The Implication of the 15 to 18 percent increase in pension contribution and its impact in pension pot.

Odunze Reginald C

On July 1^st 2014, the current president of Nigeria , Dr Goodluck Ebele Jonathan signed the 2014  Pension Reform Act.  By the signing of the new law, it signifies the repeal of the 2004 pension Reform Act and according to the preamble of the act; the law will continue to govern and regulate the administration of uniform contributory pension scheme for both the public and the private sectors  in Nigeria.

But the subject matter of our discussion is the increase in pension pot, a pension pot is the total money in an individual pension account  or  the  total  retirement savings account in an individual RSA holder,  and so how long does an individual live that will usher in a good and profitable life during old age bearing in mind that old age comes with it numerous ailments associated with it, and so the pension pot is a very important part of the retiree life and according to Richard Evans of the Telegraph and I quote “So how much do we need to live on when we're retired? According to research from LV=, the insurer, a single person typically spends £9,900 a year in retirement (a couple need £17,900). The figure covers more than essentials, including such expenditure as drinks, restaurants, recreation and hotels” and I will to like add also medical and health bills as far Nigeria and Africans are concerned as Evans deliberately avoided medical bills because of Americans and European total care of old peoples medical bill.

Therefore the 3 percent increase  in contribution from 15percent to 18 percent is a step in the right direction as most retirees very often fall sick when they discover that their contribution is not enough to carry them through, the short coming in their expectation most often results in unhappiness which ultimately results in medical and health  related issues.

According to Mandi Woodrof in an article “7 ways  to retire  happy “ which appeared in Yahoo finance ,  Mandi noted that  “In a new book, “You Can Retire Sooner Than You Think,” Atlanta-based investment advisor Wes Moss, offers an alternative to the traditional line of thinking. Rather than focus on a dollar amount to reach for, Moss decided to figure out what retirees needed to be truly happy in retirement.”

“In 2012, Moss conducted an online survey of more than 1,200 workers who had either already retired or were fewer than 10 years away from retirement. He asked them questions about what type of cars they drove, where they shopped, how much their homes were worth, and, of course, how much they had saved for retirement. But he also asked about their passion projects, how often they went on vacation, what types of volunteering they enjoyed, whether or not they were satisfied with their lives, and how much time they put into their retirement planning before calling it quits. (Moss did not ask participants about overall debt levels like student loans and credit cards, but did include questions about their mortgage debt).
What he found was that more money doesn’t equate to more happiness. The happiest retirees didn’t all drive BMWs or take 12 European cruises a year, either” notwithstanding the research of Moss, it is observed that retirees with low pension pot often feel disillusioned and as such are constantly complaining of the pension of the pension scheme, based on the stories, reports of large scale operation that appears daily on newspapers as most of the people are not aware, that all those emanating reports are not of the new scheme. But continuing in his research, Moss deviated adding that the increase in pension pot increases the retiree happiness as stated in the number one factor for retiree happiness.

But Moss came up with one factor, he noted that “Retirees’ happiness hit a wall once they reach $500,000 in savings.”  That is a whopping 80 Million Naira based on 160 Naira exchange rate . But in as much as the situation and conditions  in abroad are quite different, a retiree having enough remittances in his retirement savings account also portends happiness in that regard. Though research has not been carried out in Nigeria in that regard but generally expectation of money creates more happiness than the spending. In  a research carried out in Alabama, it was discovered that most lottery players, gamblers are always happy until the result of lottery game. In a film titled, "It could be you" which portrays the happiness exhibited by lottery players shortly before the result, it shows that people tend to be happy on expectation of money than on the arrival of the money ,as most salary earners always feel happy before the arrival of the salaries and wages, but become more unhappy at its arrival as they discovered that so many issues spring up to consume the money. With the theory of happiness in expectation of money, It then therefore becomes devastating when a retiree expectation is far beyond what can see him through during old age.

Therefore the increase from 15 percent to 18 percent will go a long way in creating a sustainable and happy retirement  old age, this is because for employees that work in private sectors  who does not have an adequate  provision for accrued pension right , it becomes a terrible nightmare as the contributor prepares for retirement, for those in organized private sectors that has provision for accrued pension right and the governments sectors that provide for bond, they are better equipped than the counterparts in those sectors.

Therefore the government really came to the need and the aspirations of the contributors in that regard. In an article by Smarter lifestyle titled “ways to prepare for retirement”, it noted that” retirement can be expensive “and as such “it’s a good idea to schedule a meeting with a financial planner to get a ‘check-up’. It’s just like a doctor’s visit, and you should really talk about your present situation and future goals.”

The increase in contributions also means more money will be available for investment purposes in different instruments and that  will boost the economy  as the multiplier effect will likely increase within a very short period bearing in mind that “the Pension Reform Act 2014 also makes provisions that will enable the creation of additional permissible investment instruments to accommodate initiatives for national development, such as investment in the real sector, including infrastructure and real estate development. as is provided without compromising the paramount principle of ensuring the safety of pension fund assets.”Rueben Abati.

Finally the increase will also check mate some employers especially the unorganized private  sectors who are in the habit of not remitting the correct amount as the increase of 3 percent will have to manifest in their subsequent remittances.

Odunze Reginald C