It is never too early to start planning for your old age.
So, how are you planning for it?
One of the best ways to plan is to make sure that you have enough money in your retirement savings.
Talking about retirement, my parents never had to worry as they earned pension for life after putting in 35 years in civil service or reaching the statutory age. But a lot has changed about how pension works in Nigeria.
In the new arrangement, called contributory pension scheme, the only way to “eat more meat in your soup” when you retire is determined by the funds in your retirement savings.
What do I mean by “eat more meat in your soup” ?
More “meat in your soup” when you retire
I watched a funny advert ran by one of the pension managers in Nigeria. The ad campaign depicted the story of someone smart enough to keep money for retirement savings and as a result was able to afford more meat in his food in his old adage.
The message the ad is passing across is that “the responsibility of how much fund you have in your pension fund when you retire is on you”.
So, how are you actively planning for that time?
Here are 3 tips on growing your pension savings so that you have enough money to spend at your retirement age.
1.. Choose the right pension fund administrator that suits you.
All pension fund administrator look pretty the same.
Of course, they offer the same service.
For a survey, I randomly polled 21 employees from VoguePay team and the result showed they are served by 6 different pension fund administrators with 2 PFAs controlling 67% of their accounts.
There are more than 18 pension fund administrators in Nigeria.
Before you choose your PFA, give consideration to the market share, but also watch out for how they manage their funds. This is because the growth of your pension will be determined to a large extent by where they invest into.
You can learn a lot about each fund managers by reading the reports on PenComm website or visiting the website and checking the annual prospectus of each or pension manager for more details.
2. Put as much money in your pension fund.
Statutorily, 7.5% of your salary is expected to be matched by your employer for your contributory pension. Ensure that your organisation complies with this (your employer has obligation to pay, otherwise they could be fined).
To improve your pension contributions, you can also include commit more money voluntarily, this way it grows faster.
3. Take advantage of the newly launched multi-fund scheme
The Nigeria pension commission (PenComm) recently launched a multi-fund pension scheme that gives you the opportunity to decide which funds you want your money invested in.
To invest your retirement savings, you can maintain the default category you are placed in or request to move your funds to a preferred option; usually a step ahead.
But is it better to keep the status quo or request a change?
Before I explain what could be best for you, let’s look at these 2 important issues:
- How your pension money grows: You see, what pension funds managers do basically is to invest in different investments in order to grow their pull of fund. This could be investing in mutual funds, stock market, government bonds and real estate etc. It is proceed from these investments that grow your pension.
- The impact of Inflation: Inflation means the general increase in the prices of goods and services and therefore cost of living. It is the biggest threat to your retirement savings and may erode the purchasing power of your savings by the time you retire.
Keep in mind that your fund administrator will still make the decision on the assets to be allocated, but the multi-fund structure now provides empowers you to align your retirement goals, risk appetite and age with the fund of your choice.
So, if you are just starting your career, it could be OK to consider fund that align your risk tolerance or appetite with investment return expectations. What that means is that a higher percentage of your money will be invested in variable income instruments which are proven to generate high returns over a long term but could be risky due to uncertainty and fluctuations in market prices and returns.
You can be sure that in the long run there will be a better chance for your pension assets to meet your expectations when you retire so that you can have “more meat in your soup”.