Established by the federal government back in 2014, the contributory pension scheme in Nigeria is a fully funded, privately managed by a third-party custodian. Basically, this third party is a custodian of the funds and assets based on individual accounts. This scheme exists to create a system that ensures everyone receives their retirement benefits when due. This article digs into everything you need to know about the contributory pension scheme in Nigeria.
What is the contributory pension scheme in Nigeria?
This is a pension scheme that ensures that everyone receives pension benefits as at when due. Basically, it operates by employers and employees contributing certain percentages to the employee’s retirement savings account (RSA). According to a release by the federal government, the objectives of this contributory pension scheme in Nigeria are to:
- Establish a uniform set of rules, regulations, and standards for the administration and payment of retirement benefits. Basically, this includes public services of the federation, federal capital territory, state and local government, and private sector.
- Provision for the smooth operation of the contributory pension scheme
- Ensure that every individual who has worked in any of these sectors gets his or her retirement benefits as when due
- Assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
Who is covered in the contributory pension scheme in Nigeria?
This scheme covers all employees in Nigeria. Therefore, it includes the federation, Federal capital territory, local and state government, and the private economy. In a nutshell, it covers every indigenous employee in Nigeria just like the compulsory insurance scheme.
Who is exempted from the contributory pension scheme in Nigeria?
When the government enacted this law, they excluded employees who had less than three years to retire. However, that was back in 2014, and since then people in that category have retired. Basically, this means everyone should partake in the contributory pension scheme currently in 2021.
How is the contributory pension scheme in Nigeria regulated?
The federal government empowers the national pension commission according to the Pension Reform Act of 2004. Therefore, they hold the power to regulate and supervise the new scheme. Every organization is answerable to the NPC in relation to the compulsory pension scheme.
How much will I contribute to the contributory pension scheme in Nigeria?
The law mandates employees to make a minimum monthly contribution of 7.5% of his or her total monthly earnings. Therefore, this includes monthly basic salary, housing allowance, transport allowance, and more. The employer makes this contribution to his or her retirement savings account (RSA).
How much will my employer contribute to the contributory pension scheme in Nigeria?
The law mandates all employers to contribute a minimum of 7.5% of the employee’s monthly earnings to the RSA of the staff. Therefore, this means that each employees’ RSA would receive a total of 15% of his earnings (7.5% employee + 7.5% employer). This scheme secures the employee financially like the employers’ liability insurance.
How does moving from one employment to another affect pension contributions?
Moving from one employment to another does not affect your pension under the contributory pension scheme in Nigeria. Basically, the 2014 act reform removed the restrictions associated with transferring pension details when switching employment. All you need to do is to supply your new employer with the details of your RSA and they would pay subsequent pension contributions to it.
Conclusion
The contributory pension scheme in Nigeria is a system that ensures every employee accumulates tangible savings before retirement. Basically, it removes the issues with pension payment delays from the last reform and ensures everyone gets their money when due.
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