HOW IS THE NEW PENSION SCHEME DIFFERENT FROM THE OLD PENSION SCHEME?
A pension is a regular payment made during a person’s retirement from an investment fund or account to which that person and their employer(s) contributed during their time as an active member of the labour force.
Most of the old pension schemes were not fully funded. Therefore, upon retirement, there were no ready funds to pay the pensioners. The new pension scheme is fully funded. Money is contributed into individual employee’s Retirement Savings Account (RSA) and when he/she retires, there will be money in his/her RSA to pay his pension.
In Nigeria, the Pension Reform Act 2014 (PRA) governs the framework and procedure for pensions.
The PRA establishes a Contributory Pension Scheme whereby the employers and the employees contribute minimum percentages of the employees’ salary to the scheme every month. The minimum contribution for the employer is 10%, and 8% for the employee. So if you earns N300,000 and works for Consumer News, Consumer News is supposed to contribute a minimum of N30,000 to the scheme monthly, while you contributes a minimum of N20,000 to the Scheme monthly, every month until he retires. If you and consumer News so wish, both can decide to increase the amount they contribute monthly, however they can not contribute anything less than the 8% and 10% respectively.
However, if Consumer News is being generous, they can decide to bear the full responsibility for paying your pension. In this case the PRA says that Consumer News would have to pay a minimum of 20% of Your monthly pay the entire monthly entitlements . The money goes into what is known as a Retirement Savings Account (RSA).
WHAT IS RETIREMENT SAVING ACCOUNT (RSA)
RSA is used all over the world, even in USA. In the US, A retirement savings account is a type of retirement plan account that is envisioned to replace all three different types of individual retirement accounts that are currently used in the United States: traditional IRA, Roth IRA and Simple IRA. Contributions would be made on an after-tax basis. This is a major part of what the George W. Bush Administration’s called the ownership society.