Contributors still asking about safety of their pensions…
Like many other contributors, Segun is asking about the safety of his pension funds and how it is managed by the Pension Fund Administrators (PFAs) and secured by Pension Fund Custodians (PFCs). Here, experts at ARM Pensions provide answers and insights into some of the issues bothering contributors and retirees.
What is the Contributory Pension Scheme about?
The Contributory Pension Scheme (CPS) which commenced in 2004 is fully funded, privately managed, with third party in custody of the funds and assets and is based on individual accounts. It ensures that everyone who has worked receives his/her retirement benefits as and when due.
Is the scheme mandatory for every worker?
The CPS was extended in 2014 to cover employees in the public, state and private sector with at least three (3) employees and workers under the Federal Capital Territory. It is expected that those in the informal sector will soon be brought under the scheme.
How does the scheme work?
Every employee or contributor under the new pension scheme is expected to open a Retirement Savings Account (RSA) in his/her name with a Pension Fund Administrator (PFA) of his/her choice into which all his/her contributions and returns on investment are paid. An employee shall make monthly contributions of a minimum of 8 percent (formerly 7.5 percent) of the total of his/her monthly emoluments (i.e., monthly basic salary, transport allowance and housing allowance) while the employer in turn also contributes 10 percent (formerly 7.5 percent) into the employee’s RSA.
Is there a regulatory function and what is its function?
The National Pension Commission (PenCom) is empowered by the Pension Reform Act 2004 (amended by Pension Reform Act 2014) to supervise and regulate the new pension scheme. The National Pension Commission issues licences to PFAs and Pension Fund Custodians (PFC), regulates their activities and generally formulates, directs and oversees the overall policy guidelines on pension matters in Nigeria.
How is it different from any other previously existing pension scheme in the country?
Most of the old pension schemes were not fully funded. Therefore, upon retirement, there were no ready funds to pay the pensioners. The new pension scheme is fully funded. Money is contributed into individual employee’s Retirement Savings Account (RSA) and when he/she retires; there will be money in his/her RSA to pay his pension.
How much of my salary is being deducted?
A minimum of 8 percent (formerly 7.5 percent) of the total of your monthly emoluments (i.e., monthly basic salary, transport allowance and housing allowance) is deducted and your employer contributes another 10 percent (formerly 7.5 percent), thus bringing the total minimum monthly contribution to 18 percent.
What role does my employer play in the scheme?
Asides the 10 percent (formerly 7.5 percent) monthly emolument contributed by an employer into the employee’s RSA, your total contributions will be remitted by your employer directly to a Pension Fund Custodian and will be managed and invested by the Pension Fund Administrator (PFA) of the employee’s choice.
What is being done with my contributions?
Your contributions are being invested by your PFA in line with the guidelines issued by the National Pension Commission and income from such investment is also credited into your RSA.
When can I access my funds?
Access to the RSA will only be allowed upon retirement. If an employee retires at the age of 50 years or more he/she can have immediate access to the RSA. Similarly, if an employee retires before the age of 50 years due to mental or physical incapacity, he or she can have immediate access to his/her RSA. Whereas an employee under the age of 50 years who resigns or is disengaged in accordance with the terms and conditions of employment will not access the RSA until after four (4) months of such retirement if he/she does not secure another employment.
Can I withdraw my entire balance at once?
Withdrawal from your RSA can only be in line with the Act and regulations issued by the National Pension Commission.
How do I access my funds and how long will it take?
At retirement or loss of job, you are to contact your PFA with all necessary supporting documents as evidence of your exit from employment to enable them determine and advise you on benefits due to you in line with the Act and guidelines issued by the Commission. Accessing your benefit takes between 5 days to 2 weeks once you have submitted all necessary documents.
How safe is the scheme?
All those managing or keeping custody of pension funds and assets are licensed by and continually regulated and supervised by the National Pension Commission. The functions of the Pension Fund Administrator (PFA) and Custodian are clearly spelt out in the Pension Act 2014.The Act and investment guidelines provide adequate safeguards against the misuse of the pension funds by any operator as it clearly states where, what and how pension Funds are to be invested.
What is the guarantee that another government will not come and reverse the scheme?
The Government cannot tamper with the pension funds in your RSA, because the Government does not have access to the account. Besides, the Government is primarily concerned with ensuring the safety of the contributions in your RSA by the enforcement of strict rules and regulations through the National Pension Commission.
In the event of death, how easy will it be for my beneficiary to access my funds?
Where an employee who has been contributing under the new pension scheme dies before his/her retirement, upon receipt of a valid Will admitted to Probate or Letter of Administration confirming the beneficiaries under the estate of the deceased employee, the PFA shall with the approval of the Commission release the amount standing in the RSA of the deceased to the personal representative of the deceased or to any other person as maybe directed by a court of competent jurisdiction in accordance with the terms of the Will or personal law of the deceased employee as the case maybe.
How long will I continue to receive pension payments after retiring?
For as long as there remains a balance in your Retirement Savings Account.
How much I am charged
The PFA charges fees for the services being rendered on the RSA subject to such guidelines as may be issued by the National Pension Commission from time to time. Currently a maximum monthly fee of N100 and N5 for VAT for every monthly contribution is allowed under the regulation.
Will my PFA continue to invest my funds after I retire?
Yes, your PFA will continue to invest any amount standing to the credit of your RSA and the income from investment credited into your RSA as long as you remain on a program withdrawal with a PFA after retirement.
How can I monitor my pension balance?
Your Pension Fund Administrator (PFA) in addition to sending you an SMS notification once a remittance from your employer has been processed into your RSA, will also send regular/periodic statements of accounts showing all your contributions and income from investments to your preferred address. You can also view your statement online by obtaining log in details from your PFA.
Can I change my PFA?
An employee or contributor under the PRA 2014 has the freedom to move his account, once a year, from one PFA to another without giving any reason(s). This window will soon be opened by the National Pension Commission.
What happens if I change jobs?
Movement from one employment to another does not affect pension under the new scheme. The reform has removed the bottleneck associated with transfer of service from one organisation or sector to another, especially with regard to qualification for pension and the sharing formula for payment of pension as between employers.
What can I do if my employer makes deductions without remitting?
An employer who deducts pension contributions from employee salaries is under obligation to remit such contributions to a PFA chosen by the employee. Any employer who fails to do so is liable to pay a penalty of 2 percent per month for any of such contributions not remitted once the employee brings this to the attention of the National Pension Commission.
What are the withdrawal options available to me after retiring?
A holder of RSA upon retirement or attaining the age of 50 years (whichever is later) can utilize the amount credited to his/her RSA for the following benefits; Lump sum (provided the amount left after the lump sum shall be sufficient to procure a programmed withdrawal or annuity for life); programmed monthly or quarterly withdrawals calculated on the basis of an expectant life span annuity for life purchased from a life insurance company licensed by the National Insurance Commission with monthly or quarterly payments Where an employee voluntarily retires, disengages or is disengaged from employment before attaining the age of 50 years, the employee may withdraw an amount not exceeding 25 percent of the total amount credited to his/her RSA after four (4) months if the employee does not secure another employment.
I am unhappy with my PFA, who can I report to?
An employee or a beneficiary of a RSA who is dissatisfied with the decision of a PFA or employer in respect of pension matters under this Act, may request, in writing, that such decisions be reviewed by the National Pension Commission with a view to ensuring that such decision is made in accordance with the provisions of the Pension Reform Act (2014) or any regulation made there under.
What happens if my PFA folds up?
The pension funds in the Retirement Savings Account (RSA) are kept by the PFC and as such the liquidation of the PFA will not affect the fund assets. Besides, every PFA is expected under the Pension Act 2014 to maintain a statutory reserve fund as contingency fund to meet claims for which it may be liable as maybe determined by National Pension Commission.