Job loss: If you desire better pensions, avoid taking part of your contribution

Job loss is on the increase across different sectors of the economy, particularly in the last few months when companies and institutions have had to battle with scarcity of foreign exchange and falling revenue from oil to remaining business.

At the moment, a lot of jobs have been lost in the oil & gas, manufacturing and banking sectors that have been badly hit by economic headwinds leading to reduction in production and eventual closure in certain cases.

The implication is that some people who have been affected by this development and were unable to secure another employment after some time, and in the quest to survive may be tempted to requestfor a part of the funds in their Retirement Savings Account (RSA) with Pension Fund Administrators (PFAs).

This development is becoming a common thinking amongst majority of those who lost their job in the recent past, not because they all really needed the money at the moment, but because others have told them that they can actually access this money, that it is their right.

Section 16(1) of the Pension Reform Act 2014 says that an employee shall not be entitled to make any withdrawal from his retirement savings account opened under section 11(1) of this section before attaining the age of 50 years. While 16(5) in other words,say’s notwithstanding the above, any employee who disengages or is disengaged from employment before the age of 50 years and is unable to secure another employment within four months of such disengagement may make withdrawal from his retirement savings account in accordance with the provision of section 7(2) and 3 of this Act.

It therefore means thatwhere anRSA holder is temporarily unemployed before the retirement age (i.e. he/she is voluntarily/involuntarily disengaged, downsized, retrenched etc.) and has remained unemployed for a period of at least four (4) months without securing another employment, such an individual may apply for 25 percent of his/her current RSA balance.

This article is therefore intended to encourage RSA holders under the Contributory Pension Scheme (CPS) to avoid the temptation of going to their Pension Fund Administrator (PFA) to access(request) part of their RSA balance if they do not really need it now.

The reason is simple; you cannot eat your cake and still have it. Once the money is gone it’s gone. But really, this contribution is actually for your retirement, when you will not be able to work again and still will need some basic needs to meet particularly food and medical.

The essence of this contribution is that you have something and something reasonable to fall back on at the point of your retirement. And thatwas why the law also provided for Additional Voluntary Contribution(AVC), so that those who want to enjoy a better funded retirement can make additional contributions into their RSA.

So, it provides opportunity for those who want to build their retirement package beyond the ordinary, so that at the point of their retirement they would have enough fund in their RSA, which will enable them enjoy higher retirement benefits monthly or quarterly, as they desire.

Those who incidentally have lost their jobs before their retirement age therefore have the choice to avoid accessing the money in their RSA until their retirement age of 50 years if they desire to enjoy better funded retirement; or second option, access it now, spend it or waste it as the case may be, and face a lesser funded retirement.

If you decide to take the second option, it means that upon retirement your monthly or quarterly take home pay would be less than what you would have been getting if you had avoided accessing part of this money now.

The objectives of CPS is to ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, States and Local government or the Private Sector receives his retirement benefits as and when due ; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The provisions of this Act shall apply to any employment in the public service of the Federation, the public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.

In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organization in which there are 3 or more employees.

Notwithstanding the provision of subsection (2) of this section, employee of organization with less than three employees as well as self-employed persons shall be entitled to participate under the scheme in accordance with guidelines issued by the National Pension Commission.