Planning for retirement is one of the most important things you can do. The earlier you start saving, the more money you will have when it comes time to stop working.
While many people rely on their employer’s pension plan, others prefer to set up their own personal pension account. This guide will show you how to open a pension account in Nigeria and what steps are involved in this process.
A pension account is a type of investment account that allows you to manage your retirement savings. They’re similar to bank accounts, but they offer additional benefits such as tax-free interest earnings and competitive rates on investments.
What is a Pension Fund?
A pension fund is a collection of money that’s used to pay pensions to people who have contributed to the fund during their working years. It can also be known as retirement funds or retirement plans. It has many benefits.
The contributions that you make through your salary are then invested in order to generate interest, which will be paid out when you retire at age 60.
Types of Pension Schemes in Nigeria
Before you open a pension account in Nigeria, you need to understand the different types of schemes.
- Contributory Pension Scheme:
This is the most common type of pension scheme in Nigeria. It is sponsored by employers and employees and managed by insurance companies. It requires an employee to contribute a certain amount of money regularly over a period of time in order to qualify for benefits upon retirement.
This is commonly referred to as “defined contribution” because your benefit is defined by how much you contribute over time. In Nigeria, the National Pension Commission (NPC) manages this type of pension fund.
- Voluntary Contributions Scheme:
This is another form of defined benefit scheme in which an employee can choose to contribute money into a pension fund on their own, as opposed to being required by their employer. The contributions are made through payroll deductions or via voluntary contributions from the employee’s bank account.
- Micro Pension Scheme:
This form of pension fund is designed for small businesses and individuals who are self-employed or work in the informal sector. The NPC regulates the scheme and ensures compliance with the Pension Act. Pension funds are managed by a trustee, who can invest in various assets such as equities, bonds, property, or cash deposits.
In this kind of pension plan, there are no employer contributions made on behalf of individuals; instead, they do it themselves through their own personal funds or wages earned from work at an office job, for example.
- Cross-Border Pension Scheme:
This is a pension scheme that can be used by people who are working abroad and want to transfer their retirement money back home to their country of origin. This is an excellent solution for those who have been working outside of their country and would like to retire in it when they reach old age.
- Retirement Plan:
This plan is much like the pension contributory scheme as it targets retirees. While you save, your fund manager would invest the money on your behalf in secured bonds. Also, this helps the money grow to beat inflation, with a retirement plan, you can choose to receive your pension monthly, quarterly, or periodically.
Basically, they allow you to choose how you want them to pay your money and also collect a lump sum upon retirement. However, the lump sum must be below N500, 000. Finally, note that you can only access this plan after clocking age 50 years and above.
- Institutional Pension fund management:
This system was designed for companies and institutions. Basically, the product is only available to state governments, MDAs, corporates, and more. It differs from ordinary contributions in that they designed it to be more suited to corporations instead of individuals.
- Employees of the Federal Government Ministries, Departments, and Agencies
- Employees of organizations with 3 or more employees (including the parent company)
- Employees of State Governments that have enacted Contributory Pension laws
How to Open a Pension Account in Nigeria
You can open a pension account in Nigeria. The best way to do this is by going through a bank, as they are more familiar with the process and will make it easier for you. If you don’t have access to a bank account, then there are many other options available for you:
- Private pension fund administrators
- Central banks
Also Read: 5 Best Pension Companies in Nigeria
Documents and Information Required to Open a Retirement Savings Account
To open a pension account, you will require the following documents:
- National Identification Management Commission (NIMC) Slip.
- A Passport Photograph against a white background.
- Your Means of Identification (International passport, Driver’s license, National I.D. card, Staff I.D.)
- A Proof of Address for yourself and your spouse/children if applicable under the age of 18 years old.
- Letter of Appointment/ Proof of business ownership for that person who has been appointed as a Director or CEO in your company.
Activation and Notification
Once you open a pension account, the PFA will activate the account and notify you in 24 hours. A unique Personal Identification Number (PIN) is issued to you by the National Pension Commission.
You will also be issued a username and password to access your account online.
Things to Note Before you Open an RSA Account
Before you can open a pension account, there are some things that you need to know.
- You must be above 18 years of age and at least one year younger than your employer. If the member of staff is under 18 years old, he/she can only open a joint account with his/her parents or guardians where they will both be working in their respective fields
- You must have a valid national ID card or passport. Also, it’s advisable that you get yourself registered as well using your name and address proof such as a bank statement, utility bill, etc. This makes things easier when it comes time for filing taxes later on so they don’t end up being late because they didn’t know where their documents were kept (which could mean losing out on money!).
- Your employer needs to belong either directly or indirectly with any pension scheme owned by the government/corporation through which today’s retirees receive monthly payments after retirement from salaries received during employment period(s).
Now you know what it takes to open a pension account in Nigeria, how it works, and all the details about the process. If you have any questions about this pension system, we are here to help you out. Contact us today!