Knowing what to expect from your pension reduces the uncertainty associated with retiring. Like with your regular bank accounts, you should be able to predict how much you can accumulate in your pension pot, especially if you adhere strictly to a pattern.
When you calculate your pension, you tend to make informed decisions about your retirement and set clear financial goals. It also allows you to assess your funds, decide if it will be sufficient to cover your expenses in retirement, and help you make necessary adjustments to your savings and investments.
Additionally, it lets you keep check on your employer to know whether they are fulfilling their part of the contributory scheme. In this article, you’ll learn how to calculate pension contributions in Nigeria.
What is a Pension Calculator?
A pension calculator is a tool that helps you calculate your pension savings. This tool estimates your benefits based on inputs such as salary, years of service, contribution rates, and expected investment returns.
How to Calculate Pension in Nigeria
The basic formula to calculate your monthly pension in Nigeria is;
Pension fund value = (Employee contribution + employer contribution + returns on investment)
But it can get complicated when calculating both current and future accumulated funds in your retirement savings account (RSA). Here, you may have to consider the following;
Pension Fund Value = (Employee contribution + employer contribution)
Number of years of contribution
Assumed rate of returns (%)
Here’s a breakdown of these terms:
Employee contribution = 8% of your monthly salary
Employer contribution = 10% of your monthly salary
Rate of Return = the annual percentage return on your pension investments (as managed by your Pensions Funds Administrator).
Number of Years of Contribution = The number of years you contribute to your RSA until retirement.
We understand that calculating your pension can be somewhat confusing. You can use the Oak Pensions calculator as a tool and simply input the required figures to receive the result.
Factors that May Affect Pension Calculation
Pension calculation can be highly relative and dynamic. This means that several factors affect the value for different individuals and at different times. Some of these factors include:
Monthly Salary
Your pension contributions are based on your monthly salary. By direct implication, the higher your salary, the higher your contributions, and consequently, your pension.
Contribution Rate
The standard contribution rate in Nigeria is 18% of your salary, with 10% coming from your employer and 8% from you. Some employers may, however, offer higher contribution rates.
Years of Working
The longer you work, the more contributions you accumulate in your RSA, leading to a higher pension. The pension calculator will typically ask for the number of years you expect to work until retirement to estimate your pension.
Investment Returns
PFAs invest your pension contributions in various financial instruments, and the returns on these investments can significantly impact your pension fund’s final value.
Since your PFA invests your pension funds, factors like annuities and inflation could affect its value.
Retirement Age
The official retirement age in Nigeria is 60 years or after 35 years of service, whichever comes first. You can also choose to retire earlier or later. Early retirement may result in a lower pension while delaying retirement can increase your benefits. Either way, this affects your pension.
Conclusion
While the pension calculator provides a good estimate, actual pension benefits can vary based on changes in salary, contribution rates, and investment performance. It's also essential to review and update your pension calculations regularly to reflect any significant changes in your financial situation.
For more guidance on how to calculate pension in Nigeria or any pension-related issues, trust Oak Pensions to help you. Oak Pensions is a top-performing pension fund administrator (PFA) committed to ensuring financial security for pensioners in Nigeria. Contact the Oak Pensions team via 09087448661 to get started.