Frequently asked questions on CPS
What is this new pension scheme?
This new pension scheme is contributory, fully funded, privately managed, third party custody of the funds and assets and based on individual accounts. It ensures that everyone who has worked receives his/her retirement benefits as and when due.
Who is covered by the new pension scheme?
The new pension scheme covers all employees in the public service of the Federation, the Federal Capital Territory and the private sector of the economy.
Is the new pension scheme mandatory for all categories of employers and employees covered under the act?
The new pension scheme is mandatory for all categories of employers and employees covered under the Pension Reform Act.
Is the private sector pension being merged with the public sector?
There is no merger of private sector pension with that of the public sector pension since the sources of funding are not the same. However, both are now being regulated under the same rules and regulations.
What is the main objective of the new pension scheme?
One of the main objectives of the pension reform is to ensure that every person that worked in either the public or private sector in Nigeria receives his/her retirement benefits as and when due.
How is the new pension scheme different from the old pension scheme?
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 will an employee contribute into the new scheme?
An employee shall make monthly contributions of a minimum of 7.5% of the total of his/her monthly emoluments (i.e., monthly basic salary, transport allowance and housing allowance) into his RSA.
Will my employer also contribute?
The employer shall contribute a minimum of 7.5% of the employee’s monthly emoluments towards the retirement benefits of the employee.
Can the employer make the total contributions on behalf of the employee?
An employer can make all the contributions on behalf of the employee without making any deduction from the employee’s salary except that such contribution by the employer shall not be less than 15% of the monthly emoluments of the employee.
Will the contributions lead to a decrease in my monthly emoluments?
Your contributions are just savings out of your emoluments towards your old age and the employer’s contribution will only increase such savings.
Are pension contributions paid to the PFA?
Pension contributions are paid directly to the PFC to be held on the order of the PFA.
What does “fully funded” pension scheme mean?
A fully funded pension scheme exists where pension funds and assets match pension liabilities at any given time.
What is a retirement savings account (RSA)?
Every employee or contributor under the new pension scheme is expected to open RSA in his/her name with a PFA of his/her choice into which all his/her contributions and returns on investment are paid.
Is the RSA operated like a bank account?
The RSA is similar to a bank account except that no contributor can withdraw money from the RSA before his/her retirement. The PFA is required to invest the money and issue statements of account at least once every quarter to the contributor.
How does movement from one employment to another affect pension?
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 happens to the retirement benefits of an employee who is already under a pension scheme existing before the commencement of the new pension scheme?
Employee’s right to accrued retirement benefits for the previous years he/she has been in employment is guaranteed by the Pension Reform Act 2004. In the case of the public service of the Federation and the Federal Capital Territory, where pension scheme was unfunded, the right would be acknowledged through the issuance of a “Federal Government Retirement Bond” to such employee. The bond will be redeemable upon retirement of the employee.
How will the federal government fund the redemption bonds?
The Federal Government has established a Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria. The Federal Government is already making a monthly payment into the Fund of an amount equal to 5% of the total monthly wage bill payable to all employees of the Federal Government and the Federal Capital Territory.
How will the accrued benefits under existing funded defined benefits schemes be handled?
In the case of funded pension schemes in the public service of the Federation and the private sector, employers shall undertake actuarial valuation of the employee’s accrued benefits and credit the Retirement Savings Accounts (RSAs) of its employees with such funds and in the event of any deficiency, the shortfall shall become a debt and shall be treated with same priority as salaries owed. The employer shall also issue a written acknowledgement of the debt and take steps to meet the shortfall.
What happens to my RSA when I change jobs?
The RSA remains with the PFA of your choice for as long as you want. You simply notify your new employer of the details of the PFA that manages your account and thereafter your contributions will be sent to the custodian of the PFA.
How will the money contributed be managed?
The total contributions will be paid out by the employer directly to a Pension Fund Custodian and will be managed and invested by the Pension Fund Administrator (PFA) of the employee’s choice.
How is the CPS regulated?
The National Pension Commission is empowered by the Pension Reform Act 2004 to supervise and regulate new pension scheme.
What are the main functions of the National Pension Commission?
The National Pension Commission issues licences to PFAs and Custodians, regulates their activities and generally formulates, directs and oversees the overall policy guidelines on pension matters in Nigeria.
Who is a pension fund administrator (PFA)?
A pension fund administrator (PFA) is a company licensed by the National Pension Commission to manage and invest the pension funds in the employee’s Retirement Savings Account (RSA).
How do I know which PFA to choose?
The National Pension Commission has a list of all licensed PFAs and is available to the public.
Can a PFA have access to the money in my RSA?
The pension fund administrator cannot collect or spend the pension money in the RSA.