The current Pension Act ensures that your pension funds remain one of the most regulated investable funds in Nigeria. It is also fairly new and not many people fully understand how it works, especially as it concerns withdrawals and contributions. So, without wasting time, let’s provide answers to some of the questions you may have.
What is a pension contributory scheme?
A pension contributory scheme is one that is designed to ensure employees derive the benefit of being paid their pension adequately as and when due upon retirement. The Pension Commission (PenCom) regulates the funds. It is designed in such a way as to ensure your employer has no control over how your pension is invested and paid to you.
How much do I contribute?
Employees are expected to contribute 7.5 per cent of their (basic+housing+transport allowance) every month. Your employers also contribute a minimum of 7.5 per cent of your (basic+housing+transport allowance) every month on your behalf. The total contribution is then transferred at the end of the month to your Retirement Savings Account, which is kept in your favour by your Pension Fund Custodian. The contribution is subsequently invested on your behalf by your Pension Fund Administrator.
What is the difference between a PFA and a PFC?
PFAs manage your pension contributions on your behalf. They invest the money in equities and other investment securities and assets to ensure that you have increased value for your contributions when you retire. PFAs also issue you a monthly report that shows you the performance of your pension contributions periodically.
PFCs on the other hand have the responsibility of warehousing pension fund assets. Whenever your organisation deducts money from your salary as pension, the amount deducted is deposited with the PFC. The PFC now notifies the PFA that money has been deposited following which the PFA can access it for investments.
Can I contribute more?
Yes, you can contribute more that the 7.5 per cent stipulated and can also make voluntary contributions. Your employer can also contribute more than the 7.5 per cent or the whole 15 per cent on your behalf.
Is your contribution taxable?
Any amount payable as a retirement benefit under the Act is not taxable. However, any voluntary contribution made shall be subject to tax at the point of withdrawal, where the withdrawal is made before the end of five years from the date the voluntary contribution was made.
What does the PFA do with the money?
PenCom regulates the PFAs. It also issues a set of guidelines to the PFAs containing rules for operating the fund. As such, they are only expected to invest your money in certain authorised markets and with limits. Currently, they can invest in stocks, treasury bills, bonds, real estate and other investments as approved by the PenCom.
When can I make withdrawals from my pension fund?
You can only access your RSA when you retire or attain the age of 50 years, whichever is later. However, there are exceptions. These are if an employee:
(a) is retired on the advice of a suitably qualified physician or a properly constituted medical board certifying that the employee is no longer mentally or physically capable of carrying out the functions of his office;
(b) is retired due to his total or permanent disability either of mind or body; or
(c) retires before the age of 50 years in accordance with the terms and conditions of his employment, shall be entitled to make withdrawals. This includes those who have been fired from work or have recently lost their jobs. However, periodic withdrawals can only be made after six months of losing your job.
How does the money get paid to me?
You can be paid in either of the following ways
(a) You withdraw money from your Retirement Savings Account monthly or quarterly depending on your expected life span. For example, if you have N10m in your RSA and you are expected to live for another 30 years, they divide the N10m by 360 months or 120 quarters.
(b) Through an annuity for life purchased from a life insurance company with monthly or quarterly payments.
(c) You can also withdraw a lump sum amount provided the balance remaining is sufficient enough for you to withdraw an amount not less than 50 per cent of your annual remuneration as of the date you retired.
(d) As mentioned above, if you retire before 50, you can be paid 25 per cent of the balance in your RSA provided that such withdrawals shall only be made six months after you retire and you do not secure another employment.
What happens when an employee dies?
Where an employee dies, his entitlements under the life insurance policy maintained shall be paid to his Retirement Savings Account.
The PFA shall apply the amount paid under his life insurance policy in favour of the beneficiary under a Will or the spouse and children of the deceased or in the absence of a wife and child, to the recorded next-of-kin or any person designated by him during his life time or in the absence of such designation, to any person appointed by the Probate Registry as the administrator of the estate of the deceased.
Copyright PUNCH.
No comments:
Post a Comment