You have been working for some years now, and you know there is a time when you must call it quits. But you remember days before you got your offer letter and how you had to struggle to survive with no stable source of income. As your retirement nears, you wonder if you will return to the days of struggle. But you tell yourself, no, not again.
When one’s source of income stops, one gets affected unless they have been planning for that moment long ahead. Adjusting to a new life without your frequent monthly salaries can be stressful, but the effects won’t weigh you down when you plan for such moments.
Since retirement is inevitable, it is best one plan ahead for it. Some intend to start a business after retirement, but setting up a business requires capital. It is best if such a person begins saving early during his working days ahead of his retirement days. This article will help you make the right choice when picking a retirement savings plan.
What is Retirement Savings Plan?
A retirement savings plan is a savings plan that a worker or employee makes when they are still in the work service ahead of their retirement. It is the act of setting aside a part of one’s salary to cater for one’s needs at the moment when one is not entitled to salary payment anymore.
You would have come across the word ‘pension’ several times. This is a retirement savings scheme for workers, and it comes in different forms. Whether you work in the public service, for a private company, or you’re self-employed, there is always a retirement savings plan that fits you.
Types of Retirement Savings Plans (Pension Schemes) in Nigeria
To be able to choose a retirement savings plan that works for you, you must first understand your available options. Below are the types of retirement savings plans.
- Contributory Pension Scheme
Whether you work in the public or private sector, you are eligible for the contributory pension scheme. In this scheme, you are eligible for a Retirement Savings Account (RSA), a dedicated account that allows you and your employer to deposit funds in the form of monthly contributions. The contributions are a percentage of your monthly salaries, usually about 15-20%.
The Retirement Savings Account (RSA) is like a regular savings account. Just that the monthly contributions in an RSA are automatic. You do not have to worry about deducting your contributions yourself monthly.
Unlike the regular savings account, your funds in an RSA will be invested in financial instruments to yield profits, which protects your pension fund from inflation.
- Voluntary Contribution Scheme
The voluntary contribution scheme works alongside the contributory pension scheme. It is an optional addition that an employee can work with the contributory pension scheme.
You can contribute more to your pension fund with the voluntary contribution scheme. The scheme is more flexible; you can contribute to your pension fund as you like, be it weekly, quarterly, or monthly unlike the RSA, which is monthly. However, you must inform your employer to opt-in for the voluntary contribution scheme.
- The Micro Pension Scheme
In 2014, the national pension commission introduced the micro pension scheme to help the self-employed and those working in organisations with fewer than three employees.
This plan suits traders, professional service providers, entrepreneurs, and self-employed people who do not qualify for the contributory pension scheme.
- Cross-Border Pension Scheme
As we all know that we have Nigerians working overseas, it will only be fair to have a plan that fits well for them too. The cross-border pension scheme is a plan open to Nigerians who are working abroad. They can contribute to their pension fund in Nigeria, and their RSA will be denominated in the Nigerian Naira.
- Retirement Plan
This plan is specially designed for retirees. It falls under the contributory pension scheme, and the pension funds are not invested in high-risk financial tools. Since you are a retiree, it is understandable that your funds are not high-risk tolerant, so they are invested in low-risk financial instruments, mainly fixed-income instruments such as corporate or government bonds.
However, you can only access this plan if you are 50 and older.
- Institutional Pension Fund Management
This plan is not designed for individual use. It is tailored to serve corporate institutions. The program is only available to corporate bodies, MDAs and State Governments to manage.
Bottom Line
As you get older, you are approaching your retirement age. It is best to start planning for your retirement days so that you can avoid any form of financial crisis that may occur. You have worked for years and deserve to sit back and enjoy your old age. Choosing the right retirement savings plan is essential.
To get more financial resources to help you plan your finances, you can download the Earnipay App and locate the Learn tool. The Learn tool feeds you with every financial educational resource you need to manage your finances correctly.
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