Retirement Planning for Small and Medium Scale Entrepreneurs

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By: Site Engineer, Staff

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A major reason many people prefer paid employment is the attraction of the compensation package attached to their jobs. An important component of the package is the retirement pension plan which assures the individual of a stream of periodic payments throughout his life-time.

On the other hand, the attraction of entrepreneurship includes the independence or autonomy associated with it as well as the prospect of a large financial gain. The financial gains of successful entrepreneurs are usually high, most times higher than the level of earnings they could have received as paid employees.

But to the entrepreneur the responsibility for making plans to maintain a continuous flow of income upon retirement or ill-health is entirely his. Most entrepreneurs’ feel that retirement is something in the distant future something that can wait but when it comes as if inevitably would; most entrepreneurs are not prepared for it.

It is a fact no one can keep working actively all his lifetime; we must naturally retire from active work at a point in rime. Do not think your expenses will drop when you retire because, in our society we cannot be certain when our children will complete their education and become gainfully employed.

It is a misconception to believe that children will always provide for their aged parents because that belief presupposes that they will be gainfully employed and will not be overwhelmed by the need of their own immediate families.

Thus, everyone must plan for the future when he can no longer work to earn income. That is, the entrepreneur must save during his active years in order to provide himself a satisfactory income when he is no longer able to work.

Another common misconception is that there is plenty of time to start saving for retirement. The earlier one starts saving and draws up a retirement plan, the cheaper and better the benefit when retirement comes.

Retirement can be a rewarding phase of life if adequately planned for. Thinking about retirement in advance can help the prospective retiree anticipate future changes and gain some control over the future through planning.

He that is not proactive and does not plan for his retirement will be forcibly retired by old age or ill-health. This unplanned retirement can lead to poverty, depression, dissatisfaction and untimely death. It is evident that most self-employed workers do not plan for retirement, and many have limited knowledge about retirement savings.

Types of Benefits

(a)        Retirement Grant: Qualifying conditions include that the claimant must have attained the age of 60 and above and retired from employment having 12 monthly paid contributions. Entitlement payable is a lump sum payment of the final monthly contribution multiplied by the number of months of paid contributions.

(b)        Retirement Pension: Qualifying conditions include employee who had attained the age of 60 and above, and retired from employment; having at least 120 monthly paid contributions.

Entitlement is minimum of 300% a maximum of 65% of final average insurable earning depending on number of contributions paid. Amount Payable in either case not to be less than of national minimum wage.  Transitional basic pension is payable to a member who has a period of insurable employment amounting to at least 75% per centum of the months between his age at the start of the scheme and the retirement age subject to a minimum of 36 months.

Reduced Pension Option: Voluntary retirement is possible from the age of 55 with a reduced pension computed as a percentage of full pensions. To qualify for a reduced pension option, a member must be 55 and above but below 60 years of age. He must have a minimum contribution of 120 months in aggregate, and the pension is computed accordingly:

Age

55

56 57 58

59

Percentage of full pension

70

76 82 88

94

(c)        Invalidity Grant: Qualifying conditions are that the employee is permanently incapable of working, and there must have been at least 12 monthly contributions paid. Invalidity may arise by reason of some specific diseases, bodily or mental disablement in any occupation.

Entitlement is an amount equal to the final monthly contributions multiplied by the number of months of paid contributions.

(d)       Invalidity Pension: Qualifying conditions include employee permanently incapable of working. At least 36 monthly contributions paid out of which he is expected to have worked continuously for 12 months. Claim must be made within a year.

Entitlement is minimum of 30% and a maximum of 65% of final average insurable earnings. Amount payable in either case not to be less than 80% of national minimum wage.

(e)        Survivor’s Grant: Qualifying conditions include where a dependant is not entitled to survivor’s pension but deceased employee had at least 12 monthly paid contributions. Application for the grant must be made within a year of the death of the member.

Entitlement is the equivalent of the deceased employee’s invalidity or retirement grant paid as lump sum to his registered dependant(s).

(f)        Funeral Grant: On the death of employee receiving invalidity or retirement pension which currently amount to N2,000 for meeting funeral expenses. This small sum is subject to review periodically.

(g)        Lump Sum Payment: To emigrants usually paid to any member finally emigrating from Nigeria. Qualifying conditions include membership and proof of final emigration.

(h)     Management Transfer Options: If the business is still a good going concern, retiring and handing over can be to either family members (especially children) or employed managers. Most people will prefer family member because of real or perceived loyalty and commitment. Managers may be used when members of the family are not of age, do not have any interest in running the business or lack adequate knowledge and experience for the line of business.

Voluntary retirement is advantageous, as it will enable you select and train family members who will eventually take over or select and put in place control measures for professional managers. For relatives, it is recommended that they be trained at all levels with similar businesses of friends before gradually bringing them in for professional managers, a reporting framework, targets and professional auditors/period must be put in place.

All these will improve success factors for the new management and thus your income will be guaranteed especially when retired to become salaried non-active directors. It is best assumed however, that profit performance after disengagement may not be high, thus we must plan for uncertain future.

(i)     Disability and Survivors’ Benefits Variants: These are very important to entrepreneurs. A retirement plan must include disability benefit because retirement can be forced by ill-health or accidents. At qualification for disability benefits, the disabled can either qualify for bulk payment or receive benefits for life if he remains disabled. A married entrepreneur may die shortly after or even before retirement, joint and survivor option allows the investor to provide for a lifetime for the spouse on a monthly basis.

(j)        Survivor’s Pension: Qualifying conditions are death of an employee receiving retirement or invalidity pension with dependants as survivors. Entitlement is 100% of deceased employee’s pension.

 

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