CPS: Fears gone as employees approach retirement

Raymond  Obasi, 57 who works in anIT company in Lagos is not only happy that he joined the Contributory Pension Scheme(CPS) when it started, but is happy that he knows what he will have as balance in his pension account when he retires in three years time. With an additional voluntary contribution in his retirement savings account, as well as other investments he has made, he was certain he will sustain his current life style even in retirement.

Wale Badmus, 46 who works in a beverage manufacturing Company in Lagos said he will be retiring on his own volition by next year when he becomes 47. He said with the amount of money he has accumulated in his Retirement Savings Account (RSA), he can be sure of a standard life in retirement. He plans to set up a private business as distributor of beverages and he is confident that taking early retirement will enable him take care of the business, nurture and grow it to become successful. He is confident that his pension is guaranteed, and so worry less on the risk he plans to take starting a business in retirement.

These were the feelings of many employees when interviewed on how much their enrolment in CPS has impacted in their expectation for retirement. Those who were already close to their retirement would have wishedthey had more years to contribute into their RSA, while they also believe that the additional voluntary contribution is what everyone should embrace to really have a choice of life style when retirement comes.

The introduction of CPSabout 10-years ago has revolutionised the way pension matters are administered in the country.

First, the CPS has provided a framework for labour mobility as well as early or voluntary retirement. It has made retirement ‘a thing’ that every employee looks forward to with joy, and no more a time of agony and penury. In other words, in place of the old order where an employee had to work in a particular government institution or private sector organisation throughout his working life and retire at the age of 60 or after 35 years of service so as to become entitled to retirement benefits, the new pension scheme has made it possible for an employee to move freely across jobs and retire whenever he or she wishes.

For an employee therefore, it is now a matter of choice to either work in a particular establishment all of his active years until he is 60 years old or move from job to job and retire early. What is important is for such an employee to ensure that as he moves from one job to another, the monthly deductions from his salary are promptly remitted into his Retirement Savings Account (RSA) with the appropriate Pension Fund Administrator (PFA).

For a forward-thinking employee, it is now possible to retire when he is still strong, healthy and vibrant so that he can pursue other aspirations, knowing that already there is a pool of fund in his retirement savings account to aid him in his old age.

All this has been made possible because unlike the old system, the CPS is structured in a way that makes it safe, secured and guaranteed. Indeed, the structure can be said to be watertight. This is because no one has access to the fund in an employee’s RSA, not even the account holder. Each account holder has a unique account number and a Personal Identification Number (PIN) with which to access the account, but only for the purpose of checking of balance. So, even with the PIN, neither the account holder nor a third party can tamper with the money in the account.

Similarly, the employer too, even though he is the one that remits the monthly contribution to the PFAs, cannot access the fund once the money has been remitted with the appropriate PFA. And neither the Pension Fund Custodian that keeps the pension fund nor the Pension Fund Administrator that manages it has access to the money. The money in an employee’s account is accessible only by the employee after the attainment of the age of retirement or on meeting other conditions stipulated in the Act establishing the scheme.

The CPS today provides for 18 percent of the employee’s monthly salary to be paid into a Retirement Savings Account (RSA) domiciled with a chosen Pension Fund Administrator (PFA). It is contributory in the sense that the employee contributes (8 percent) deductible from his salary while the employer contributes 10 percent as provided in the revised pension Act.

However, one area of concern for employees has been that sometimes their monthly remittances are less than the amount being deducted from their monthly salaries, and they are often confused regarding what to do when such situations arise.

For public sector workers who find themselves in a situation where it appears that their monthly remittances fall short of the amount deducted from their salaries, there is good news. And the good news is that the National Pension Commission (PenCom) has discontinued the use of documentary evidence for remittance purposes. As such, it is incumbent on employees in the public sector to liaise with their employers to include their correct details on the Nominal Roll to be submitted directly to PenCom. The Nominal Roll is used by PenCom to retrieve employees’ details from various ministries, departments and agencies (MDAs) to enable them determine the actual pension benefits due to individual employees based on their current grade levels and steps. Once public sector employees have taken this necessary step, they can then be rest assured that the monthly deductions from their salaries would be promptly remitted, and where more remittances are made on their behalf, their account would be credited and they would be notified accordingly.

Also, for employees in the private sector who find themselves in similar situations, there is no need to worry. They should note, however, that contributions are credited to individual Retirement Savings Accounts (RSAs) with narrations based on advice received from their employers. When any dispute arises over shortfall between amount deducted and actual amount remitted, private sector workers should, as a matter of necessity, liaise with their employers showing their RSA statement for the period in dispute. Such a step would go a long way in resolving the differences.

Additionally, however, in crosschecking to ensure that the amount deducted from their salaries corresponds with the amount remitted to their PFA, it is also important for employees to note that an administrative fee of N100 per month is charged on their remittances as approved by PenCom, which is deducted from the total contributions received. But the good news is also that these contributions are being invested to yield returns, thereby increasing the value of the RSA.

The CPS, which came into force in 2004 through an Act of Parliament, and recently reviewed was introduced to replace the old pension scheme, where employees had to rely entirely on the employer for monthly pension payouts after retirement.

The objectives of the scheme, as stated in the Act establishing it, are to: “(a) ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due; (b) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age; and (c) establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the Public Service of the Federation, Federal Capital Territory and the Private Sector”.