“The question isn’t at what age I want to retire, it’s at what income” – George Foreman
Accessing your pension benefits is one of the biggest concerns on the general populace. Most of the people are skeptical about investing or enrolling in a pension fund because they are not very sure when they will have access to their money, how much they will get and what options are available for the pension benefits.
I will now detail the different types of benefits that accrue under the three types of plans, starting with the statutory pension plan. Managed by the National Pension Scheme Authority (NAPSA), members are entitled to three types of benefits i.e. Retirement benefit, Invalidity benefit and Survivors benefits. In addition, NAPSA also provides a funeral grant to survivors of a deceased member.
Following amendments to the National Pension Scheme Amendment Act No. 7 of 2015, NAPSA now has a three-tier retirement age option as follows;
- Early retirement age – previously 50 years, now 55 years
- Normal retirement age – previously 55 years, now 60 years
- Late retirement age – 65 years
The amendment to the Act means that members who joined NAPSA after 14th August 2015 can claim their benefits at 55 (Early retirement age only), 60 or 65 years of age, while members who joined NAPSA before 14th August 2015 Have the option of claiming benefits at 50 (the previous early retirement age only) and 55 years or at 60 or 65 years of age.
For invalidity benefits, any registered member with a minimum of 60 months of contributions and has become disabled to an extent that they can no longer work (as determined by a medical board), is eligible for invalidity pension provided they have 12 contributions within 36 months of becoming invalid. A registered member with less than 12 contributions within 36 months of becoming invalid or with less than 60 months of contributions is eligible for invalidity lump sum.
NAPSA also pays survivor benefits to the family of a deceased member. If a member passes away, their spouse, biological and legally adopted children are eligible to receive a survivor’s lump sum. If a retirement or invalidity pensioner passes away, their spouse, biological and legally adopted children are eligible to receive a survivor’s pension.
The amount payable is divided among the following eligible beneficiaries (2 shares for a spouse and 1 share per child):
- Spouse
- Child under the age of 18 years
- Child under the age of 25 years in formal education
- Unborn child (at the death of member)
- Child of any age physically or mentally incapacitated by the age of 18 and at the death of the member
Where there is no spouse or children the court appointed administrator of the deceased’s estate will be eligible to receive a survivors’ lump sum.
For occupational and private pensions schemes, the retirement benefits are different from the NAPSA scheme but the retirement age is the same. Members have the three options of retirement age i.e. 55 years, 60 years and 65 years as early, normal and late retirement respectively.
Occupational Pension Schemes
At retirement, the accumulated value of one’s pension will be made up of contributions plus returns on investments, and will be used to pay a lump sum portion and the balance is used to purchase an annuity which guarantees a member a monthly pension. This is illustrated in the table below;
Occupational pensions benefits offered by various pension funds include but not limited to the following;
- Retirement benefits
- Ill health benefits
- Death benefits
- Withdrawal benefits
However, members can decide to cash out on the accumulated amount together with the accrued interest and dividends at the date of leaving. The full amount is not taxable under the amended income tax act. Members can also elect to transfer the value of the accumulated funds if they are joining another company that operates an approved pension scheme.
Pension benefits also accrue upon the demise of a member. The nominated beneficiaries of a deceased member will be paid the full value of the accumulated amount of the fund held in a scheme. It is therefore cardinal that you nominate beneficiaries as you draw up your pension plan or later in your personal Will. Death benefits are paid to beneficiaries nominated by you or in the event that you don’t didn’t nominate anyone, the fund administrator in consultation with your employers may people to a known close family member. The fund administrator will normally follow the intestate succession act.
Having understood the different types of pension plans and the different benefits that accrue under them, the third article in the series will seek to further explore annuity plans, as well as the other forms of retirement planning other than pension plans.
In closing, I would like to Share and recommend to the reader a checklist that I have found helpful in my own retirement planning journey. It is a checklist I stumbled upon in my readings, who’s author I can’t seem to recall, but I am hopeful you will find useful too.
A pre-retirement checklist
About the author
Edwin Goli Mulenga is a Chartered Accountant, Corporate Banker, Investment Advisor and Public Speaker with an extensive track record of working with multi-stakeholders and cross-sector groups in local and international organisations.
Edwin has a good network of business professionals in various business segments corporations, multinational companies, development organizations, aid agencies, financial institutions, SMEs, professional bodies and government.