I was recently on a call with a client who mentioned the ridiculously low pension amount his father, a retiree, is earning. It’s an amount that can barely sustain him, let alone his children.
Today, we want to delve into the pension scheme in Nigeria and how you can retire comfortably even if you don’t have one.
To start with, what is a pension plan?
A pension plan is a retirement account where employers and employees make monthly contributions. In Nigeria, employers contribute 10% of the salary, and the employee contributes 8%. This system is known as a defined contribution scheme and is governed by the Pensions Reforms Act. The employee receives the money when they retire.
According to the latest available data (December 2023) from the National Pension Commission (PenCom), Nigeria’s pension industry regulator, approximately a little over 10 million people have pension accounts out of an estimated 80 million labour force. This figure represents about 13% of the labour force, falling significantly short of PenCom’s 2007 agenda to cover at least 30% of the working population with pension plans by 2024.
The fact that only 13% of the working population had pension plans as of 2023 may leave the other 87% reliant on future generations or the government to take care of them in their older age. This situation contributes to the increasing prevalence of “black tax” or the vicious cycle of poverty in Nigeria. Looking at these numbers, it is dangerous to subject your future to the care of anyone, not your children, government, or employees.
How to retire comfortably, even if you don’t have a pension
Start saving now: Even if you don’t have a formal retirement plan, start saving as much as you can afford from your current income. Every little bit helps, and the sooner you start, the more time your money has to grow.
Live below your means: Evaluate your spending habits and look for areas where you can cut back. Living below your means allows you to save more for retirement and build a financial cushion for the future.
Invest wisely: Consider investing your savings in low-cost ETFs, mutual funds, or other investment vehicles that offer long-term growth potential. Consult with a financial advisor if needed to help you develop an investment strategy that aligns with your retirement goals. You can send an email to sales@themoneyafrica.com to speak to one.
Consider delaying retirement: If possible, consider working a few more years past your intended retirement age. This allows you to continue saving money while also delaying the need to tap into your retirement funds, giving them more time to grow.
Explore part-time work: Even in retirement, consider working part-time or starting a small business to generate additional income streams. This can help supplement your retirement savings and provide a sense of purpose and fulfillment.
Downsize your lifestyle: As you approach retirement, consider downsizing your home or making other lifestyle adjustments to reduce expenses and free up more money for retirement savings.
Plan for healthcare costs: Healthcare expenses can be a significant burden in retirement. Research affordable healthcare options and consider purchasing supplemental health insurance to cover gaps in coverage.
Create a budget and stick to it: Develop a realistic budget that outlines your income, expenses, and savings goals. Regularly review and adjust your budget as needed to stay on track toward your retirement objectives.
Remember, even if you haven’t started planning for retirement early, taking action now can still make a significant difference in your future financial security. It’s never too late to start saving and working towards a comfortable retirement.
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