Retirement can be one long beautiful holiday travelling around the world and spending time with your Grand Children or just long empty days waiting for one miserable pay cheque.
Under Nigeria’s defined contribution pension scheme, employees can usually influence the size of their retirement pay cheque.
Nigeria’s pension law allows employees to make additional contributions to their retirement savings plan. The pension law, which was recently reformed, states that an employer should make a minimum contribution of 10% while the employee makes a minimum contribution of 8% of total emoluments to a retirement savings account. This brings total contribution by both employer and employee to 18% into an employee’s retirement savings account.
However, employees have an option to increase their contribution from the minimum of 8%. So an employee can decide to increase his or her contributions to 10% or even more of his or her total emoluments.
Employees should note that voluntary contributions can be any amount. It is not fixed, that is why it is voluntary. However, it must be remitted through the employer into the employees existing Retirement Savings Account (RSA) with his or her preferred Pension Fund Administrator (PFA). An employee is not allowed to use a different PFA for voluntary contributions.
Once an employee commences voluntary contributions, his or her existing PFA’s monthly statement of account will clearly state the amount of voluntary contribution he or she is making. This will help keep track of his or her total voluntary and non-voluntary contributions into his or her RSA account.
There are several benefits that with voluntary contribution. The benefits include;
1. Increased payout from your retirement savings pot at retirement which will mean a more comfortable financial position.
- It is a convenient mode of savings as the employee can determine the frequency (monthly, quarterly or one-off)
- Voluntary contributions can be withdrawn partly or fully at anytime
- Voluntary contributions also provide tax savings if not withdrawn within five years. However, any withdrawals before the fifth year of savings will be subject to tax at the prevailing Personal Income Tax rate.
Now that you know about voluntary contribution, why not improve your chances of a more comfortable life at retirement by initiating it at your workplace today.