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From Adanna Nnamani, Abuja
Pension deductions are made every month, but many contributors become unsure about what happens to their money when they retire, lose their jobs or become unable to work.
Under Nigeria’s contributory pension system, pension savings are held in a Retirement Savings Account (RSA) managed by a Pension Fund Administrator (PFA).
The National Pension Commission (PenCom) regulates the system, while Pension Fund Custodians (PFCs) keep the pension assets in custody.
Access to the money, however, is subject to specific conditions. A contributor generally cannot simply withdraw money from an RSA whenever he or she wants. PenCom states that access to the RSA is ordinarily allowed upon retirement, with specific provisions for certain circumstances.
How the process works
Identify your PFA and check your RSA: The first step is to know which PFA manages your pension savings.
A contributor should obtain their RSA statement and check the balance, contributions and investment returns credited to the account. PFAs are required to provide contributors with information on their pension accounts.
If you have changed jobs, you do not ordinarily need to open a new RSA. The account remains with the PFA, while your new employer can continue making contributions to it.
Establish why you are accessing the pension
This is important because pension access is not based simply on age or the desire to withdraw money.
A worker who retires at 50 years or above can have immediate access to the RSA. A worker who retires below 50 because of mental or physical incapacity can also have immediate access, subject to the applicable requirements.
Where someone retires below 50 in accordance with the terms and conditions of employment, access is generally delayed until after six months if the person has not secured another job. The retirement age itself is not fixed by the Pension Reform Act; it depends on the terms and conditions of employment.
Get your retirement or disengagement documents
Once you become eligible, notify your PFA and obtain the documents required for your particular benefit.
A retiree will normally need documents establishing the retirement or exit from employment, as well as identification and bank-account information. The PFA will provide the specific checklist applicable to the case.
This is where contributors should be careful. Do not assume that the documentation required for a retirement benefit is the same as that required for a temporary withdrawal following loss of employment.
Apply through your PFA
The application for retirement benefits is made through the PFA managing the RSA.
The PFA reviews the documents, verifies the contributor’s status and calculates the retirement benefits in line with PenCom’s regulations.
The contributor should insist on an acknowledgement of submitted documents and keep copies of all forms and correspondence.
Understand the lump-sum option
Retirement does not necessarily mean that a contributor must receive the entire RSA balance as cash.
Under the pension rules, a retiree may be allowed to take an approved lump sum, provided sufficient money remains in the RSA to provide the required retirement income.
PenCom’s rules provide that a lump sum can be paid where the balance remaining after the withdrawal can provide an annuity or fund periodic payments that meet the prescribed minimum level.
This means the amount a retiree can collect upfront is not necessarily a fixed percentage for everyone. It depends on factors including the person’s RSA balance and the income that can be generated from the balance left behind.
Choose how to receive regular pension income
After any approved lump-sum payment, the remaining pension savings are used to provide regular retirement income.
There are two principal arrangements:
Programmed Withdrawal: The retiree receives periodic payments from the RSA over an estimated lifespan.
Retiree Life Annuity: The retiree uses the applicable pension balance to purchase an annuity from an approved life insurance company, which provides regular income for life.
The PFA is expected to provide information to enable the retiree to make an informed choice.
Losing your job before retirement
This is one of the areas that causes considerable confusion.
A worker who loses employment before retirement age cannot automatically empty the RSA.
However, PenCom’s framework provides for 25 per cent withdrawal from the RSA in cases of temporary loss of employment, subject to the applicable conditions and approval requirements. PenCom’s reports have documented such withdrawals by RSA holders below 50 who were disengaged from employment.
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The key point is that job loss does not mean automatic access to the entire pension balance.
A worker in this situation should approach the PFA and ask whether the circumstances of the job loss qualify under the current rules and what documentation is required.
What if you become incapacitated?
The pension system also provides for access where a worker retires because of mental or physical incapacity.
Such a case requires appropriate evidence and medical documentation, and the PFA will explain the specific requirements before processing the benefit.
For a person who retires below 50 because of qualifying incapacity, PenCom states that immediate access to the RSA is permitted.
What happens to pension savings when a contributor dies?
Pension savings do not simply disappear when an RSA holder dies.
Where a contributor dies before retirement, the retirement benefits are payable to the beneficiary under a will, or, where applicable, to the spouse and children, or the recorded next-of-kin in the absence of a spouse and children, subject to the applicable legal and regulatory requirements. This makes it important for contributors to keep their beneficiary and personal records properly updated.
Don’t forget your accrued rights
For some workers, particularly those who moved from older pension arrangements into the contributory system, there may be accrued retirement benefits from previous service.
These are separate from simply looking at the current balance of monthly contributions in the RSA.
PenCom has provisions covering accrued retirement benefits transferred into the RSA, including arrangements for eligible public-sector workers.
Therefore, a retiree should ask the PFA to confirm whether there are accrued rights attached to the retirement benefit.
What if your employer did not remit your contributions?
A worker should not assume that because pension was deducted from salary, the money automatically reached the pension account.
Contributors should regularly check their RSA statements. If expected contributions are missing, they should raise the matter with the PFA and employer.
PenCom has a framework for recovering outstanding pension contributions and penalties from defaulting employers.
What if the PFA delays or rejects your application?
The first step is to ask the PFA for an explanation and, where necessary, submit a formal complaint.
If the matter is not satisfactorily resolved, the contributor can escalate the complaint to PenCom, which regulates the pension industry and provides a complaints channel for pension contributors.
A practical example
Consider a worker who has reached retirement age and has accumulated N20 million in an RSA.
The worker does not simply walk into a bank and request the N20 million. Instead, the worker contacts the PFA managing the RSA, submits the required retirement documents and undergoes the necessary verification.
The PFA determines the permissible lump sum based on the applicable rules and the amount that must remain available to provide retirement income.
The retiree can then receive the approved lump sum, while the balance is used for a Programmed Withdrawal or Retiree Life Annuity, depending on the option selected and applicable requirements.
The pension checklist every retiree should ask for
Before signing off on the retirement process, ask your PFA: What is my current RSA balance? Are all my employer contributions up to date? Do I have any accrued retirement benefits? Am I eligible to access my RSA now?
How much lump sum can I take?
How much will remain in my RSA?
What will my periodic pension payment be?
What are my Programmed Withdrawal and annuity options?
What documents are still outstanding?
When will payment commence after approval?
Most importantly, contributors should deal directly with their PFA and verify information with the National Pension Commission (PenCom). Pension rules are detailed, and the exact benefit depends on the contributor’s circumstances.
The basic message is to know your PFA, confirm your RSA balance, establish your eligibility, submit the correct documents, understand your payment options and keep records of the entire process.
