Even though pensions are an essential element of everyone’s life after retirement, certain myths and misconceptions can lead to financial mistakes for individuals. Few topics are as puzzling as pensions when it comes to financial planning and our aim is to make it easier for people to take decisions on their retirement savings through demystifying common pensions myths.
Myth: Pension plans are only for the elderly.
Reality: At the beginning of your career, when you think about your pension and retirement plan, it can seem pointless and, frankly, a little overwhelming. However, it is recommended that you commence retirement savings immediately you start earning an income.
The basic concept of pensions revolves around the preparation for financial independence at retirement, even if you’re younger and just at the start of your career, contrary to conventional belief that pensions are limited to older people.
Myth: Pension is a risky investment
Reality: Some people believe that pensions are risky investments and prefer to invest in other saving vehicles. However, pension funds are 100% safe, the National Pension Commission (PenCom) ensures that your pension contributions are safe. This is achieved through the separation of the investment and custody functions between Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) respectively.
Pension assets are kept with the Pension Fund Custodians while the Pension Fund Administrators acts as fund managers in ensuring optimal performance on pension assets.
PenCom ensures strict observance of the rules governing pension funds in line with investment regulations.
PenCom Regulation provides for the establishment of approved investment channels and limits on how much capital can be invested, with a view to efficiently managing risks and ensuring financial security.
Myth: Only the wealthy or corporate workers are eligible for pensions
Reality: This is erroneous. Pension planning is essential for all employees towards securing your financial future. Pensions are meant to guarantee financial security in retirement for all income levels.
The Micro Pension scheme (which caters to a wider range of individuals, including self-employed persons, freelance workers, and other informal sector workers) launched by the National Pension Commission provides the informal sector with opportunities to save for retirement.
Myth: You’re not allowed access to your retirement savings until you’re retired.
Reality: There are specific circumstances where individuals may make use of pension savings earlier. For example, where an employee retires, voluntarily disengages, or is disengaged from employment, the employee may with the approval of the National Pension Commission (PenCom) withdraw an amount not exceeding 25% of their balance, provided they have remained unemployed for at least four months after disengagement. A maximum of 25% of the RSA balance may also be used as an equity contribution towards residential mortgage for contributors who meet minimum requirements.
Myth: Pension benefits are only available to public sector employees
Reality: The idea that pensions are only limited to public servants is one of the most common misconception. Indeed, many public sector employees have access to retirement plans, however private sector workers can take advantage of Contributory Pensions Scheme (CPS) regardless of their profession.
Myth: If I die my Pension is gone.
Reality: This is a common misconception that pension savings are considered public assets, subject to potential disappearance or expiration upon the death of an individual. That’s not the case.
As a matter of fact, pension savings are personal assets which may be passed on to the Beneficiary(ies). The Beneficiary(ies) listed in the Will or Letter of Administration shall be the only recipient(s) of pensions, in a situation where the pension holder passes away before or after he has had access to his retirement savings. Particularly, there are no rights or access to your retirement savings for pension fund managers or regulators.
CrusaderSterling Pensions wants to help you make informed choices about your financial future by dispelling these common pensions’ myths. Pensions offer stability, security, and peace of mind for the years ahead, by playing a key role in long term financial planning.
Contact us for advice and support if you have any further questions or concerns regarding pensions. You can reach us via email at info@crusaderpensions.com or by giving us a call at 0201 2714605, 0201 2713800-4.
