The Contributory Pension scheme was introduced under the Pension Reform Act 2004 .
This led to signing into law of the Pension Reform Act 2004 and the setting up of the National Pension Commission (PENCOM).
The key objectives of the new scheme are to:
- Ensure that every person who has worked in either the public or private sector receives his retirement benefits as and when due;
- Assist improvident individuals by ensuring that they save to cater for their livelihood during old age;
- Establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors; and
- Stem the growth of outstanding pension liabilities.
The law makes it mandatory for all workers in the public service of the Federation and the Federal Capital territory, and workers in the private sector where the total number of employees is 5 or more to joint the contributory scheme at commencement.
Under this scheme both the employees and employers contribute to the individual Pension fund. Contributions to the new pension scheme are tax free.
Rate of contribution to the scheme
| Public sector |
Private sectors |
Employees 7.5 %
Employers 7.5
%
Military
Employees 2.5 %
Employers 12.5 % |
Employees 7.5 %
Employers 7.5 % |
The National Pension Commission (PENCOM) is empowered by the law to supervise and regulate the new pension scheme. They issue licences to the Pension Fund Administrator (PFAs) and the Pension Fund Custodians (PFCs), 2 distinct companies that manage the individual’s retirement savings, and regulate their activities.
The employee registers with a Pension Fund Administrator (PFA) of his choice by opening an account to be known as a Retirement Savings Account (RSA) in his name. The individual can chose a PFA from the list of licensed PFAs published by PENCOM.
A Pension Fund Administrator (PFA) is a company licensed by PENCOM to mange and invest the pension funds in the employee’s RSA. The PFA in turn informs the individual’s employer that their services have been engaged and advances the individual’s PIN number for the employer to remit the contribution required by law.
The total contributions are remitted by the employer not to the PFA but to a PFC. The Pension Fund Custodian (PFC) is a company licensed by PENCOM to keep the pension money and assets on trust for the employee on behalf of the PFA.
Once the employer remits the contribution the PFC informs the PFA who then credits the individual’s RSA. PENCOM is also electronically informed.
An individual can chose a PFA from the list of licensed PFAs published by PENCOM. Presently they are 13 in number, 3 new companies have applied to be licensed but is yet to receive approval from PENCOM.
There are only 4 licensed PFCs and this means that most of the PFAs will be using the same PFC .
This individual account belongs to the employee and will remain with him through life. He may change employers or PFAs but the account remains the same.
The employee may only withdraw from this account upon attaining the age of 50 and can withdraw a lump sum provided that the balance is sufficient to procure an annuity or fund programmed withdrawals that will produce an amount not less than 50 percent of his monthly remunerations at date of his retirement.
• The balance after the lump sum payment can be applied in any of the following
• A programmed monthly or quarterly withdrawal; and
• A purchase of annuity for life through a licensed life insurance company with monthly or quarterly payments; and
The PFA will charge fees for the services being rendered on the RSA subject to such guidelines as may be issued by PENCOM from time to time.
The required personal documentation are similar to that used in opening bank accounts. The individual is given an Account Opening Form by the PFA and is required to fill in his personal information such as name, date of birth, sex, marital status, state of origin, local government, address, employment information and also submit at least a passport photograph.
Remittance of accrued entitlements through German NSS Pension Scheme
To access the present scheme, the procedure to follow is to identify a PFA from the list of accredited PFAs and engage their services. The PFA will in turn notify the employer of the individual to pay in his entitlements to a PFC that they are working with.
The National Pension Commission (PENCOM)
Plot 2774, Shehu Shagari Way, Maitama,
PMB 5170, Wuse, Abuja, Nigeria
Tel +234 9 413 33 63-64 / +23496720091-93
Email: info@pencom-ng.com
Website: www.pencom-ng.com.
