Pension Insight: Actualising retirement dreams — a closer look at benefits payments in CPS

Accessing retirement and terminal benefits within the contributory pension scheme (CPS) is seamlessly regulated by the National Pension Commission (PenCom). In line with the provisions of the Pension Reform Act 2014 (PRA 2014), PenCom has established procedures and requirements for retirement savings account (RSA) holders to access their retirement benefits as and when due.

Section 7 (1) of the Pension Reform Act (PRA 2014) provides that retirement savings account (RSA) holders are entitled to access their benefits upon retirement or upon reaching the age of 50, whichever comes later. Contributors have the option to withdraw a lump sum from their total RSA balances, provided that the remaining balance is adequate to secure either a programmed withdrawal (PW) or a retiree life annuity (RLA) for lifetime pension benefits.

The PW offers a regular pension payment through a pension fund administrator (PFA), while the RLA, purchased from a life insurance company, provides a steady income for life.

Aside from retirement benefits, the CPS also offers various other forms of payment. These payments include provisions for temporary job loss, death benefits, en bloc payments, and equity contribution for residential mortgage, among others.

PROGRAMMED WITHDRAWAL

Programmed withdrawal is a benefit payment method by which the employee collects his retirement benefits in periodic sums (monthly or quarterly) spread throughout an estimated life span. From inception to 31 January, 2024, PenCom has approved 346,296 requests from retirees to draw pension through PW mode. The retirees received a total lump sum of N1.04 trillion, while their monthly pensions amounted to N15.89 billion.

RETIREE LIFE ANNUITY

RLA, on the other hand, is a contract for regular income purchased from an approved life insurance company, which provides monthly or quarterly income to retirees during their lifetime. From the beginning of the CPS to 31 January, 2024, 121,125 retirees chose the annuity mode of pension payment. A lump sum of N264.26 billion was approved for payment to the retirees. In contrast, N739.04 billion was approved for payment to RLA providers as premiums in return for monthly annuities of N7.72 billion.

EN-BLOC PAYMENT

PenCom allows en-bloc payment to retirees whose RSA balances cannot procure programmed withdrawal or RLA that is equivalent to one-third of the prevailing national minimum wage. From the start of the CPS to 31 January, 2024, PenCom approved the en-bloc payment of retirement benefits to 161,817 retirees, totalling N49.07 billion.

DEATH BENEFITS

Death benefits are paid to a beneficiary under a will or the spouse and children of an RSA holder who dies in service. In the absence of a wife and child, the benefits are paid to the recorded next-of-kin or any person designated by the deceased. From inception to 31 January, 2024, PenCom granted approvals for payment of death benefits amounting to N396.75 billion to the legal beneficiaries/administrator of 97,834 deceased employees and retirees.

TEMPORARY JOB LOSS

The PRA 2014 permits an employee who loses his job to withdraw an amount not exceeding 25 percent of the total amount credited to his RSA. However, such withdrawals can only be made after four months of cessation of employment, and the employee does not secure another job. From inception to 31 January, 2024, PenCom approved N228.10 billion (25% of RSA balances) to 496,833 RSA holders under 50 years who were disengaged from employment and could not secure another job within the stipulated time of four months.

VOLUNTARY CONTRIBUTIONS

Section 4(3) of the PRA, 2014 allows RSA holders to make voluntary contributions (VC) in addition to the mandatory contributions to augment their pension at retirement. The VC can be withdrawn periodically based on the guidelines. From inception to 31 January, 2024, PenCom approved withdrawals from voluntary contributions amounting to N42.46 billion by 50,772 contributors.

EQUITY CONTRIBUTION FOR RESIDENTIAL MORTGAGE

Eligible RSA holders have the opportunity to utilise their RSA balance to pay equity contributions for residential mortgages, in accordance with Section 89(2) of the PRA 2014. This provision enables RSA holders to allocate a portion of their pension savings towards the equity component of a residential mortgage.

This initiative has proven instrumental in helping numerous individuals achieve their aspirations of homeownership since its inception. As at 31 January, 2024, PenCom has authorised disbursements totalling N21.81 billion to 2,104 RSA holders, facilitating their equity contributions for residential mortgages.

In conclusion, accessing retirement benefits under the CPS is seamless. PFAs must guide RSA holders who want to access their retirement benefits on the documentation requirements for each benefit payment type.

Based on information by the National Pension Commission (PenCom).