Sijinius: DAY 19: Start Saving For Retirement NOW!

Courtesy: esqlaw.com

The USA has IRA (ROTH and Traditional), SEP IRA, 401K and 403B, and Keogh account, but in Nigeria, we have Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) who hold the funds and invest them on behalf of the employee.

In the past, after you retire in Nigeria, you get paid a pension for life. But today there is no such thing. In fact, if you go to a typical government pension office and see the way our elderly ones have to queue for a stipend that has not been reviewed (some are waiting to collect N250), and may not even be paid (there is so much corruption in that sector too), you will definitely start saving for your retirement.

Just as obtains in developed countries, Nigeria has a contributory pension scheme (no specific name like IRA or ROTH) whereby the employee chooses a Pension Fund Administrator (PFA) of his/her choice and contributes a percentage of the income to the retirement fund which the employer also matches. At retirement, the retiree makes a decision on how much he/she wants to be paid monthly in an annuity from the saved retirement fund.

The earlier you started saving towards your pension, the better. If you start at age 40 saving N5000 every month (N60000 annually) compounded at a modest 8% interest rate, at retirement age of 60, you will have N3.25 Million in your retirement account. But if you started saving from age 28, guess what? You will have N9.4 Million (just because you started 12 years earlier).

Moreover, that means if your employer matches that exact amount, after 32 years of meritorious service, you will retire with 18Million naira compared to approximately 6.5Million naira if you started at age 40 (-that’s saving N120,000 annually at 8% interest rate compounded annually).

Why you should start saving towards your retirement early.

	AGE 28 till retirement @ 60	AGE 40 till retirement @ 60
N5,000 saved monthly (N60,000 annually) @ 8% compound interest	9.4 Million naira	3.25 Million naira
N10,000 savedmonthly (N120,00 annually) @ 8% compound interest	18 Million naira	6.5 Million naira

A PFA and PFC work hand in hand but their functions are different. While A PFA opens and manages your retirement account, invests your contributions, and instructs a PFC on what investments (stocks, bonds, unit trusts/mutual funds, etc.) to buy or sell on its behalf as well as when to pay your retirement benefits and the amount to pay, a PFC executes the instructions from one or more PFAs, keeps custody of the securities it buys on behalf of these PFAs as well as all cash balances, and keeps an accounting of the various transactions. In addition, a PFC receives monthly contributions, pays out pension benefits and collects dividends on behalf of PFAs. And on a regular basis, it reports to PenCom (and each PFA) on the assets in trust and the analysis of the returns on investments for each PFA it does business with.

Although PFAs play a more dominant role, they both work together to invest the total contributions that you and your employer make into your retirement savings account. Femi Odulanaof proshare has more on this. (Note that you cannot interact with your PFC in any way, only your PFA does that on your behalf.)

There was a world pension summit in Abuja in July of this year in which a debate was held on whether the pension funds contributed should be utilized in infrastructure development of the countries or just held in a ‘safe’ mutual funds investment account. They also discussed the Pension Reform Act of Nigeria. And the world is already considering Private Pension options for employees.

Here is a list of accredited PFAs in Nigeria. I didn’t find a review online during my research, but that becomes an assignment for this blog. But read the proshare article as a guide towards choosing the best for you.

1. AIICO Pension Managers Limited

E-mail: info@aiicopension.com

Website: http://www.aiicopension.com

2. Amana Pension Managers Limited

Website: http://www.amanapension.com

3. APT Pension Fund Managers Limited

Website: http://www.aptpensions.com

4. ARM Pension Managers Limited

E-mail: info@armpension.com

Website: http://www.armpension.com

5. Citi Trust Pension Managers Limited

6. CRIB Pension Fund Managers Limited