Pension is necessary for everyone, but eligibility for pensions often depends on various factors. These factors includes age, employment status, and other criteria set by the Government and in some cases, the employer.
In general, pensions are retirement benefits that provide a steady stream of income for people who have worked and contributed to a pension plan during their working years. This means that if someone has not worked or contributed to a pension plan, they may not be eligible to receive a pension.
In some countries, the government provides a state pension to eligible individuals who meet other criteria. However, not everyone is eligible for a state pension, as eligibility depends on the country and the social security/specific pension scheme.
In Nigeria, pensions are regulated by the National Pension Commission (PenCom) under the Pension Reform Act of 2014. The Act established a contributory pension scheme for both public and private sector workers. With the aim of ensuring that all workers have access to a pension plan.
Under the contributory pension scheme, both the employee and the employer are to make contributions to the employee’s pension account. The minimum contribution is 18% of the employee’s salary, with the employer responsible for contributing 10% and the employee contributing 8%.
The funds, managed by Pension Fund Administrators (PFAs), who invest the funds in various assets such as stocks, bonds, and real estate. The PFAs are licensed by PenCom and are required to meet certain standards and guidelines. This is to ensure the safety and security of the pension funds.
Upon retirement, the employee can choose to receive their pension payment plan from the PFA. Or annual payments from an insurance company. The former includes a comparison whilst the latter can but does not often include an upfront payment too. The pension is typically a percentage of the employee’s final salary, with the percentage depending on the number of years the employee has contributed to the pension plan.
Overall, the Nigerian pension system has undergone significant reforms in recent years. It aims to provide a more secure and sustainable pension system for all workers. However, there are still some challenges and issues with the system. Such as low levels of awareness and understanding of the pension system among individuals. Concerns about the safety, and security of pension funds and access to funds for other necessities.
In summary, the pension scheme operated in Nigeria has come to stay. The current size of pension contributions in Nigeria is about N296,957,107. The National Pension Commission constantly reviews it to enable it to have significant relevance to the contributors. An example is the recent amendment to allow pensions to be used for mortgages.
Therefore, it is very important for the commission to encourage more participation, especially by the new entrant into the workforce. This will enable an effective labor market by creating more awareness in spaces where the younger generation operates and consume information.