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General Issues in Retirement Planning Retirement Planning as an exercise the world over is fraught with many challenges. 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 that affect effective retirement planning in Nigeria include: the size of our families, polygamy, the additional responsibilities of our extended family, and inadequate access to medical facilities. Also, 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 the worker's resources. While the average life expectancy of Nigerians hover somewhere in the early 50s, a large number of Nigerians live up to their 80s and 90s. With many more people living up to those ages, and the growing sophistication amongst our young adults, provisions have to be made in our social system for caring for the aged. Where such systems are not in place, workers have to plan ahead for their old age. Planning is especially important in the area of housing. Nigeria still does not have a functioning mortgage system, and acquisition of real estate is still mainly on a cash and carry basis. In major cities like Abuja and Lagos, as well as in cities throughout the country, property is very expensive and beyond the reach of the average worker. Only recently, the Federal Government as part of its monetization policy for its employees has begun the process of selling its houses to them on an owner-occupier basis. It is envisaged that a mortgage backed security will be created to finance these acquisitions, and this would herald the development of a mortgage system in the country. Another industry that needs urgent development to support retirement planning in Nigeria is the insurance industry. A vibrant insurance industry that provides adequate cover for personal accidents, life assurance, and other occupational and social risks will encourage investments and capital accumulation in society, and support healthcare and real estate development. Under the new contributory pension scheme, retirement planning also takes a new and more promising dimension. Firstly, the new scheme is compulsory for Nigerian workers in the private sector and federal public sector, and is being embraced by many State Governments already, ensuring that workers receive their benefits as and when due, and establishing a uniform administration and regulation of retirement benefits in Nigeria. Due to its funded contributory nature, and the fact that it is privately managed and well regulated (see article on "Benefits of the Contributory Pension Scheme"), it is a marked departure from previous schemes in the private and public sector. The individualism that anchors the scheme, as well as the portability of the individual Retirement Savings Account ("RSA"), gives both social and economic benefits to the worker and society at large. Related Links Establishing a Retirement Plan 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 the following:
Related Links Planning While You Work Most people planning towards their retirement start late, leaving issues about their retirement until the last few years of their working life. Leaving retirement planning till this stage is dangerous. Successful retirement planning is best achieved by starting early on in your career, and perhaps right at the beginning to be on the safe side. Retirement Planning should start while you work. 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. 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. 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 "band-wagon", 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. Another issue in planning your retirement while you work revolves around changing jobs and redundancy. For the upwardly mobile worker, changing employers under the new contributory scheme poses no challenges at all. 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. Taking an early retirement is also something that a lot of young workers consider today. 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 be come another high-stress activity like their previous employment was. The Act, also makes provisions for people who wish to take an early retirement. It provides that should you take an early retirement i.e. before 50 years, you may withdraw up to 25% of your RSA balance as a lump sum, six months post early retirement, after you have not secured another job. This lump sum amount may provide an early retiree with capital to set up a business or acquire a home or other assets. The balance on the RSA will be paid out to the retiree as a programme withdrawal or annuity after attaining the age of 50 years, ensuring that the retiree gets a stream of income throughout his old age. Another issue that comes to mind regarding retirement planning while you work, is death-in-service, as well as death during retirement. The Act also provides that where a contributor dies during employment, the balance on his RSA will be transferred to his known beneficiary as named in a will, his/her spouse or children, his named next of kin, or the administrator of his/her estate as determined by the probate registry. The same provision also applies to retirees who have started receiving retirement benefits through a programmed withdrawal, and die. This provision of the Act, makes it uniquely different from the administration of retirement benefits under the old public service scheme, where pension payments cease and are not made to a retiree's beneficiaries at their death. The Act also provides that employers provide a compulsory life insurance cover for each employee for up to a minimum of three times the employee's total emoluments. The proceeds of the life insurance will also be paid to the employee's beneficiaries, at death. Related Links |
