Frequently Asked Questions

• WHAT IS THIS NEW PENSION SCHEME?

The new pension scheme is contributory, fully funded, privately managed. Third party custody of the funds and assets are based on individual accounts. It ensures that everyone who has worked receives his/her retirement benefits as and at 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(FCT) and the private sector of the economy.

• WHO IS EXEMPTED FROM THE NEW PENSION SCHEME?

Existing pensioners or employees who have 3 years or less to retire and all categories of persons covered by the provisions of section 291 of the Constitution of the Federal Republic of Nigeria  are exempted from this new pension scheme.

• IS THE NEW PENSION SCHEME COMPULSORY FOR ALL CATERGORIES 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.

• WILL PRIVATE SECTOR PENSION SCHEMES BE ALLOWED TO CONTINUE?

Private sector pension schemes will be allowed to continue provided there is evidence to show that the pension scheme is fully funded at all times. Any shortfall made up within 90 days, pension funds assets are segregated from the assets of the employer/company, the pension funds assets are held by a licensed Custodian and the scheme is specifically approved by the National Pension Commission.

HOW MUCH WILL AN EMPLOYEE CONTRIBUTE INTO THE NEW SCHEME?

An employee shall make monthly contributions of a minimum of 8% of the total of his/her monthly emolument (i.e., monthly basic salary, transport allowance and housing allowance) into his/her RSA.

• WILL MY EMPLOYER ALSO CONTRIBUTE?

The employer shall contribute a minimum of 10% of the employee’s monthly emolument (sumation of monthly basic salary, transport and housing allowance) 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 20% of the monthly emoluments of the employee.

•  WILL THE CONTRIBUTIONS LEAD TO A DECREASE IN MY MONTHLY EMOLUMENTS?

Your contributions are 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 A “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 a RSA in his/her name with any 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 with the exception that a contributor cannot 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 in 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 bottlenecks associated with the 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. However, contributors are advised to update their personal and employer details with their PFA regularly  to ensure that they receive updated correspondence.

• 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 2014. In the case of the public service of the Federation and the Federal Capital Territory, where the pension scheme was not funded, 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 this Fund. 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.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 WILL HAPPEN TO EXISTING PENSIONERS IN THE PRIVATE SECTOR?

Pension Boards in the private sector existing before the creation of the Pension Reform Act 2014 will continue to administer the pensions of the existing pensioners and the National Pension Commission will supervise such boards.

• WHAT WILL HAPPEN TO EXISTING PENSIONERS IN THE PUBLIC SECTOR?

In the public service, Pension Departments have been created to carry out the functions of the relevant pension boards or offices in the public service of the Federation and Federal Capital Territory with a view to making regular and prompt payment of pension to existing pensioners

• WHERE AN EMPLOYEE THAT HAS MORE THAN 3 YEARS TO RETIRE DECIDES TO RETIRE NOW, HOW WILL HIS BENEFIT BE HANDLED?

An actuarial valuation of his/her accrued retirement benefits will be made and the amount plus his contributions to date will consist of his/her retirement benefits in his/her RSA.This sum can only be accessed at the age of 50 years. Withdrawals from the RSA will depend on the professional advice of the PFA with regards to the provisions of the Pension Reform Act 2014 which provides for a lump sum withdrawal, programmed withdrawals or purchase of annuity.

• 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. You are also advised to update your details with your PFA.

• WHAT HAPPENS TO THE PENSION FUNDS CONTRIBUTED UNDER THE NIGERIAN SOCIAL INSURANCE TRUST FUND (NSITF) BEFORE THE NEW PENSION SCHEME?

The pension funds contributed to the NSITF before the commencement of the new pension scheme which had been under the management of Trustfund Pensions Limited is currently being transferred to member’s Retirement Savings Account (RSA). Kindly complete a copy of NSITF Contribution Transfer Application Form, which can be obtained from your Pension Fund Administrator (PFA), if you have not done so yet, to ensure the transfer of your NSITF contributions into your RSA. If you are registered with Trustfund Pensions Limited, click here to download Trustfund Pensions Limited NSITF Transfer Application Form.

• CAN NSITF STILL HANDLE PENSION MATTERS UNDER THE NEW PENSION SCHEME?

NSITF will only handle pension matters of existing pensioners and those exempted by the Act who have contributed to the NSITF under the supervision of the National Pension Commission.

• WHAT HAPPENS TO EXISTING PENSIONERS WHO MADE CONTRIBUTIONS UNDER NSITF?

Retirement benefits shall be paid to existing pensioners under the rules upon which contributions were made, under the supervision of the National Pension Commission.

• IS AN EMPLOYER IN THE PRIVATE SECTOR OPERATING A DEFINED BENEFIT SCHEME REQUIRED TO OPEN RSAs FOR HIS EMPLOYEES AND CREDIT ACCRUED PENSION RIGHTS?

Any company operating a defined benefit scheme that desires to continue the scheme must, in addition to satisfying other conditions specified in the Act, open RSAs so that the pension funds can be held by a custodian. Computation of the accrued pension rights to be credited to the RSAs shall be done by actuarial valuation.

•  ARE PENSION CONTRIBUTIONS TAX FREE?

Contributions to the new pension scheme are tax free.

• WILL TAX BE PAID ON THE PROFIT MADE FROM TRADING WITH THE MONEY IN THE RETIREMENT SAVINGS ACCOUNT (RSA)?

Tax will be paid on the profit made from trading with the money in Retirement Savings Accounts.

• HOW WILL I BENEFIT FROM THE NEW PENSION SCHEME?

The new pension scheme will ensure that you receive your pension after retirement without any delay.

• HOW WILL THE NEW PENSION SCHEME HELP THE ECONOMY?

There will be a huge pool of long-term funds available for investments, which will lead to national economic development.

•  HOW CAN I KNOW WHAT IS HAPPENING WITH MY MONEY?

Pension Fund Administrators (PFAs) will issue regular statements of accounts and profit from investments to the employees.

• 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 NEW SCHEME TO BE REGULATED?

The National Pension Commission is empowered by the Pension Reform Act 2014 to supervise and regulate the 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).

• 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.

• WHO IS A “CLOSED PENSION FUND ADMINISTRATOR (CPFA)?”

Any employer managing its existing pension scheme before the enactment of the Pension Reform Act 2014 may apply to the National Pension Commission to be licenced as a Closed Pension Fund Administrator to continue to manage such pension scheme. A closed PFA cannot open or manage RSA for employees other than its employees or employees of its parent company if it is a subsidiary.

• WHO IS QUALIFIED TO BE LICENCED AS A CLOSED PFA?

Any employer having existing pension fund assets worth N500,000,000 or more who also meets the requirements of the Pension Reform Act 2014,may apply to the National Pension Commission for a closed PFA licence to enable it manage the pension funds of its employees directly or through its subsidiary.

• CAN ANY EMPLOYER BE ALLOWED TO CONTINUE MAINTAINING ITS EXISTING SCHEME IF THE TOTAL ASSETS IN THE SCHEME IS LESS THAN N500,000,000?

Any employer with existing scheme of less that N500,000,000 can still maintain the scheme but the scheme will have to be administered by a PFA separate from the organisation.

• IS IT ONLY EMPLOYEES WHO JOINED AN ORGANISATION AFTER THE COMMENCEMENT OF THE PENSION REFORM ACT THAT CAN ELECT TO OPT OUT OF A CLOSED PFA?

Every employee may decide to join the contributory pension scheme or move his RSA from a closed PFA to a PFA of his choice subject to such rules and regulations as may be issued by the National Pension Commission.

• CAN A SUBSIDIARY COMPANY APPLY AS A CLOSED PFA

A subsidiary of any company may apply for licence to operate as a Closed PFA provided it satisfies the requirements of the Pension Reform Act 2014.

• CAN A NEW MULTINATIONAL COMPANY WITHOUT AN EXISTING PENSION FUND BUT WITH CAPACITY FOR FULLY FUNDED DEFINED BENEFIT PENSION SCHEME APPLY AS A CLOSED PFA TO MANAGE THE PENSION OF ITS EMPLOYEES?

In accordance with the provisions of the Pension Reform Act 2014, only an employer with a pension scheme existing before the commencement of the Act may apply to be licensed as a closed PFA.

• WHO IS A CUSTODIAN?

A Pension Fund Custodian (PFC) is a company licensed by the National Pension Commission to keep pension money and assets in the RSA on trust for the employee on behalf of the PFA.

• WHAT IS THE MINIMUM FINANCIAL REQUIREMENT FOR A PFA LICENCE?

An applicant PFA must be a dully incorporated limited liability company in Nigeria under the Comapanies and Allied Matters Act, Cap.C.20 LFN 2014, and must have a minimum paid up share capital of N1bn.

• CAN I MOVE MY ACCOUNT FROM ONE PFA TO ANOTHER?

An employee or contributor has the freedom to move his account, once a year, from one PFA to another without giving any reason(s).

• WILL THE PFA CHARGE FEES FOR THEIR SERVICES?

The PFA will charge fees for the services being rendered on the RSA subject to such guidelines as may be issued by the National Pension Commission from time to time.

• WHY ESTABLISH NEW COMPANIES TO BE LICENCED AS PFAs AND PFCs?

In order to ensure the safety of pension funds and to avoid mixing pension business and other businesses, it is desirable that the operators deal with pension funds only. This will enhance effective regulation and supervision.

•  HOW CAN I BE SURE THAT MY CONTRIBUTIONS ARE SAFE?

All those managing or keeping custody of pension funds and assets are licensed and continually regulated and supervised by the National Pension Commission.

• WHAT IS THE GUARANTEE THAT THE PENSION FUNDS UNDER THE NEW SCHEME WILL BE WELL MANAGED AND NOT DIVERTED FOR OTHER PURPOSES?

The functions of the Pension Fund Administrator (PFA) and Custodian are clearly spelt out in the Pension Reform Act 2014. The Act provides adequate safeguards against the misuse of the pension funds and assets by any operator.

•  WHAT HAPPENS IF A PFA FAILS OR IS LIQUIDATED?

The pension funds and assets in the Retirement Savings Account (RSA) are kept by the PFC and as such the liquidation of the PFA will not affect the funds and assets. Besides, every PFA is expected under the Pension Reform Act 2014 to maintain a statutory reserve fund as contingency fund to meet claims for which it may be liable as may be determined by National Pension Commission.

•  WHO CAN I COMPLAIN TO IF I HAVE A PROBLEM WITH A PFA?

The Pension Reform Act 2014 allows any employee to complain about any PFA to the National Pension Commission.

•  WHAT IS THE ROLE OF THE GOVERNMENT IN THE NEW PENSION SCHEME?

The Federal Government has established the National Pension Commission and charged it with the responsibility of regulating and supervising the new pension scheme.

•  CAN THE GOVERNMENT TAKE OR USE THE MONEY IN MY RSA FOR ANY PURPOSE?

The Government cannot tamper with the pension funds in your RSA, because the Government cannot have access to the account. Besides, the Government is primarily concerned with ensuring the safety of the money in your RSA through the enforcement of strict rules and regulations.

• WILL INFLATION AND DEVALUATION OF THE NAIRA NOT ERODE THE VALUE OF PENSION CONTRIBUTIONS?

It is the duty of the PFAs to administer the contributions and invest in such a way that will ensure safe and reasonable returns on investment. The reserve fund created by the PFAs under the Act would compensate for any erosion of the value of the contributions.

• WHAT IS THE MINIMUM PENSION GUARANTEED UNDER THE NEW SCHEME?

The minimum pension guarantee shall be determined from time to time by the National Pension Commission.

•  IS THERE ADEQUATE REPRESENTATION OF ALL STAKEHOLDERS ON THE BOARD OF THE COMMISSION, OR IS IT DOMINATED BY GOVERNMENT APPOINTEES?

There is adequate representation of relevant stakeholders in the Board of the National Pension Commission, which comprises of representatives of the Government, Nigeria Labour Congress, the Nigerian Union of Pensioners and the Nigerian Employers’ Consultative Association.

•  DOES THE PENSION REFORM ACT REFLECT THE APPLICATION OF THE PRINCIPLES OF TRANSPARENCY AND ACCOUNTABILITY?

 Yes. The new pension scheme entrenches the principles of transparency and accountability as reflected in the reporting requirement of the PFAs and PFCs to both the contributor and the National Pension Commission. An employee has the right to choose who manages his RSA and the right to receive statements of his account on quarterly basis with details of contributions made and returns on investment.

CPS Retiree Pack

1.What is Pension?

Pension is a regular income received by a person at retirement when he/she stopped working because of having reached a certain age or based on health condition in order to cater for his/her needs at old age.

2.  What is Micro Pension Plan?

Micro Pension Plan refers to an arrangement under the Contributory Pension Scheme (CPS) that allows the self-employed and persons working in organisations with less than three (3) employees to make financial contributions towards the provision of pension at their retirement or incapacitation.

3. Why Micro Pension?

Micro Pension guarantees secured future through steady income at retirement. It reduces old age poverty and the process is easy, simple and flexible.

4. Has the Micro Pension Plan been successful in other Countries?

Yes, Micro Pension Plan has been successful in countries like Ghana, Kenya and India.

5. Is the mandatory Contributory Pension Scheme different from the Micro Pension Plan?

The mandatory pension and Micro Pension Plan are arrangements under the Contributory Pension Scheme (CPS). The only difference between the two is the nature of participation. Thus, the mandatory pension is obligatory for all eligible employees and both the employer/employee contribute towards the payment of the employee’s pension at retirement. Micro Pension on the other hand is voluntary and solely funded by the contributor.

6. Who can participate in the Micro Pension Plan?

A Micro Pension prospect must:
a) Be a Nigerian, not below 18 years of age;
b) Have a legitimate source of income;
c) Belongs to trade/association/profession; and
d) May be self-employed or an employee of an organization with less than three employees with or without a formal employment contract.

7. Can one have more than one Retirement Savings Accounts?

A contributor can only have one Retirement Savings Account (RSA) in his/her lifetime.

8. Can an individual in the formal sector who already has an RSA also participate in the Micro Pension plan?

No. An individual who is contributing under the mandatory pension arrangement cannot participate in the Micro Pension Plan.

9. How do I register/enroll for Micro Pension Plan?

An eligible Micro Pension contributor can enroll/register through any Pension Fund Administrator (PFA) of his/her choice, obtain and complete the Retirement Savings Account (RSA) Opening Form either physically or electronically. A unique Personal Identification Number (PIN) would be issued to the registered contributor.

10. Where do I locate the Pension Fund Administrator (PFA) of my choice?

The detailed list and addresses of all Licensed Pension Fund Administrators (PFAs) can be accessed via National Pension Commission’s website www.pencom.gov.ng

11. Who will manage and keep custody of funds accumulated under the Micro Pension Plan?

The Pension Fund Administrator (PFA) manages and invests funds accumulated under Micro Pension Plan on behalf of the contributor, while the Pension Fund Custodian (PFC) keeps the fund and assets in safe custody.

12. What measures have been put in place by the National Pension Commission to safeguard the funds under the Micro Pension Plan?

There is effective monitoring and supervision of the Plan by the Commission through daily monitoring of the Plan asset and investment decisions made by Pension Fund Administrators to ensure that their decisions are in line with relevant laws and Investment Regulations issued by the Commission.

13. Is there a provision for the guarantee of the safety of Plan assets under the Micro Pension Plan?

Yes. The Pension Fund Custodian (PFC) has provided full guarantee of the total pension assets under its custody. Thus, any kobo lost will be refunded by the Custodian.

14. Do contributions in the Micro Pension Retirement Savings Account generate income?

Yes. PFAs invest all pension contributions and all income from such investment activities are credited into the RSA of the contributor.

15. Would my Contributions under the Micro Pension Plan be subject to any taxes?

No. Subject to Regulations issued by the Commission, all interests, dividends, profits, investments and other income accrued to Micro Pension Fund and assets are not taxable.

16. Can I decide which financial instruments my contributions should be invested in?

No. Investment decisions are made by the Pension Fund Administrators in line with Investment Regulations issued by the National Pension Commission.

17. Is the Micro Pension Plan different from a savings account maintained with a Commercial Bank?

Yes. Micro Pension Plan is different from savings account maintained with a Commercial Bank because any savings made under the plan can only be withdrawn as monthly pension after retirement. On the other hand, savings made with Commercial Banks can be withdrawn anytime as the need arises.

18. What is the minimum amount of contribution acceptable under the Micro Pension Plan?

There is no stipulated minimum amount of contribution under the Micro Pension Plan because it is dependent on the Contributor’s pension aspiration and financial capacity. Thus, higher contributions will result in more money available for pension.

19. How often can one contribute under the Micro Pension Plan?

Contributions can be made daily, weekly, monthly or as may be convenient to the contributor and shall be subject to reporting requirements under the Money Laundering (Prohibition) Act.

20. How can I make contributions under the Micro Pension Plan?

Contribution under the Micro Pension Plan can be made by cash deposit or electronic transfer through any payment platform, or other financial service agents approved by the Central Bank of Nigeria (CBN). Page 5 of 7 Confidential

21. Can a Contributor use his Micro Pension Plan Account as collateral for a loan?

No. Micro Pension Plan account cannot be used as collateral for a loan.

22. Can a Contributor access an amount from his RSA in excess of his Micro Pension Plan Account balance and repay over a period?

No. A Contributor cannot access an amount in excess of his/her Micro Pension Plan account balance because the Pension Reform Act 2014 prohibits such transaction.

23. How do I access my RSA under the Micro Pension Plan?

A contributor can access the balance in his/her RSA through two means namely; Contingent withdrawal and Retirement benefit withdrawal.

24. What is Contingent withdrawal?

It is the withdrawal of that portion of the RSA balance (contributions plus returns on investment) made available for withdrawal to ease financial pressures or needs of the Micro Pension contributor before his/her retirement.

25. What is Retirement withdrawal?

It is the withdrawal of that portion of the RSA balance that the Micro Pension Contributor shall be eligible to access as monthly pension upon retirement in accordance with the Regulation for the Administration of Retirement and Terminal Benefits.

26. How do I withdraw my contingent portion?

A Micro Pension Contributor can withdraw an amount from his/her contingent portion by applying to his/her Pension Fund Administrator (PFA) in a prescribed format.

27. For how long will an individual contribute before he/she can assess the contingent portion?

A Micro Pension Contributor shall be eligible to access the contingent portion of the balance of his/her RSA three (3) months after making the initial contribution. Subsequently, he/she can make withdrawals once in a week, from the balance of the contingent portion of the RSA.

28. How long does it take to receive payment from my contingent contribution?

The Pension Fund Administrator is
mandated to approve and pay the amount requested from the contingent portion within 48 hours of application for withdrawal.

29. What happens if the Micro Pension Contributor gets a formal employment?

The Micro Pension Contributor who secures a formal employment shall notify his/her PFA for conversion into the mandatory pension. The Micro Pension contributor shall also retain his/her existing RSA to be used for the mandatory pension.

30. What is the retirement age of Micro Pension Contributor?

A Micro Pension Contributor shall retire upon attaining the age of 50 years or on health grounds. However, a Micro Pension Contributor can choose to extend his retirement age beyond 50 years.

31. How do I access my contributions after retirement?

A Micro Pension contributor shall, upon retirement, access his/her retirement benefits through either Programmed Withdrawal or Life Annuity.

32. What is programmed withdrawal?

Programmed withdrawal is a mode of benefits withdrawal by which a Micro Pension retiree receives pension through his Pension Fund Administrator (PFA) on a periodic basis, i.e monthly or quarterly.

33. What is Annuity?

Annuity is a method of receiving pension by a retiree through a contract purchased from a Life Insurance Company. It provides a guaranteed periodic income (pension) to a retiree throughout his/her life after retirement.

34. What is the length of the Annuity Guaranteed Period?

The Retiree Life Annuity is guaranteed for 10 years. Thus, if a retiree dies before 10 years, the balance of the equivalent monthly pension to complete the remaining period up to 10 years would be paid to his/her beneficiaries. Where the retiree dies after the guaranteed ten years period, nothing would be paid to the beneficiaries.

35. What happens to the balance in the Micro Pension Contributor’s RSA in the event of death?

The balance in a Micro Pension Contributor’s RSA shall, in the event of death, be paid to the legal heirs of the deceased/contributor as may be appointed by a Will or Letter of Administration granted by a Probate Registry or as may be directed by a court of competent jurisdiction in the State of residence of the deceased contributor, as the case may be.

36. Can I participate in the Micro Pension Plan upon retirement from my job in the formal sector?

No. Micro Pension Plan only allows for conversion from Micro Pension Plan to the Mandatory Contributory Pension.