Planning for retirement is a crucial aspect of financial management, and in today’s dynamic economic environment, it is essential to go beyond the basics. While the mandatory contributory pension plan provides an excellent foundation, the Additional Voluntary Contribution (AVC) plan allows you to significantly boost your retirement savings.
What is Additional Voluntary Contribution (AVC) Plan?
Additional Voluntary Contribution Plan allows employees to contribute additional amounts to their pension funds beyond the mandatory 18% employer and employee contributions.
Unlike the mandatory Retirement Savings Account (RSA), the Additional Voluntary Contribution (AVC) Plan gives contributors the freedom to decide how much extra they want to save based on their financial situation and retirement goals. It also allows contributors to withdraw up to 50% of their voluntary contributions after every one(1) year of payment while enjoying fund growth from the interest accrued on their contributions.
How It Operates:
Employees must discuss with their employer to arrange for deductions beyond the mandatory employee contribution, up to an amount that does not exceed one-third of their monthly emolument. The employer then remits the mandatory 18% contribution (comprising 10% from the employer and 8% from the employee), and the additional voluntary contribution into the employee’s Retirement Savings Account (RSA). The employee enjoys fund growth on mandatory and voluntary contributions due to interest earned from the Pension Fund Administrator (PFA) and receives periodic account statements for both contributions.
Key Benefits of the Voluntary Contribution Plan:
- Flexible Withdrawals: Contributors on the Additional Voluntary Contribution Plan can withdraw up to 50% of their contributions (the contingent portion) made before retirement every one-year cycle. The remaining 50% is used to augment their pension savings for retirement. This arrangement allows contributors to enjoy fund growth from the interest earned on their contributions, periodically withdraw from the contingent portion every year, and continue saving for retirement.
- Increased Retirement Savings: By contributing more than the mandatory amount, you can significantly boost your retirement savings, ensuring you have a larger fund to draw upon during retirement.
- Tax Efficiency: Contributions are usually made on a pre-tax basis, which can lower your taxable income.
- Flexibility: The Additional Voluntary Contribution plan allows you to adjust your contributions according to your financial capacity. You can increase or decrease your contributions as your financial situation changes.
- Compounding Growth: Your contributions benefit from compounding interest over time, amplifying your savings.
- Financial Security: Additional savings through the Voluntary Contribution plan provide a safety net, ensuring you have sufficient funds to maintain your desired lifestyle and cover unexpected expenses during retirement.
How to Get Started with a Voluntary Contribution Plan:
- Indicate your interest in starting the Voluntary Contribution plan with your employer
- Complete the Voluntary Contribution registration process with us
- Monitor your account growth through our monthly SMS and email alerts and via our mobile app
By carefully planning and consistently contributing to the Additional Voluntary Contribution plan, you can build a robust retirement fund that ensures your financial security and peace of mind now and in your later years. Start today by evaluating your options and taking proactive steps to secure your financial future.
For any questions about the Additional Voluntary Contribution Plan, or assistance in getting started, call Tomi on 02012713800-4, or Chidiogo on 02012714605.
PenCom Update to the Additional Voluntary Contribution plan: Retirees, exempted contributors, political office holders, employees in an organisation with an Approved Existing Scheme (AES), and foreigners can now withdraw 50% of their voluntary contributions as contingent withdrawal before their employment/contract expires.
