By Akintola Omigbodun

The Pension Reform Act 2004 specifies that there should be pension fund administrators and each individual employed in the public sector or private sector should have a retirement savings account with a pension fund administrator of his/her choice.

This essentially means that the growth of the funds in one’s retirement savings account depends on how well the pension fund administrator manages the funds. Contributions to the employee’s retirement savings account shall be made by the employer and the employee.

Under the Pension Reform Act 2004, each party was to contribute a minimum of seven and a half percent of the employee’s monthly emoluments but the amendment to the Act in 2014 stipulated the employer’s and employee’s contributions as a minimum ten percent and a minimum eight per cent respectively of the employee’s monthly emoluments.

The employer and the employee are allowed to contribute more than the minimum and I am aware that Total Nigeria Plc makes monthly contributions which are more than the minimum to its employees’ retirement savings accounts.

The company has also worked out new arrangements for gratuity payments to its employees. The gratuity is computed based on 9.5% of total annual emolument and paid monthly to fund managers as chosen by employees.

There are situations in which employees have lost their pensions usually with employees of failed banks and with employees of companies that have deposited employees’ pensions in failed banks. We currently have an example with the employees of Seawolf Oilfield Services who have carried their protests to the Central Bank of Nigeria over non-payment of their salaries.

Apparently, the Assets Management Corporation of Nigeria, AMCON, has taken over the assets of Seawolf Oilfield Services and AMCON intends to sell these assets to offset the loans taken by Seawolf Oilfield Services.

If one has been a government employee for a period of 30 years and if one’s promotions have been regular over the period, statutory contributions into one’s retirement savings account would be equivalent to about three and a half times of the employee’s final year emolument.

With proper investment, the value of the retirement savings account at the end of the final year could be worth ten times of the employee’s final year emolument.  The employee has three alternative methods for making withdrawals from his/her retirement savings account.

The employee could make programmed monthly or quarterly withdrawals calculated on the basis of an expected life span. The employee could also obtain monthly or quarterly payments from an annuity for life purchased from a life insurance company.

In the third method, the employee could take a lump sum plus an annuity or a programmed withdrawal. What is important is that whatever stands to the credit of the retirement savings account would give the employee an annual retirement benefit of at least fifty percent of his/her final year emolument even when a lump sum has been deducted.

Persons approaching retirement from employment are usually advised to make plans for their activities following on their retirement. The maximum age at retirement is set at 60 years for government employees and at that age, most people could engage in income producing activities.

Many employees would therefore want to obtain a lump sum from their retirement savings account such that the lump sum could be applied to their business activities. For others, the lump sum would be applied to their living expenses given the drop in their monthly income.

TO BE CONTINUED