Navigating Your Retirement Journey

After retiring from regular employment, every worker’s desire is to receive regular pension payments to ensure some financial security in retirement. Therefore, it is important for every worker to understand the various benefit payment options available for Retirement Savings Account (RSA) holders.

The Contributory Pension Scheme (CPS) was established in Nigeria through the enactment of the Pension Reforms Act (PRA) 2004, repealed by the PRA 2014, to ensure sustainable and transparent pension administration.

As stipulated in Section 7(1) of the PRA 2014, RSA holders are entitled to access their benefits upon retirement or upon reaching the age of 50, whichever comes later. RSA holders have the option to withdraw a lump sum from their total RSA balances, provided that the remaining balance is adequate to secure either a Programmed Withdrawal (PW) managed by Pension Fund Administrators (PFAs), or a Retiree Life Annuity (RLA) purchased from an insurance company.

The CPS provides various other types of benefit payments. These include provisions for Temporary Job Loss, Death benefits, En-Bloc payments, and Equity Contributions for Residential Mortgages, among others.

PROGRAMMED WITHDRAWAL

Programmed Withdrawal is a benefit payment that allows retirees to collect their retirement benefits periodically, either monthly or quarterly, throughout their estimated lifespan. According to the data obtained from the website of the National Pension Commission (PenCom), a total of N114.5 billion has been disbursed to retirees as monthly programmed withdrawals from inception up to the third quarter of 2024, providing retirees with a consistent income stream.

In December 2024, PenCom issued a new Programmed Withdrawal (PW) template that removed the previous restriction of lump sum access to a maximum of 50%, thereby allowing retirees under the CPS to access a lump sum more than 50% of their Retirement Savings Account (RSA) balance, provided that the amount left after that lump sum withdrawal is sufficient to fund programmed withdrawals that will produce an amount not less than 50% of their annual remuneration as of the date of retirement.

The revised PW template also removed the retirement age limitation and now accepts 65 years and above to accommodate the broad categories of retirees in the different sectors of the economy. It also simplifies and streamlines the retirement benefit calculation process to ensure consistency. The new amendments apply only to employees who retire under the CPS and are yet to be programmed as of the date of the release of the revised template (December 2024).

TEMPORARY LOSS OF JOB

Section 7 (2) of the Act provides that where an employee voluntarily retires or temporarily loses his job, the employee may, after four months, withdraw 25% of the total in his Retirement Savings Account (RSA). This benefit is only available once for every contributor and is not available where the employee secures another employment within four months of the last one. The balance in the RSA would be available upon retirement or attaining the age of 50 years, whichever is later. From 2020 to September 30, 2024, PenCom approved the disbursement of N134.94 billion to 176,424 RSA holders who were disengaged from employment and could not secure another job within the stipulated time of four months.

EN-BLOC BENEFIT

The CPS allows en-bloc payment to retirees whose RSA balances cannot procure Programmed Withdrawal or RLA that is equivalent to one-third of the prevailing national minimum wage. As an aftermath of the increase in the National Minimum Wage to ₦70,000.00, by the Federal Government in July 2024, PENCOM in November 2024 decided to update the administration of pension benefits to align with the new wage structure.

A key provision of the new benefit administration guidelines is that retirees whose monthly or quarterly pensions are below one-third of the new minimum wage, which equates to ₦23,333.33 are allowed to choose between:

• Receiving the entire balance in their Retirement Savings Account (RSA) en-bloc.
• Continuing to receive their current monthly or quarterly pensions until the commencement of the Minimum Pension Guarantee, which ensures that retirees receive a basic minimum amount.
PenCom has approved the en-bloc payment of N46.51 billion to 171,229 retirees from 2020 to September 30, 2024.

VOLUNTARY CONTRIBUTIONS

Voluntary Contribution (VC) is referred to as the extra contribution made outside the mandatory 18% (employer – 10% and employee – 8%) contributions into an individual’s Retirement Savings Account (RSA). VC remitted into the RSA are segregated into two parts, i.e. Contingent and Fixed portions. The contingent portion, which constitutes 50 percent of the VC, is available for withdrawal by the contributors. On the other hand, the fixed portion, also comprising 50 percent of voluntary contributions, can only be accessed by the RSA holder at retirement.

In June 2024, the National Pension Commission (PenCom) reviewed the guidelines for Voluntary Contribution to reduce the retention period for accessing the 50 percent contingent portion, achieve uniform withdrawal rules, address tax deduction variations, and simplify the process for all contributors. The following are the key changes to the VC guidelines:

▪ Mandatory contributors (comprising Nigerian employees in Nigerian employment) can now access 50% of their VC after one year, reduced from the previous two-year waiting period.
▪ Non-mandatory contributors (including retirees, members of the armed forces, political office holders, individuals in approved existing schemes, and expatriates) can access up to 50% of their VC after one year, regardless of their employment contract end date.
▪ Taxability of VC income earned (accrued interest) only applies to both mandatory and non-mandatory contributors for withdrawals made within five years.

This means that non-mandatory contributors will no longer be taxed on the principal amount, aligning their tax treatment with that of mandatory contributors.

From inception to June 30, 2024, PenCom approved withdrawals from voluntary contributions amounting to N54.98 billion by 54,053 contributors.

RETIREMENT ON HEALTH GROUNDS

This is when an RSA holder quits his job after being certified to be no longer physically fit to work by a qualified medical board. On their recommendation, the RSA holder could retire or be laid off with the medical condition being clearly stated on the termination or retirement letter. With this, the RSA holder can have access to his or her RSA balance even before attaining the age of 50 years.

DEATH BENEFITS

Death benefits are paid in bulk to the executors of the estate of the deceased employee or any person appointed by the Probate Registry as the Administrator of the estate. Over the past five years (from 2020 to Q3 2024), PenCom granted approvals for payment of death benefits amounting to N274.34 billion to the legal beneficiaries/administrators of 45,976 deceased employees and retirees.

EQUITY CONTRIBUTION FOR PAYMENT OF RESIDENTIAL MORTGAGE

Section 89 (2) of the Act provides that a Pension Fund Administrator may, subject to guidelines issued by PenCom, apply a percentage of an RSA balance towards payment of equity contribution for payment of residential mortgage on behalf of the RSA holder.

In September 2022, the National Pension Commission issued guidelines for the implementation of this provision. This initiative has helped many workers to achieve their aspirations of homeownership. As of September 30, 2024, PenCom has authorized disbursements totalling N79.74 billion to 9,080 RSA holders, facilitating their equity contributions for residential mortgages.

MICRO PENSION PLAN

The Micro Pension Plan (MPP) is a retirement savings plan tailored for self-employed individuals and those working in organizations with fewer than three employees. It allows contributors to make financial contributions towards their retirement or in the event of incapacitation. This innovative pension solution not only caters to the needs of low-income earners but also extends its benefits to self-employed professionals such as architects, lawyers, accountants, artists, and artisans. It also covers associations, unions, cooperatives, trades, and operators of small and medium-sized businesses, among others, who are not in paid employment.

There are two modes of benefit payments under the MPP. Every contribution made by an MPP contributor is divided into two. The first part is called Contingent Contributions while the second part is called Retirement Benefit portion. The Contingent Contribution is 40% of any amount contributed and available for withdrawal for any contingent needs of the contributor. The first withdrawal from this pool will be available only after three (3) months of initial contribution and once every week thereafter. The Retirement Benefit portion constituting 60 percent, becomes accessible only upon retirement, with eligibility set at 50 years or due to health reasons.

As of June 30, 2024, the Commission has approved cumulative contingent withdrawals totaling N48.710 million by 209 Micro Pension Contributors (MPCs).

It is important to note that all types of benefit payments mentioned above are processed through electronic transfers. This is made possible by the robust and comprehensive registration and governance structures within the Contributory Pension Scheme (CPS).

Since its establishment in 2004, the CPS has helped to rebuild trust in pension management, provided social security for a large population, created direct jobs, and significantly contributed to economic development of Nigeria.

Veritas Glanvills Pensions Limited (VG Pensions), one of the leading licensed pension fund administrators (PFA) by the National Pension Commission has remained at the forefront of deepening financial inclusion in Nigeria and making retirement planning accessible to all through its innovative and seamless pension services. For over 15 years, the Company has remained committed to providing exceptional client services, efficient benefits administration, easy access to pension savings for residential mortgage, and growth in the pension funds of its clients. The Company’s sustained focus on safe investment activities and decent returns have enabled it to achieve consistent growth in all assets under its management. This in turn has helped its clients who exit from active employment to retire into relative comfort.