Retirement Planning and Pension Arrangements
What CF6 tests
Retirement planning and pension arrangements tests the Nigerian contributory pension framework, benefit options and retirement projections.
Core rules
- Pension Reform Act 2014: employer and employee contribute to an RSA managed by a PenCom-licensed PFA; statutory minimum is employee 8% and employer 10% of monthly emoluments.
- A PFC holds pension assets; PenCom supervises. Voluntary contributions are allowed within rules.
- Retirement options include programmed withdrawal and life annuity; consider fees, flexibility, inflation and survivor benefits.
- Micro pension extends coverage to informal-sector workers.
- Projections should use realistic returns, inflation, charges and salary growth; do not promise returns.
Worked example
Monthly emoluments are 500,000. Employee contribution is 40,000; employer 50,000; total 90,000 monthly, or 1.08m yearly before investment returns. Over 20 years, at an illustrative 8% nominal return and 6% inflation, the real fund is far below the simple 21.6m contribution total. Reasoning: compounding raises nominal value, but inflation and fees reduce purchasing power; the adviser tests whether projected income covers essential spending.
Traps
Adding 8% and 10% incorrectly; ignoring inflation; treating the RSA balance as immediately accessible; assuming annuity and programmed withdrawal are identical; overlooking survivor and death benefits.