Let me start off by saying if you work in a corporate organization, you may already notice pension deductions in your payslip. I still have colleagues that prefer not to have pensions deducted from their salary considering that the salary is not even enough for basic expenses like transport, feeding, clothing, rent, and entertainment.
The question though is, is Pension really worth it?
After doing my research, the answer is a solid Yes, however, your pension doesn’t necessarily have to follow the traditional approach of opening an account with a PFA like Stanbic IBTC pension.
As a matter of fact, you can put matters into your own hands and I will explain further down this post.
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How Pension Works
Pension is simply money set aside towards retirement. Pension, otherwise known as Retirement Savings Account may be accessed upon retirement or when you attain the age of 50. It is the government’s way of saying “we don’t want you old people roaming the streets or sucking our budget (just kidding!)”
Frankly, pension or not, everyone should prepare for old age and save towards it but a lot of people don’t start making plans until it’s too late, maybe because its hard to start thinking of your fifties when you’re still in your twenties, but I tell you, time flies and before you know it, you hit the fifth decade.
There are basically two types of pension:
Defined Benefit: in this type of pension plan, the employee agrees to pay a certain percentage of employee’s salary into their pension fund monthly and at retirement, the employer pays a set income depending on years of service, how much you earned every year of service, etc.
You may decide to receive your pension money in a lump sum or agree to a monthly payment.
The Public sector mostly uses the Defined Benefit Scheme for their employees.
Defined Contribution: this type of pension plan is more like a collaboration between the employer and employee in that both parties contribute to the employee’s pension plan every month. The defined contribution pension plan is the plan used by the private sector in Nigeria.
The standard contribution for employees may differ from country to country but is 8% in Nigeria while the employer is expected to contribute 10% of the employee’s salary.
According to the National Pension Commission (PenCom), every company with a minimum of three employees must pay pension. Some companies do not remit employees pension as at when due and since your pension can only be invested after its remitted, every time your pension is delayed, you lose money.
How to Escalate a No-Pay Pension
If your employer refuses to pay your pension, there are a couple of steps you can take:
- First, email the HR department of your company. Copy your line manager if possible as a witness.
- If you do not get a response, send a reminder or schedule a meeting. This is to give them a chance to commit to a date
- If the response is not favourable, send an email or call your pension fund administrator to lodge a complaint. Sometimes, the payment may have been made but doesn’t reflect immediately on your dashboard.
- PenCom takes the issue of pension very seriously as you should. Report employer by writing a letter to PenCom and PenCom will follow up till they remit your contribution.
Voluntary Pension Contribution
Can you have a pension account without a 9 – 5 job? No, you can’t. At least, not with Stanbic IBTC pension managers.
If you don’t have a 9 – 5 job, you need to have registered a business before you can open and remit into your pension account.
You can also increase your pension contribution from the standard 8% of your salary to any % you want.
Note that the interest accrued is based on daily fund price and is reflected on your dashboard. Also, personal income tax deductions are applicable when you withdraw income earned on Voluntary contributions within 5 years, while income will be tax-free if withdrawn after 5 years from the date of contribution.
The PFA and PFC
There are two parties that play a major role in managing your pension – The Pension Fund Administrator and Pension Fund Custodian.
An example of a Pension Fund Administrator (PFA) is Stanbic IBTC Pension Manager. The PFA’s responsibility is to open your Retirement Savings Account (RSA), manage your pension fund and also update your retirement savings account (this will show how your money is growing).
On the other hand, the Pension Fund Custodian is appointed by the PFA. Employers remit your pension directly to the PFC, who then notifies the PFA. The PFA once notified reflects the contribution in your RSA account. The PFC also execute transactions as relating to the administration of the Pension fund investment on instruction from your PFA. Funds may be invested in Government Securities, Stocks and Real Estate.
Five Good Reasons Why A Pension Is Worth It
- Saving for the Future: automatic deductions to an account that is not easily accessible forces you to set money aside for the future.
- Extra Money: Pension allows you to squeeze an extra 10% off your employer. Money that you normally would not be able to access.
- Feel Good: Your pension at retirement might not be much but knowing that a lump sum and possibly, monthly payment awaits you years after your retirement does make anyone feel good.
- Emergency Fund: According to PenCom 2014 Act, if you are suddenly unemployed and can not secure a job for a period of four months, you can request for 25% of your pension. This forces you to only access the money when you have no other option. This 25% could literally be a lifesaver.
- Safe Investment: There is always a risk in every investment and Pension is no different, however, there are strict regulations by PenCom to safeguard your pension fund. Also, there are only four (4) Pension Fund Custodians (PFC) in Nigeria and they each had to meet strict guidelines and a total balance sheet of at least N125 billion in asset before they obtained a license.
Some of the guidelines/framework for investment of pension fund according to PenCom includes:
- Pension Fund Custodians (PFCs) can only take instructions from the licensed Pension Fund Administrators (PFAs) on the investment and management of Pension Fund Assets held in their custody, on behalf of the Contributors.
- PFAs cannot contract your pension fund investment or management to third parties
- The PFCs in discharging their contractual functions to PFAs, cannot contract the custody of Pension Fund Assets to Third Parties.
- Each PFA is required to establish an Investment Strategy Committee, as well as, a Risk Management Committee, in compliance with Section 66 of the Pension Reform Act 2004.
- The Investment Strategy Committee shall formulate internal investment strategies to enable compliance with the investment regulations issued by the Commission, determine an optimal investment mix consistent with the risk profile of the PFA, evaluate the periodic performance of their portfolios and carry out all other functions deemed necessary in meeting investment objectives.
The Pension Fund Custodian in Nigeria
As listed on PenCom website, there are only four approved PFC in Nigeria and they are:
- Diamond Pension Fund Custodian Limited
- First Pension Custodian Nigeria Limited
- UBA Pensions Custodian Limited
- Zenith Pensions Custodian Limited
The Pension Fund Custodian for Stanbic IBTC is Zenith Pension Custodian Limited.
Stanbic IBTC Pension Review: My Dashboard
The registration process for Stanbic IBTC pension is simple and straightforward. My employer opened my account but you can also register for an account online by visiting their website at stanbicibtcpension.com.
It was really easy to reach out to customer care which is 24/7 by the way and they were, and have always been helpful whenever I have questions. The Stanbic IBTC pension dashboard is also easy to navigate. To login, enter your RSA pin and passcode, both of which Stanbic IBTC will provide to you at the point of registration.
Stanbic IBTC Customer Care: firstname.lastname@example.org or call (01-271 6000)
Planning Your Own Pension
Feel free to take matters into your own hands and plan your pension. At the end of the day, the goal is to have enough income to retire on so take a long-term investment approach when you buy bonds, securities, treasury bills or even real estate. Multiple sources of income are the best to retire on.
Best of luck!