Understanding what to do as you approach retirement

In line with the major objectives of the Contributory Pension Scheme (CPS) established by the Pension Reform Act 2004 which is to 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, it is advisable that every contributor understand the step to take as he approaches retirement.

Therefore, Retirement Savings Account (RSA) holders are advised to notify their Pension Fund Administrators (PFAs) within six months to their mandatory or compulsory retirement, of the impending retirement.

The PFA shall then inform the retiring employee on the withdrawal modes available to him, which is either programmed withdrawal being offered by the PFAs or annuity being offered by life insurance companies.

The PFA shall also advise the retiring employee of the features of its programmed withdrawal products, including the rates of return, and shall also advise the employee to obtain quotations from life insurance companies on annuity products. This is to enable the prospective retiree make an informed decision.

Retiring employee is free to choose programmed withdrawal or annuity

It will be helpful to understand that the PFAs are barred from imposing any option on the retiring employee or coerce or influence the choice of the employee between programmed withdrawal and annuity.

However, it is the responsibility of the National Pension Commission (PenCom) to furnish the PFAs with the methodology/model and other necessary details such as the mortality tables, assumed rate of returns and applicable commission/fees chargeable, for computing the pension payments under programmed withdrawals.

Necessary information on annuities is provided by the life insurance companies.

The PFA is not allowed to offer annuity products either solely or jointly with an insurance company, directly or indirectly.

A retiree is entitled to receive periodic payments from his/her RSA either on a monthly or quarterly basis.

Notification and documentation under mandatory retirement

As noted earlier, all arrangements preparatory to the retirement of the RSA holder shall be made and concluded within a period of six months prior to the date of retirement.

The PFA shall, along with the notification above, request the RSA holder to provide the official notice of retirement from his/her employer, not later than three months to the expected date of retirement and his/her last pay slip or any other evidence of total annual remuneration, as well as the evidence of any accrued pension rights/acknowledgement of indebtedness (for an employee in the private sector).

Pursuant to the above, the PFA shall sight the original of the notice of retirement and pay slip or evidence of total annual remuneration and shall retain photocopies.

During the six-month preparation period, the PFA shall advise the retiring employee on the various modes of withdrawal from his/her RSA upon retirement.

The PFA shall notify PenCom of the impending retirement of the RSA holder by completing a Standard Notice of Retirement which contains minimum information required.

Where the RSA holder is an employee in the public sector, the PFA shall forward to the Commission, the Certified True Copy of the Retirement Bond Certificate for the process of redemption, in line with the regulations for the redemption of the Federal Government Retirement Bonds.

Notification and documentation under retirement on medical grounds

Any employee retiring as a result of mental or physical incapability, or total or permanent disability of mind or body shall be deemed to be retiring on medical grounds.

Pursuant to the above, the PFA shall request an employee retiring on medical grounds, or his/her representative or employer, to provide the original copies of following documents:

(i) A medical certificate issued by a properly constituted Medical Board or a suitably qualified physician; (The Commission shall advise operators in this regard after due consultation with the Medical Association of Nigeria).

ii) The letter of notification of retirement issued by his/her employer also authenticating the medical certificate; and

iii) Pay slip or evidence of total annual remuneration.

iv) Evidence of any accrued pension rights/acknowledgement of indebtedness (if an employee in the private sector).

Upon receipt of the documents above, the PFA shall sight the original documents and retain copies for its records. The PFA shall notify the Commission of the retiring employee by completing a Standard Notice of Retirement.

In addition to this, the PFA shall forward to the Commission, the Certified True Copy of the Retirement Bond Certificate for the process of redemption, in line with the regulations for the redemption of the Federal Government Retirement Bonds.

Any employee who retires on medical grounds may obtain a recertification of his/her fitness after a period of two years from the earlier medical certification.

However, the retiree may re-enter the scheme if he/she obtains a medical certification of fitness from a properly constituted Medical Board or a suitably qualified physician and upon securing an employment. Such re-entry automatically ends the withdrawal option and empowers the employee to resume contributions into the RSA.

Compulsory retirement in accordance with terms and conditions of employment

The PFA shall request an employee retiring before the age of 50 years in accordance with the terms and conditions of his/her employment, to provide the original copies of the following documents:

(i) A letter of notification of retirement issued by his/her employer;

(ii) A document confirming that the retirement is in accordance with terms and conditions of his/her employment

(iii) Pay slip or evidence of total annual remuneration.

(iv) Evidence of any accrued pension rights/acknowledgement of indebtedness (if an employee in the private sector), as well as any outstanding pension contribution.

Any employee who retires in accordance with the terms and conditions of his/her employment before attaining the age of 50 years, shall have full access to his/her RSA.

Such retiree may on request, withdraw a lump sum amount up to 25 percent of the balance on his/her RSA and upon attaining the age of 50 years, may access the balance standing to the credit of his/her RSA in accordance with laid out regulations.