Pension is an important topic for many Nigerians, particularly those who are approaching retirement age or who have already retired. This article aims to provide answers to some of the most frequently asked questions about pension in Nigeria.

1. What is pension?

Pension is a retirement benefit that is paid to an individual after they have completed their working years. It is a form of savings plan that is designed to provide financial security during retirement.

2. Who is eligible for pension in Nigeria?

Every employee who works in Nigeria is eligible for pension. This includes employees in both the public and private sectors.

3. What is the difference between the Contributory Pension Scheme (CPS) and the Defined Benefit Scheme (DBS)?

The CPS is a pension scheme that requires both the employee and employer to make contributions to a retirement savings account, while the DBS is a pension scheme that guarantees a fixed pension payment based on the employee’s salary and years of service.

4. When did the CPS come into effect in Nigeria?

The CPS came into effect in Nigeria in 2004, through the Pension Reform Act (PRA) 2004.

5. What is the purpose of the CPS?

The purpose of the CPS is to ensure that employees receive retirement benefits that are commensurate with their contributions. It is also designed to promote transparency and accountability in pension management.

6. What is the role of the Pension Fund Administrators (PFAs) in the CPS?

The PFAs are responsible for managing the retirement savings accounts of employees under the CPS. They are also responsible for investing the funds and ensuring that the accounts are properly maintained.

7. What is the role of the National Pension Commission (PenCom) in the CPS?

PenCom is the regulatory body that oversees the implementation of the CPS in Nigeria. It is responsible for setting and enforcing the rules and regulations that govern the scheme.

8. How much should an employee contribute to their retirement savings account under the CPS?

Under the CPS, an employee is required to contribute a minimum of 8% of their monthly income to their retirement savings account, while their employer is required to contribute a minimum of 10% of their monthly income.

9. Can an employee make additional voluntary contributions to their retirement savings account under the CPS?

Yes, an employee can make additional voluntary contributions to their retirement savings account under the CPS. However, the total contribution (including the employer’s contribution) cannot exceed 20% of the employee’s monthly income.

10. How is the pension calculated under the CPS?

The pension is calculated based on the amount of money that has accumulated in the employee’s retirement savings account, as well as their years of service.

11. Can an employee access their retirement savings account before retirement?

No, an employee cannot access their retirement savings account before retirement. However, they can access a portion of their account balance in the event of a terminal illness or total permanent disability.

12. What happens to an employee’s retirement savings account when they die?

If an employee dies before retirement, their retirement savings account is transferred to their named next of kin or legal representative.

13. How can an employee monitor the performance of their retirement savings account?

An employee can monitor the performance of their retirement savings account by checking their statement of account, which is provided by their PFA on a regular basis.

14. Can an employee change their PFA under the CPS?

Yes, an employee can change their PFA under the CPS. However, they must provide a valid reason for the change.

15. What happens if an employer fails to remit their contributions to the employee’s retirement savings account under the CPS?

If an employer fails to remit their contributions to the employee’s retirement savings account under the CPS, they are liable to pay a penalty of 10% of the total amount

16. Can an employee withdraw their retirement savings account balance in a lump sum upon retirement?

Yes, an employee can withdraw their retirement savings account balance in a lump sum upon retirement. However, they must use at least 50% of the balance to purchase an annuity that will provide them with a monthly pension payment for the rest of their life.

17. Can an employee choose not to purchase an annuity upon retirement?

Yes, an employee can choose not to purchase an annuity upon retirement. In this case, they will be able to withdraw their entire retirement savings account balance in a lump sum, but they will not receive any monthly pension payments.

18. What happens if an employee’s retirement savings account balance is not enough to purchase an annuity that will provide them with the minimum pension payment required by law?

If an employee’s retirement savings account balance is not enough to purchase an annuity that will provide them with the minimum pension payment required by law, their PFA will make up the difference to ensure that they receive the minimum pension payment.

19. How is the pension payment taxed?

The pension payment is subject to income tax, but there is a tax exemption on the first 25% of the lump sum withdrawal.

2O. Can an employee transfer their retirement savings account balance to another PFA?

Yes, an employee can transfer their retirement savings account balance to another PFA. However, they must follow the procedures set by PenCom for such transfers.

In conclusion, understanding the pension system in Nigeria is important for both employees and employers. It is important to know the rules and regulations that govern the pension system, as well as the options that are available to employees upon retirement. By having a clear understanding of the pension system, employees can plan for their retirement and ensure that they have a secure financial future.