The Contributory Pension Scheme makes provisions for workers to access part of their pension savings according to stipulated guidelines. However, withdrawals have implications on the monthly pension stipends such retirees will get.

The Contributory Pension Scheme was established to provide regular monthly stipends for Nigerian workers in retirement.

Employers and workers are mandated to contribute 10 percent and eight percent of the workers’ monthly emoluments into their Retirement Savings Accounts with the Pension Fund Administrators.

However, peculiar conditions may necessitate a worker to access part of the savings before he retires.

According to the Pension Reform Act 2014, a worker can access 25 per cent of the savings in his RSA, if he loses his job and does not get another after four months.

He can also access part of the funds for mortgage scheme, to enable him be become a house owner.

The informal sector workers under the Micro Pension Plan can also access part of their savings based of the regulatory guidelines.

Withdrawals can also be made by workers from their additional Voluntary Contributions to their RSA.

To access pensions through any of the means, operators have said it is mandatory for workers to do their data recapturing with their PFAs. This will ensure they have accurate records ahead.

Voluntary contributions

Section 4 (3) of the Pension Reform Act 2014 allows active employees under the CPS to contribute voluntarily in addition to the mandatory contributions into their respective RSAs. This is to help them to augment their pensions at retirement.

This however applies to employers with at least three employees and are mandated to have CPS for their workers.

According to the National Pension Commmission’s circular on PENCOM/INSP/CIR/SURV/17/22, the timeframe for withdrawal from voluntary account is once in every two years from the last approved withdrawal date.

Subsequently, withdrawals will only be on the incremental contributions from the date of the last withdrawal.

PenCon states that for mandatory contributors, the amount remitted as voluntary will be separated in a way that, “50 per cent will be treated as contingent, available for withdrawal within the stipulated timeframe of every years.

“Taxes would be deducted on income earned in line with Section 10 (4) of the PRA 2014. The balance of 50 per cent will be fixed for pension and utilised at date of retirement to augment the contributors’ retirement benefit.”

While it is important to know the amount set aside by the workers as voluntary contribution is not taxable, taxes will be deducted when withdrawals are made, and remitted to relevant authorities.

On how to access part of the voluntary contribution, PenCom states that, “Any RSA holder that has voluntary contributions and is eligible to access his/her RSA balance will notify the PFA of his/her intention to withdraw the voluntary contributions.

“A PFA will request the RSA holder to provide the necessary documents mentioned in the guidelines on voluntary contributions under the CPS.

“A PFA will forward all requests to access voluntary contributioon portion of the RSA balance to the commission for no-objection in line with the guidelines on voluntary contributions.”

Micro pension

Section 2(3) of the Pension Reform Act, 2014 provides that employees of organisations with less than three employees as well as the self-employed persons will be entitled to participate in the CPS.

These categories of persons mainly in the informal sector constitute the vast majority of the working population in Nigeria and are not covered by any retirement benefit scheme.

The informal sector contributors under the MPP are allowed to withdraw at least 40 per cent of the contributions in their RSAs according to the National Pension Commission.

This is, however, different from what is obtainable with the formal sector in which contributors can only access 25 per cent of their RSA balance after four months of being out of paid employment or at retirement.

However, the CPS was opened to the informal sector in March 2019, as part of the financial inclusion objectives of the Federal Government.

However, to start withdrawing the 40 per cent contribution, the artisan must have contributed to his RSA for a minimum of three months.

The Director-General, PenCom, Mrs Aisha Dahir-Umar, says that the micro pension plan targets the significant majority of Nigeria’s working population who, incidentally, operate in the informal sector.

She says, “A prospective micro pension contributor is required to open a Retirement Savings Account by completing a physical or electronic registration form with a Pension Funds Administrator of his/her choice. The contributors may make contributions daily, weekly, monthly or as may be convenient to them.”

She adds, “Every contribution shall be split into two, comprising 40 per cent for contingent withdrawal and 60 per cent for retirement benefits. The contributor may, based on his/her needs, periodically withdraw the total or part of the balance of the contingent portion of his/her RSA, including all accrued investment income thereto.

“The contributor may also choose to convert the contingent portion of the contributions to the retirement benefits portion. The remaining balance in the RSA shall be available to the contributor upon retirement or attaining the age of 50 years.”

Job loss

According to PenCom, no fewer than 443,720 contributors have withdrawn N182.19bn from the CPS since inception of the scheme till the end of December 2022.

The pension industry regulator states that temporary loss of employment or disengagement will be where an employee voluntarily retires, disengages or is disengaged before attaining the age of 50 years and is unable to secure another employment after four months of the disengagement.

To access 25 per cent for temporary loss of employment, PenCom states in its revised regulation on the administration of retirement and terminal benefits that the individual should present some documents.

They are, “Letter of acceptance of resignation or disengagement issued by the employer; Where the employer fails/refuses to accept the resignation letter from the employee, the PFA shall write the employer confirming the employee’s resignation and ensure that an acknowledgement copy is kept as proof of receipt; Where the employer fails to respond to the PFA’s inquiry in (b) above within 30 days, the employer’s refusal is taken as acceptance of the employee’s resignation for the purpose of benefits payment.”

A formal request for withdrawal of 25 per cent of RSA balance and any other relevant document as may be specified by the PenCom will also be required.

Mortgage

PenCom approved the guidelines to access RSA balance for payment of equity contribution for residential mortgage by RSA holders.

The approval was in line with Section 89 (2) of the PRA 2014, which allows RSA holders to use a portion of their RSA balance towards payment of equity for residential mortgage.

Anybody who is interested can approach his PFA to get explanation on the process. The PFA will print the statement of account and determine the 25 per cent.

The Spokesperson, PenCom, Abdulqadir Dahiru, says getting the requirement from the PFA, “Then when you have that, you can now go back to your mortgage lender, get a letter of offer of your property, go through their own due diligence to agree for them to finance because the pension is only giving you 25 per cent; 75 per cent will still be financed by somebody.

“That person must give you an offer letter for a loan that he is ready to finance you, and this is the equity contribution you are required to bring. So if you have that equity contribution with that letter of offer, which has been validated by the mortgage lender, that is when you can approach your PFA to request for your 25 per cent.”

PenCom states that the maximum amount to be withdrawn is 25 per cent of the total mandatory RSA balance as of the date of application, irrespective of the value of equity contribution required by the mortgage lender.

Where 25 per cent of a contributor’s RSA balance is not sufficient for payment as equity contribution, the RSA holders may utilise the contingency portion of their voluntary contributions (if any).

Implication

Some workers who have accessed part the first 25 per cent over job loss may still access for mortgage.

An implication for double access however is that, the monthly stipend that will be available to such worker will be reduced at retirement.

The Chairman/Chief Executive Officer of Achor Actuarial Services Limited, Dr Pius Apere, says the mortage scheme is a welcome development in the right direction as it will create unique selling proposition, leading to deepening financial inclusion in the Nigerian pension industry.

He says it also provides access to equity finance for RSA holders in the CPS which in turn provides a sustainable source of long-term finance to the housing and mortgage financing sectors, thereby contributing significantly to Nigeria economic growth and GDP.

The greatest challenge facing retirees under the CPS since its introduction in 2004, he notes, is not just to ensure that they receive their benefits as and when due, but also their inability to have adequate retirement income to live decent life at old age which is not explicitly defined in PRA 2014.

He says, “Section 3.6 of PenCom guidelines states that “Where an RSA holder had accessed his/her RSA balance for residential mortgage and 25 per cent due to loss of job, he/she shall access lump sum at retirement in line with section 7(1)(a) of the PRA, 2014 subject to guidelines issued by the commission.

“A critical analysis of this section reveals that most RSA holders are likely to receive about 50 per cent to 75 per cent of their RSA balances in total as lump sum benefits prior to or at retirement, leaving small proportion of the RSA balance for provision of pension.

“This has indirectly met the demands from many stakeholders in the pension industry who want an increase in the proportion (from 25 per cent to at least 50 per cent) of RSA balance payable as lump sum to retirees.”