Issues in Retirement Planning
General Issues in Retirement Planning
Retirement Planning as an exercise the world over is fraught with many challenges. For Nigerian workers who are especially challenged by low levels of income and savings as well as huge family and social responsibilities, retirement planning can be more complicated. Some of the social issues that affect effective retirement planning in Nigeria include: the size of our families, polygamy, the additional responsibilities of an extended family, and inadequate access to medical facilities. In addition, Nigeria does not have an operable social security system that takes care of the aged, the young unemployed, and most disturbingly, the disabled, meaning that all these categories of people constitute an additional responsibility on the worker and the worker’s resources.
While the average life expectancy of Nigerians hover somewhere in the early 50s, a large number of Nigerians live up to their 80s and 90s. With many more people living up to those ages, and the growing sophistication amongst our young adults, provisions have to be made in our social system for caring for the aged. Where such systems are not in place, workers have to plan ahead for their old age.
Planning is especially important in the area of housing. Nigeria still does not have a functioning mortgage system, and acquisition of real estate is still mainly on a cash and carry basis. In major cities like Abuja and Lagos, as well as in cities throughout the country, properties are very expensive and beyond the reach of the average worker. Only recently, the Federal Government as part of its monetization policy for its employees has begun the process of selling its houses to them on an owner-occupier basis. It is envisaged that a mortgage backed security will be created to finance these acquisitions, and this would herald the development of a mortgage system in the country.
Another industry that needs urgent development to support retirement planning in Nigeria is the insurance industry. A vibrant insurance industry that provides adequate cover for personal accidents, life assurance, and other occupational and social risks will encourage investments and capital accumulation in society, and support healthcare and real estate development.
Under the new contributory pension scheme, retirement planning also takes a new and more promising dimension. Firstly, the new scheme is compulsory for Nigerian workers in the private and federal public sector, and is being embraced by many State Governments already, ensuring that workers receive their benefits as and when due, and establishing a uniform administration and regulation of retirement benefits in Nigeria. Due to its funded contributory nature, and the fact that it is privately managed and well regulated (see article on “Benefits of the Contributory Pension Scheme”), it is a marked departure from previous schemes in the private and public sector. The individualism that anchors the scheme, as well as the portability of the individual Retirement Savings Account (“RSA”), gives both social and economic benefits to the worker and society at large.