Nigeria’s pension system is now based on the implementation of the Contributory Pension Scheme (CPS). Under this system, licensed Pension Fund Administrators (PFA) are solely responsible for the management of pension funds, while Pension Fund Custodians (PFCs) are responsible for the safekeeping of pension assets in trust for contributors.
A pension is a retirement fund for a formal employee that is paid by the employer into the employee’s Retirement Savings Account (RSA).
Employers must contribute a set proportion of an employee’s salary to their pension fund under this scheme. This additional contribution, together with the employee’s savings, increases the pension fund’s growth.
Here are 7 things to know about the contributory pension scheme
1. Retirement Savings Accounts (RSA)
Employees in the public and private sectors, as well as self-employed persons can open Retirement Savings Accounts with Pension Fund Administrators.
2. Contribution
The minimum rate of contribution into the RSA for public and private sectors is 18 per cent of the employee’s monthly emolument comprising of the employer’s 10 per cent, and eight per cent of the employee’s contribution.
3. Self-employment
Self-employed workers can open RSAs under the Micro Pension Plan, make regular contributions and also withdrawals based on specific guidelines.
4. Investment
PFAs invest RSAs of contributors to earn return on investment. Income generated from investing pension contributions is distributed into the RSAs of contributors based on the proportion of the assets in the individual RSAs.
5. Retirement and payment
The retiree is entitled to a lump sum payment out of the balance in the RSA at retirement, after that, the monthly payment starts.
6. Monthly stipend
A contributor will start collecting monthly stipends upon attaining the age of 50 years and no longer in paid employment, or is medically incapacitated.
7. Voluntary retirement
Where an employee voluntarily retires, disengages or is disengaged while still under 50 years , the contributor can have access to 25 per cent of his RSA, provided that such employee is unable to secure another employment after four months of such retirement or disengagement.
