With the right knowledge about pension and insurance, you can enjoy some relief while also providing adequate cover for yourself and your dependants. Apart from providing funds for your retirement, safeguarding your life and property against unpleasant happenings, the essence of pension and insurance goes beyond the individual to produce an end result that can improve the welfare of the general public.
For most Nigerians, retiring with a fat bank account will be nothing more than a dream. About two-thirds of people working in major cities lack either a workplace pension program or insurance coverage, are at the low end of the wealth scale and trying to get by on less than $2,177.99 or ?685,522.35 a year, according to a World Bank report.
Unknown to most people, part of the efforts of the Government to encourage workers to provide for their old age and protect themselves against unexpected losses, are initiatives which entitles subscribers to certain benefits if they take life insurance policies and have pension accounts. Time has shown that dependants of deceased workers who had life insurance policies and pension accounts usually have some money to claim and move on with life, thus, reducing their burden on the society.
Which makes it all the more important for you to be aware of your pension and insurance options and how they will affect your prospects for a comfortable, predictable stream of income either once you stop working or when eventualities occur. Aside from the usual benefits you may already know of or read about, there are some benefits or added coverage that you need to know and take advantage of, some of which include.
- Employee Compensation Act
In Nigeria there is a mandatory insurance act in established by the Federal Government and implemented by the Nigeria Social Insurance Trust Fund Management Board (NSITF), to provide guaranteed and adequate compensation (funds) for employees or their dependants for any death, injury, disease or disability arising out of or in the course of employment, which applies to both employers/employees in the public and private sectors throughout the country. The act requires employers to make a minimum monthly contribution of 1% of the total monthly payroll on behalf of their staff into the Employee Compensation Fund, which will serve to provide the compensation in the case of eventuality to the employer/employee or dependents once claims and are verified. So go ask your employer.
- Tax Relief/Rebate
The 2004 Pension Reform Act of the Personal Income Tax Law of Nigeria, details statutory provisions of tax concessions that are based on Pension and also Insurance. This act details that Personal Income Tax allows anyone with a life insurance policy or recognized pensions scheme to get tax relief for the amount of the premium that they paid. A prerequisite for grant of tax refund claims is the performance of tax audit by the Federal Inland Revenue Service to verify the basis of claim. Taxpayers with genuine claims of tax refund are encouraged to follow the rebate procedures given by FIRS.
- Contributory Pension Scheme
The PRA of 2004 in Nigeria established a Contributory Pension Scheme (CPS) whereby the employers and the employees contribute minimum percentages of the employee’s salary to the scheme every month. The minimum contribution for the employer is 10% and 8% for the employee. CPS in Nigeria is governed by the National Pension Commission (PenCom). The job of PenCom is to enforce and administer pension regulations, regulating two types of companies – Pension Fund Administrators (PFAs) and Pension Fund Custodian (PFCs). The employee chooses a PFA to from any of the registered PFAs in Nigeria, this meaning employees have a variety of choice. The employee is also meant to inform her/his employer with the PFA details, so that from the first month of salary payment, the deducted pensions can be remitted accordingly to the PFC as specified by the PFA. The PFC upon receipt of the contributions, informs the PFA who then credits the Retirement Savings Account of the employee. If the employee changes jobs, the law instructs that the employee can keep his account and continue making contributions through the new employer.
What happens at retirement, you may ask?
Basically withdrawal from your RSA can only be in line with the Act and regulations issued by the National Pension Commission. There are 2 major options to which to receive your pensions as salary after retirement:
- Programmed Withdrawal: The Programmed Withdrawal (PW) is a product offered by the PFAs for periodic payments (monthly/quarterly) to a retiree. The model for calculating the expected life span under the PW option is in line with the guidelines as issued by PenCom. It is a structured periodic withdrawal payment to the retiree. The Retirement Savings Account balance is spread over the expected life span of the retiree with consideration of age, sex and total amount in the RSA. Before payment is made to the retiree, the commission or PenCom needs to give approval asked by the PFA, after which the funds (firstly a lump sum) are transferred to the retiree’s valid bank account and then subsequently the monthly pension salary as agreed between the retiree and the PFA. The retirees RSA must be transferred to the Retiree Fund (as here, investments done are different from the normal RSA) by the PFA. Under the Programmed Withdrawal model, in the event of death of the retiree, the RSA balance is transferred to the named beneficiary under a Will or Letter of Administration. Investments of the retiree funds continue and he/she will continue to receive monthly pensions as salary for as long as there remains a balance in the Retirement Savings Account.
- Annuities: A way of taking your pension money is to buy a lifetime annuity. An annuity is a fixed sum of money paid to someone each year, typically for the rest of their life as a form of insurance. It is an insurance contract that insures against you living too long. In Nigeria, annuity is offered to retirees by insurance companies, it is a regular income received from an insurance company in consideration of premium paid and as such the annuitant must be paid for life under the annuity scheme. A prospective annuitant gets an annuity agreement from a licensed insurance company, his PFA then transfers the premium (which is all the balance in the RSA) to the insurance company after the lump sum has been paid to the client. With this, there is a guaranteed monthly or quarterly payments (depending on the agreement) for a period of 10 years; however payments will continue if the annuitant is still alive. In the event that the annuitant dies before the guaranteed 10 years ends, the named beneficiaries will only be paid for the remaining period of the guaranteed years. The annuity fund remains with the insurance company and a retiree on annuity can only move to another insurance company after 2years but cannot return to Programmed Withdrawal with a Pension Fund Administrator.
- Group Life Insurance
Group life insurance is a type of life insurance in which a single contract covers an entire group of people. Typically, the policy owner is an employer or an entity such as a labour organization, and the policy covers these employees or members of the group. Group life insurance is often provided as part of a complete employee benefit package. In most cases, the cost of group coverage is far less than what the employees or members would pay for a similar amount of individual protection. So if you are offered group life insurance through your employer or another group, you should usually take it, especially if you have no other life insurance or if your personal coverage is inadequate. As the policy owner, the employer or other entity keeps the actual insurance policy, known as the master contract. All of those who are covered typically receive a certificate of insurance that serves as proof of insurance but is not actually the insurance policy. As with other types of life insurance, group life insurance allows you to choose your beneficiary. Term insurance is the most common form of group life insurance. Group term life is typically provided in the form of yearly renewable term insurance. When group term insurance is provided through your employer, the employer usually pays for most (and in some cases all) of the premiums. The amount of your coverage is typically equal to one or two times your annual salary.
Group term coverage remains in force until your employment is terminated or until the specific term of coverage ends. You may have the option of converting your group coverage to an individual policy if you leave your employer. However, most people choose not to do this because these conversion premiums tend to be much higher than premiums for comparable policies available to individuals. Typically, only those who are otherwise uninsurable take advantage of this conversion option.
There are always overlaps and interrelationships between the benefits, assistance and security, that insurance and pension schemes provide, most of which are integral to some of the basic tools used by Governments as well as to assist those experiencing or likely to experience economic disadvantage, and by households to minimise their social and economic risks. It is then essential to familiarize yourself with the options available in your country and employ them to work in your favour.
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