Timely Counsel for Foolproof Retirement Plan

Between Pension and Investment

The last thirty years of my life on planet earth has been filled with interactions with elderly men and the basis and topic of interactions have been largely money and its management. I make bold to submit that you can’t be managing that, which is non-existence hence, making money is critical to life.

Please note, making money is a process summarised as work, business, savings or investment. It suffices to also state that these processes could be compressed as just two which are work/business, savings/investment. In other words, it is either that you are working as an employee or you are in business as an employer. Few individuals do combine both. On the other hand, it is either that you are dependent on savings or investment to increase your net worth. It is possible to combine both.

For you to retire well and happy, leaning on just one form of income highway could be detrimental to living in cases of unforeseen negative occurrences. Nothing is given in life; there are 50/50 chances of good and bad. The best is to spread one’s risk so to be able to cope under any situation.

Understanding the phases of life and working with such will go a long way in sustaining life in comfort. Planning is living. No matter who you are, there will come a time you will be dependent. May be on your children if they have the capacity but the best is to depend on self. Self dependence is nothing other being able to cope with financial obligations when one is no longer active either in business or work. That is the real retirement. It infers therefore, that the combination of your savings and investment are the primary determinants of your capability in relation to self dependence at retirement. As simple as that sounds, achieving that feat will take longer than expected conscious plan.  How do I mean?

Pension Savings Plan

Nigeria’s pension scheme has been so refined in the last fifteen years or thereabout largely to a dependable level but note that pension is just a savings scheme with fixed rate of contribution and interest hence, the accruals is not expected to be geometric beyond the original contributions either at  current stage or at retirement but at any rate, it would help as a compulsory form of savings during the active years, give a soft landing to financially illiterate workers who would most probably not save at all regardless of boundless opportunities at their disposal. It is also designed to assist frivolous spenders keep a fixed proportion of their income safe for the future instead of nothing after many years of active work life.

To an extent, the risk involved in the pension scheme as it currently stands is limited owing to the structure and different strata of management and the overseeing function of the commission- PENCOM. But then, I don’t believe that you should just keep all your eggs in that basket not because of any inherent danger but because of the probable inability of pension in financing the ‘totality’ of your expected bills at retirement for which reason, other forms of investment to be handled and managed personally are recommended.


The Truth and Limitations of Pension Scheme

  • Pension contribution is fixed relative to current pay of an employee suggesting that it is meant to primarily enhance disciplined and kind of forced savings culture which is the first stage of the entire personal financial planning discuss. Savings anywhere in the world had never and will never be enough to enhance living at retirement as the strength of savings such as pension is limited to ensuring a measure of conveniences or at best create financial stability at retirement and not necessarily to enrich. In other words, pension scheme does not possess the capacity to cater for all your needs after your active years. If so, where then do you go for further help?


  • Pension scheme, just like every other form of savings will always come with low interest which when benchmarked with inflation might just be enough to keep body and soul together and might even not be enough to cater for anything. You will be very lucky to have started early enough, accumulate to relatively an extent to benefit more. We have taken the time to consider performances of pension funds in Nigeria in the last two to three years and could tell that all that they also do is invest the funds kept in their custody, make profit, deduct cost to arrive at yield. If truth must be said, in some cases and when inflation is at uncontrollable level, values of such savings are eroded. Money is only a function of what it can buy.


  • Because of the restrictions and yield, pension scheme as much as it is advisable is often not a hedge against inflation which had remained uncontrollable in Nigeria. In other words, values of savings might be reduced relative to cost of other goods and services for which the scheme is designed to cater for at the future period. Please note that fixed interest earners lose in the long run when inflation rate is high.


  • Some business owners have been found to have criminally withheld staffs’ contributions unremitted for several months; this which places a huge risk on the retirement income of many aspiring retirees is common among those in private employments. On the other hands;


  • Retirees that rely only on pension the world over had ended up trying to cope with life after active work.


  • Yield on pension had often been affected by general downturn in the economy as there had been experiences of collapse in some countries across the globe.


  • Pension is mostly advantageous to those who had consistent and unhindered work life without any form of retrenchment or termination of appointment.


  • Some pension administrators do not maximise yield on contributions and pension accounts they manage.


  • Further contribution stops at retirement when withdrawals is expected to commence at which point, depletion of the funds also commences as further interest lacks the capacity to beef up previous


  • The length of time withdrawals can be sustained could be determined by the level of contributions and the amount being withdrawn either on monthly or quarterly basis because all you have to withdraw is relative to your contribution plus interest. In other words, to stretch the withdrwal period, you might have no choice than to lower the monthly withdrawal.


  • Management of contribution and pension accounts carry certain cost and charges by the administrators.

The truth is that you should do pension but you must of necessity do other forms of savings too. The best is to invest in addition to your saving(s).

The Truth about Investment:

  •  Investment is that portion of your income that is not restricted in quantity or time, directed to profitable ventures with the intention of yield maximisation now and at a later date.
  • If properly channelled and supervised, it is becomes a hedge against future increase in the prices of goods and services- inflation.
  • It is not to replace pension contribution but to rather complement whatever the contribution to the pension scheme.
  • Investment also carries its inherent risks hence; a measure of carefulness is required particularly as retirement draws nigh. In other words, an entire investment can be wiped off if the investor becomes greedy, careless or fearful as the case may be.
  • The opportunity to personally control contribution and diversification make investment advisable particularly to an aspiring retiree with five years or less to still work.
  • Investment could form a part time job at retirement depending on the extent of knowledge the investor had acquired over a period of time.
  • Investment doesn’t necessarily need to be so much as opportunities abound in many areas as we shall soon see to put in as little but consistently.
  • Investment gives the room for retirement without the barrier of location. In other words, you might choose to live in a less traffic city at retirement where as your investment can be in congested cities depending on the type and your plans.
  • Some forms of investment don’t necessarily require day to day supervision.
  • Investment if properly carried out can continuously generate increasing passive income long before and at retirement.
  • Some forms of investment are more easily transferrable.
  • Some forms of investment are divisible which makes sales very easy.
  • Investments are easily discontinued and can also be increased at will depending on the level of income.
  • Because investments are often personally managed, progress or failure are always detected and remedied in time.
  • Yield and returns on investment can be reinvested for compound interest over time.

The Best Combination for an Aspiring Retiree:

  • Whether you are in private practice or civil service; a business owner or an apprentice, pension is a must. The better if you cultivate the culture of little savings here and there to restrict spending on frivolities.
  • Because of the natural limitation of pension scheme, it is also compulsory to invest rapidly or aggressively particularly in your last five years of active work. Investing gradually over a long time remains the best strategy.
  • Pension and investment shouldn’t tamper with other forms of specialised or target savings which include home ownership and children education.
  • The simple psychology is that the more your level of investment and other specialised and target savings during the active years, the lower the expenses and ultimately the longer your retirement savings can go in aiding your finances at retirement. In other words, if you must retire well, the last five years of your active work life must be dominated by various forms of investment in addition to the pension contribution and consciously low level expenditure on depreciating assets. Furthermore, your last five years should have to cater for the previous long years of passivity on investment or varied losses on previous investments.


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