Reading this shows you have interest in pension and want to know which pension plan is suitable for you.
It’s important to understand various types of pension plans to know the plan that suits your economic status to help me make an informed retirement plan.
There are various types of pension plans for public or private sector employees, and self-employed.
After reading this article you will know the pension plan that’s tailored to meet your need.
What is Pension Plan?
A pension plan is a retirement plan provided by employers for employees in which the employees receive regular payments after retirement, literally for life.
6 Types of Pension Schemes
- Contributory pension scheme
- Voluntary contribution scheme
- The micro pension scheme
- Cross-border pension scheme
- Retirement plan
- Institutional pension fund management
Contributory Pension Scheme
The contributory pension scheme is a type of pension plan provided for the private or public sector employees. Under this scheme, employees of the public and private sector employees are eligible for a Retirement Savings Account (RSA).
A retirement savings account is a dedicated account through which you and your employer make monthly contributions in to pension fund. The contributions are usually between 15%-20% of your monthly salary.
The constructions in the RSA are pooled into Pension Fund managed by pension administrators who invest the funds in financial instruments that profits, which protects the pension fund from inflation and ensures increase in value of your savings by the he time you retire.
Pension Fund Custodians ensure keeping safe custody of pension funds and assets in Retirement Savings Account for the employees or contributors (RSA holders) in trust of the pension fund administrators, PFAs. So the safety of your contributions in your RSA is guaranteed.
Voluntary Contribution Scheme
The voluntary contribution scheme make provision for additional contribution plan and it is optional. If you need additional pension plan outside your contributory pension scheme, you can opt-in for voluntary contribution scheme.
This scheme is enables you to save more if your contributory pension plan, which is about 15 – 20% of your salary is not enough to meet your retirement investment plans. This scheme is also more flexible, as you have the options making your contributions weekly, monthly, quarterly, or biannually, unlike RSA that is fixed for monthly contributions.
If you choose to opt-in for this scheme, your employer would need to be notified.
The Micro Pension Scheme
Pension Reform Act 2014 provided for the micro pension scheme to capture the self-employed persons in the national pension schemes.
This plan allows entrepreneurs, traders, professionals, and other self-employed persons that don’t qualify for the contributory pension scheme to participate in pension scheme.
If you’re self-employed, this is the plan you.
Cross-Border Pension Scheme
The cross-border pension scheme enables Nigerians who are employed outside the country to make contributions to the pension fund. This ensures that Nigerians live outside the country are not left out in national pension scheme.
Note that your Retirement Savings Account will be denominated in Naira as well. Also note that, this can only be possible if your employer in foreign country agrees to remit your pension to your Retirement Savings Account in Nigeria.
If you were previously employed in Nigeria and had RSA before moving abroad, and your employer outside the country refuses to remit your pension into your RSA in Nigeria, you can move your Retirement Savings Account to abroad where you current work.
See How to Move Your RSA from Nigeria to Abroad
Retirement Plan
Retirement plan is also plan of contributory scheme which is meant for retirees.
Retirees are not high-risk tolerant. Therefore, pension fund will be invested in financial instruments that are low-risk, mainly fixed income instruments like corporate or government bonds.
Institutional Pension Fund Management
This plan is designed to be managed by cooperate bodies, MDAs and State Governments. It plan not available to individuals as it is tailored to suit corporate institutions instead.
Choosing the right Pension Fund Administrator (PFA) is the first important step to take in retirement planning as it goes a long way in ensuring your financial needs are guaranteed during retirement. See the Top 10 Pension Fund Administrators in Nigeria, as well as Full List of Pension Fund Administrators in Nigeria.