Retirement Planning: Key Facts of the National Pension Scheme (1)

The new national pension scheme, set up under the provisions of the Pension Reform Act 2004, can be said to have taken off smoothly. The machinery for its operation is in full gear, with the regulatory body, the National Pension Commission very much in control. The other key organs of its operation - the Pension Fund Administrators (PFAs) and Pension Assets Custodians (PACs) - also seem to have settled to business.

All that will, however, be of limited benefit if you, the intended beneficiary, fail to understand and actively utilise the scheme. Against the background of the huge crises that the past unorganised approach to pensions management has caused, getting the current scheme to work should be of interest to every stakeholder, the beneficiary in particular. Considering also what we have seen of many retirees who have faced severe hardship seemingly because of ill-preparation (constantly shown on TV pursuing elusive pension payments), you ought to see the imperative of taking retirement planning seriously. Here are some basic facts of the new scheme that you should be familiar with:

THE SCHEME'S OBJECTIVES
The act spells out the following key objectives of the scheme:

• ensuring that employees who participate in the scheme receive their retirement benefits as and when due;
• assisting the individual employees, in particular those who are improvident, to save and secure their future;
• establishing a uniform set of rules, regulations and standards to govern pension administration and the payment of benefits within the country.

The first two objectives simply say that the Act seeks to ensure that you retire rich (comfortable, if you prefer that word) and that you and your employer are made to save for that purpose. While there may be other measures you can implement to build a secure financial future, the Act expects that, under the scheme, reasonable financial empowerment will become available to you.

SCHEME COVERAGE
Who is covered under the scheme? The Act specifies. Note is is included or excluded and the open window of section 9(4), which seeks to accomodate any interested person.

Those Expressly Included:
The scheme compulsorily includes all employees in the following sectors:

• the public service of the Federation (i.e. Federal civil servants);
• the Federal Capital Territory;
• the Private Sector, where any organization employs five or more persons.

It can be seen that the scheme does not explicitly embrace employees of state and local governments or others who may not be in paid employment. However, section 9(4) is an omnibus provision under which these groups can also be accommodated in the scheme. It simply says that any person not ordinarily included shall be entitled to make voluntary contributions under the scheme.

Those Expressly Excluded:
On the other hand, the following are explicitly excluded from the scheme, but are also permitted to enjoy the window of section 9(4) to participate, if they choose to voluntarily contribute:

• any employee already entitled to a retirement benefit under a scheme already existing at commencement of the new scheme and who had three years or less to retire;
• categories of persons covered in section 291 of the Federal constitution 1999.

Strictly speaking, it would seem that anybody who has interest in contributing to tthe scheme, even when not of the category expressly included, can still contribute if he so which. The distinction will be that for those included, participation is compulsory. Given the absence of any social security provisions in our system, which leaves individuals completely vulnurable and to their own means, it is hoped that more Nigerians will see the need to embrace this scheme that offers a way to accumulate savings.

KEY PARTIES TO SCHEME
The principal parties involved in operating the scheme are as follows:

1. National Pension Commission (PENCOM) as the regulator, charged with the responsibility to regulate, supervise and ensure the effective administration of pension matters;
2. Pension Fund Administrators (PFA) which receive, invest and manage the contributions of individual employees. A dedicated in-house administrator for a particular employer, called a Closed Pension Fund Administrator is also permitted, if approval requirements are met;
3. Pension Assets Custodians (PACs) whose basic function is to hold pension funds and assets in safe custody for the beneficiaries and settle transactions at the behest of the Pension Fund Administrators;
4. the Employer who is required to deduct, at source, the employee's monthly contribution and, within 7 days, remit it, along with the employer's contribution, to the custodian specified by the employee's Pension Fund Administrator;
5. the Employee who shall create a retirement savings account with any Pension Fund Administrator of his choice, and notify the employer of the PFA chosen and the identity (name and PIN) of the retirement savings account.

The PFAs, who operate individual pension savings accounts for beneficiary employees obviously have a central role in the scheme. We will be writing more about them and the other operators of the scheme. The need to get into the scheme, because we all need it, should be emphasized and how to get going is by opening an accout with a PFA. While it is hoped that each of the other parties will discharge its obligation and responsilibity under the scheme, it's time to save the long-suffering work-force from post-retirement agony. Incidentally, it's the individual worker that must still shape his destiny. A good step forward if by taking full advantage of the pension scheme..

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