CPS: What a financial resolution in the New Year!

At the beginning of the New Year, a lot of people have made certain resolutions that would shape their life and behaviour going forward. Some have decided to change their eating habits, others their life style while some too have decided to work on their financial plan for a better future.

A New Year resolution according to experts is a promise that you make to yourself to start doing something good or stop doing something bad beginning from the New Year.

Geoffrey has come back from the Christmas and New Year holidays where he had gone to relax with friends and families for the Yuletide season. He was opportuned to interact with his kinsmen who have retired to the village after their working life in the cities, and are now living on their pensions.

What struck Geoffrey was the fact that life in retirement is about what you saved for it. He discovered that what made anyone of the people he met comfortable at that stage in life is howthey accumulated or how much they prepared for it.

When he came back to the city and thought about this, reflecting on the current balance of his Retirement Savings Account (RSA) with his Pension Fund Administrator, he was sober.

A neighbour ran into him while he was thinking about this and asked,what the problem is?His reply was “Men, I need to do something quickly”.

He has just realised that he was empty and if nothing is done to boost his pension savings,he could end up not having a reasonable amount of money to fall back on when he leaves paid employment

So, for Geoffrey, not only was he not happy because the balance in his RSA was still very small to give him a comfortable life in retirement, he was also worried that he might not qualify for some of the expected benefits of pension contribution, including access to primary mortgage home.

Geoffrey regretted that he was not doing anything before now to increase his pension contribution towards his retirement, whereas he had all the opportunity to do so through theAdditional Voluntary Contribution (AVC).

What further madehimuncomfortable was that he had enough disposable income from his monthly salaries that he could have channelled a portion towards his pensions, but has been living like the rich and spending iton things he could have avoided.

Now that Geoffrey has realised himself, what can he do quickly to remedy the situation particularly that this is the beginning of another year when serious minded people were looking at their future and planning for it?

Geoffrey should not panic. It is better to start late than never starting at all. There are many Geoffrey’s out there who do not have reasonable amount in their RSA, but ignored them and never realised they could do something to change the situation.

What it requires is for Geoffreyto take the decision ofmaking a personal sacrifice,by contributingan extra amount of money into his RSA through his employer. Though it’s not going to be very convenient for him given that he was used to luxury of having enough disposable income from his salary to spend every month, but it requires that he cut down part of his spending and try to be a bit cautious in his life style.

Geoffrey and his likes who want to change their situation should take this as part of their resolution in the New Year. That, starting from this month, i will start contributing an extra amount of money into my RSA…,Just pass the instruction to your Human Resource Department or Accounts Department as the case may be, who will then incorporate it into theCompany’s payroll so that deductionstartsimmediately with January pay.

In the Pension Reform Act (PRA) 2014, the minimum rate of pension contribution is 18 percent of monthly emoluments, where 8 percent is to be contributed by employees and 10 percent by employers. However, an employer may choose to bear the full responsibility of the scheme provided that in such a case, the employer’s contribution shall not be less than 18 percent of the employee’s monthly emoluments. So, what will change the future for Geoffrey and others like that is not to rely on the basic contribution but make extra contribution through the Additional Voluntary Contribution (AVC) platform.

In this new journey, you have taken a decision to strengthen your future, you have taken a decision to bolster your retirement plan, you have succeeded in equipping yourself with the resources to access primary mortgage home when the National Pension Commission (PenCom), opens the door for contributors to utilise a part of their RSA balance as equity contribution for primary mortgage. Besides that,you will also have the opportunity to enjoy other benefits that could come from the Contributory Pension Scheme (CPS) now and in the future.

AVC are extra funds you can opt to add to your mandatory pension contribution, or simply set aside as retirement savings. These funds would be deducted from your monthly emolument by your employer and remitted into your Retirement Savings Account (RSA) with your chosen PFA, along with your regular pension contributions.

It differs from other regular savings you may have, as it is deducted from your salary before tax. This is a significant advantage of the AVC, as it means the contributions are tax-free and lower your overall tax liability.

So, apart from what the employer has provided, there is an opportunity for you to enhance your pension savings through this platform so that by the time you are due for retirement, there would be substantial amount of money to make you retire comfortably.

The CPS, which came into being following the Pension Reform Act 2004 and revised by the 2014 Pension Reform Bill, has promised to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due. The scheme is also meant to assist individuals by ensuring that they save to cater for their livelihood during old age, thereby reducing old-age poverty and also ensure that pensioners are not subjected to untold suffering due to inefficient and cumbersome process of pension payment.

In reality, what this scheme and your employer have promised you is at least a minimum standard of life in retirement. This is basic comfort, to ensure that you are not displaced or stranded in retirement. So, would you want to enjoy extra comfort or leisure in retirement? It’s your personal decision.

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