Retirement Planning: Key Facts of the National Pension Scheme (3)

WITHDRAWAL OF BENEFITS
The ultimate aim of the pension scheme is to provide for benefits that would be withdrawn by the contributor at some point or points in his life, or, after his death, by his survivors, for the purpose of maintaining livelihood. To ensure that the basic objective of safeguarding the financial well-being of the contributor and his dependants is preserved, provisions are made in the Act regarding how withdrawals can be made. The purpose is to ensure that premature or reckless withdrawals that will erode the benefit of the fund are not made. Recall that part of the objective of the scheme is to assist those who are improvident, to save and secure their future. The following rules of withdrawal should be understood as they determine how and when you can access the funds contributed to your pension fund account:

WHO CAN WITHDRAW AND WHEN?

No withdrawal from the retirement savings account is permitted except under the following conditions:

1. a retiring contributor who has attained the age of 50 years is permitted to withdraw from the account; withdrawal before retirement and age 50years is not allowed;
2. a contributor who is below the age of 50 years can withdraw from the account if he retires on medical grounds (i.e. mental or physical incapacity or total or permanent disability either of mind or body) as properly certified by a suitably qualified physician or medical board;
3. also, a contributor who retires at below the age of 50 years can withdraw if retirement is in accordance with the terms of his employment. This is possible only after it has taken at least six months of leaving employment and he has not secured another employment;
4. at the death of an employee, his benefits become immediately due and may be withdrawn by the rightful beneficiaries in accordance with withdrawal rules.

MODE OF WITHDRAWAL

On meeting the conditions for withdrawal as stated above, the balance in the holder's Retirement Savings Account shall be applied in any of the following ways, according to his choice:

• to pay him a programmed monthly or quarterly withdrawal calculated on the basis of an expected life span. What this means is that if expected remaining life span is 20 years, the balance in the account is spread to pay a monthly or quarterly sum over this period;
• the balance can also be applied in purchasing an annuity for life from a life insurance company, which will pay a monthly or quarterly sum. The life insurance company must be approved by the National Insurance Commission.
• the withdrawing employee can draw a lump sum (perhaps to start a business!), but the balance to be left in the account must be sufficient to purchase an annuity or to fund programmed withdrawals that will yield at least 50% of his annual remuneration at retirement. The spirit is to maintain something close to his previous lifestyle!
• If retirement is as in condition (4) above, a lump sum of only a maximum of 25% of the balance in the savings account can be withdrawn. In effect, at least 75% of the account must be retained.
• At the death of a contributing member, his entitlement under the life insurance policy taken by the employer, will be secured and paid into his retirement savings account. The balance now in the Retirement Savings Account shall be applied by the Pension Fund Account in favor of the rightful beneficiary.

THE RIGHTFUL BENEFICIARY

Benefit at the death of a contributor will go to the beneficiary, defined in the Act in the following order of precedence:

1. the beneficiary under a will;
2. the spouse and children of the deceased (that is, if there is no will or a beneficiary is not stated in a will);
3. the recorded next of kin, if the first two options fail;
4. any person designated by him during his life time;
5. if all the above do not apply, any person appointed by the Probate Registry as the administrator of the estate of the deceased.

What this implies is simply that the contributor must, while alive, clearly specify who benefits from his contributions. It is interesting, however, that the Act has ensured that, unless he personally elected otherwise in a will, the odds favor his wife and children to be the beneficiaries of the contributions in his retirement savings account.

Now, it's up to you. This is one vehicle you can engage to pile up some good savings for yourself. Don't wait to get to retirement age or even halfway through to it, before getting to realise that you need to position yourself for a comfortable retirement. That will be late and could land you in hard times. Just consider what a pity it will be to run the later part of one's life in harsh difficulties. It shouldn't sound far-fetched because it's happening to many, currently. But should that be your lot? It simply makes nonsense of any years of good living and fun you have had. It should, in fact, be preferable to have a rough beginning and coast into a joyful, fun-filled old age than to have the reverse. It's worth thinking about.

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