply send an email to info@pencom.gov.ng with the
Subject : Non-Remittance of staff pension contribution –
(Name of Employer). Explain the situation and Clearly
provide specific details of your employer’s name, address
and contact details. You can do it anonymously too, just
make sure PenCom can get to your office.
Unforeseen things happen all the time and without a
backup it can be especially difficult coping with these
circumstances when they happen, especially when you are
old and no longer working to sustain yourself. For
instance, people have had their entire business wiped out
by a fire and have had to start from scratch at an old age.
This is a completely avoidable situation, and it’s important
for the Nigerian people to take the right step as they move
into the future.
Statistics
Nigeria has some of the highest numbers of elderly living
in abject poverty in Africa.
Total assets under management are <5% of Nigeria’s GDP
(unlike South Africa which is approx. 67% of their GDP).
Total number of contributors is <10% of the working
population. CPS started with a deficit N2 Trillion due to
government mismanagement. Data Sheet PenOp is made
up of all the Pension Operators in the country and focuses
on driving initiatives that grow the industry, educate
general public, informs National Assembly/policy makers of
issues that need to be addressed, collaborates with key
stakeholders in Fin services industry. Pension industry has
32 Operators – 21 PFAs, 7 CPFAs, 4 PFCs Regulator is
National Pension Commission (PenCom) Contribution –
18% (10% employer, 8% employee) Compulsory for
companies with 3 or more employees, State/Local govts
AUM is approx. N4.7 trillion 6.6m contributors so far
Operators invest >50% in FGN bonds due to the safety
levels
Operators under pressure to use pension funds to invest in
private equities and infrastructure projects. They are keen
to invest in infrastructure bonds/funds as long as they are
structured to be safe, give good returns but MUST have
government guarantees.
Primary reason for pension funds is not to provide
economic development but to ensure financial security in
retirement
CPS currently being structured to accommodate the unique
funding patterns of the Informal sector which accounts for
almost 70% of the economy.
Pension contributions can only be made through an
employer for now.
If an employee feels they want to add more towards their
retirement savings they can do so using the AVC
(Additional Voluntary Contribution) but must still pass
through their employer ie salary account.
All pension contributions are tax-free.
PenOp working hard to ensure excellent services are
provided to all contributors by all its Operators regardless
of location.
PenOp partnering with CBN and other stakeholders to
promote financial inclusion by finding ways to reach the
financially excluded people in rural areas.
PenOp is facilitating compliance by employers by setting
up the EPCCOS platform in collaboration with NIBSS.
EPCCOS stands for Electronic Pension Contribution
Collection System. It allows employers submit their
employees pension contributions online regardless of the
PFA they are registered with. It draws info from the payroll
system and is seamless. The system sorts the information
and electronically informs the PFA/PFC of the remittance
made.
The earlier you join the CPS the more prepared you are for
retirement and can worry less about the future for your
loved ones.
Programmed Withdrawals is the monthly payment made to
retirees by Pension administrators while Annuities are paid
by Insurance companies.
Programed withdrawals are calculated using a template set
up by Pencom which takes into consideration factors such
as sex, age, expected lifespan, last salary, etc. This
ensures the balance in your account is spread evenly over
your remaining lifespan in such a way that it ensures you
can maintain a decent standard of living after retirement.

Share on Google Plus

About Anonymous