Nigerian employees may access a portion of their retirement funds while they are still employed under the National Pension Commission’s Contributory Pension Scheme regulations, but only under certain circumstances.
Employers and employees make monthly contributions to a Retirement Savings Account under the program.
Although these funds are typically meant to provide a consistent pension income upon retirement, there are several situations that allow for early withdrawal.
One such circumstance is when an employee loses their job and is unemployed for a minimum of four months.
The person can withdraw up to 25% of his RSA amount in the situation.
The employee must have a written acceptance letter of resignation or disengagement from his company in order to be eligible.
The commission “granted approval for the payment of N6.31 billion (being 25% of their RSA balances) to 9,966 RSA holders under the age of 50, who were disengaged from employment and unable to secure another job within four months,” according to PenCom’s Q4 2022 report.
Employees have the option to make optional contributions to their RSAs in addition to the required savings, which provide additional freedom but are governed by regulations and taxes.
PenCom’s current standards state that half of the voluntary contribution is “contingent,” meaning it can be withdrawn, while the other half is locked until retirement to augment pension income.
Income tax is applied to any withdrawals made from this contingent share.
“In accordance with Clause 3.13 above, (50%) of every amount lodged as Voluntary Contribution shall be treated as ‘contingent’ and available for withdrawal by a contributor while the balance of 50% shall be treated as ‘fixed’ until retirement date,” according to PenCom’s voluntary contribution standards.
The Micro Pension Plan covers workers in the informal sector, such as independent contractors and employees of very small businesses.
They can access up to 40% of their RSA savings after making payments for at least three months, with the remaining 60% set aside for retirement, according to reports.
Nigerians without typical official retirement benefits now have access to pensions thanks to this option.
Funding the equity part of a home mortgage with RSA savings is another option.
Eligible RSA holders may use up to 25% of their RSA balance to finance the equity part of a house loan in accordance with regulations established on Section 89(2) of the Pension Reform Act 2014.
The “contingent” portion of their funds may also be used for the equity payment if they have made voluntary contributions.
Experts caution that these characteristics have trade-offs even though they improve flexibility and promote objectives like home ownership.
Early withdrawals may result in reduced monthly pension stipends because they reduce the amount of money available at retirement.
Many people who have access to both mortgage-equity savings and job-loss withdrawals may only receive a little pension in later age.
