21 Questions on Pension You Should Be Able to Answer
There are 21 questions you should be able to answer as provided in the Nigerian Pension Act of 2014 as an employee or employer.
- What is the Contributory Pension Scheme? Contributory Pension Scheme (CPS) is an arrangement where both the employer and the employee contribute a portion of an employee’s monthly emolument towards the payment of the employee’s pension at retirement.
- What is the law that established the CPS in Nigeria? The CPS was established in June 2004 by the Pension Reform Act (PRA) 2004, which was repealed and reenacted in July 2014.
- How is the CPS different from the Defined Benefits Pension Scheme? Under the CPS, both the employer and employee contribute certain percentages of the employee’s monthly emoluments to build a retirement fund from which benefits are paid at retirement while under the Defined Benefits (DB) Scheme, total pension obligation is borne by the employer.
- What is the main objective of CPS? The main objective of the CPS is to ensure that every person that worked in either the public or private 1 sectors in Nigeria, including the self-employed persons, receives his/her retirement benefits as and when due.
- What are the basic features of the CPS? The basic features of the CPS are: i. It is contributory. ii. It is fully funded. iii. It is based on individualized Retirement Savings Account (RSA). iv. It is privately managed by Pension Fund Administrators (PFAs) under the custody of Pension Fund Custodians (PFCs). v. Provision of Group Life Insurance.
- What are the rates of contributions under the CPS? The minimum rate of contribution is 18% of the employee’s monthly emoluments where 10% is contributed by the employer and 8% is contributed by the employee. However, the employer may decide to bear the full responsibility of the contribution provided it is not less than 18% of the monthly emolument of the employee.
- Can an employee makes additional contributions? An employee may decide to make additional contributions above the minimum 8% provided the employee’s total contribution and other deductions 2 do not exceed one-third of his/her total monthly emoluments.
- What constitute monthly emoluments? The constituent of monthly emoluments is as may be defined in the employee’s contract of employment, but should not be less than the total sum of basic salary, housing and transport allowances.
- What does fully funded mean? A fully funded scheme is a pension scheme that has sufficient assets to fully pay the retirement benefits of its members at all times.
- What is a Retirement Savings Account (RSA)? An RSA is an account opened by an employee with a PFA of his/her choice, into which all pension contributions are remitted and thereafter invested for the purpose of paying retirement/terminal benefits.
- Does the RSA operate like a Bank Account? Unlike a bank account, the RSA can only be accessed at retirement, loss of job, medical incapacitation or in the event of death.
- Who is a Pension Fund Administrator (PFA)? A PFA is a company licensed by the National Pension Commission (PenCom) for the sole purpose of managing and administering pension and other 3 retirement benefit schemes’ assets. Some of the PFAs are licensed to manage and administer retirement benefit schemes for staff of organizations that had existing pension schemes prior to the commencement of the CPS in 2004. These companies are called Closed Pension Fund Administrators (CPFAs).
- Who is a Pension Fund Custodian (PFC)? A PFC is a company licensed by PenCom for the sole purpose of holding all pension funds and assets on trust for employees as well as beneficiaries of the RSA and other retirement benefit schemes.
- Who receives the monthly y pen ion contributions? The employer deducts and remits both the employee and employer portions of pension contributions to the PFC.
The PFC notifies the PFA immediately upon receipt of the contributions
- What is the role of the National Pension Commission (PenCom)? PenCom is the regulator and supervisor of all pension matters in Nigeria. It licenses all pension operators; issues regulations and guidelines; and ensures effective administration of all pension schemes in Nigeria.
- Who is mandatorily covered by the CPS? The CPS covers employees in the public service of the Federation, Federal Capital Territory, States, Local Governments and private sector organizations with 3 or more employees.
- Can employees who are not mandatorily covered participate in the CPS? Yes, employees of organizations with less than 3 employees as well as self-employed persons can voluntarily participate in the CPS under the Micro Pension Plan (MPP).
- Who is exempted from the CPS? Judicial Officers, members of the Armed Forces, the Intelligence and Secret Services of the Federation; retirees under any pension scheme existing before 30 June 2004; and employees who had 3 or less years to retire as at 30 June 2004.
- Can foreigners employed in Nigeria participate in the CPS? Foreigners working in Nigeria are not mandated by law to participate in the CPS. However, such foreigners may voluntarily participate in the Scheme.
- Can Nigerians working abroad participate in the CPS? Nigerian citizens working abroad are not mandated 5 by law to participate in the CPS. However, they may voluntarily participate.
- What happens to the RSA of a person who resigns from an organization in Nigeria and takes up appointment outside Nigeria? Any person who resigns from an organization in Nigeria and takes up appointment outside Nigeria is entitled to make arrangements with the new employer to continue remitting his pension contributions into his/her RSA in Nigeria. However, if the person chooses to discontinue with the scheme in Nigeria or the new employer has an entirely different pension arrangement, he/she may access his RSA upon retirement or attaining the age of 50 years, whichever is earlier.
21 Questions on Pension You Should Be Able to Answer