CONTRIBUTED BY LILIAN EKU ESQ
A Pension is simply a regular payment made to a person after they retire. This payment originates from an investment fund or account, to which both the person and their employer contributed during their time as an active member of the labour force. The court in Momodu v. N.U.L.G.E[1] described pension as:
‘’An accrued right of an employee, be the right in money or other consideration, on retiring from the services of his employer and satisfying the conditions for payment of the said pension.’’
In Nigeria, the Pension Reform Act of 2014 (PRA) is the primary legislation governing pension schemes in Nigeria. It establishes guidelines for the administration, regulation, and supervision of pension funds. It also outlines the eligibility criteria for participating in the pension program. The PRA establishes a Contributory Pension scheme whereby the employers and the employees contribute minimum percentages of the employee’s salary to the scheme every month. The minimum contribution for the employer is 10%, and 8% for the employee.
In this article, we will look into the importance of understanding the retirement landscape and planning for financial security, the eligibility criteria for pension programs, the role of the Pension Reform Act of 2014 in safeguarding the rights and interests of pensioners and briefly discuss the role of the Pension Fund Administrators in Nigeria.
AN OVERVIEW OF THE PENSION SCHEME IN NIGERIA.
The Pension Scheme in Nigeria is a crucial social safety net that provides financial security and stability to millions of workers at retirement.[2] Established under the Pension Reform Act of 2004, the scheme aims to safeguard the welfare of employees by ensuring that they have adequate financial resources to sustain themselves after leaving the workforce.
The root of the Pension Scheme in Nigeria can be traced back to the early 1950s when the first pension arrangements were introduced for civil servants.[3] Over the years, the system evolved, culminating in the comprehensive Pension Reform Act of 2004, which established the present-day structure of the scheme.
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EXISTING PENSION SCHEMES IN NIGERIA:
The Pension Scheme in Nigeria comprises two main categories:
- The Contributory Pension Scheme (CPS): The CPS applies to the private sector and aims to ensure regular contributions from employees and employers.
- Defined Benefits Scheme (DBS): The DBS is designed for public sector employees and guarantees fixed pension benefits based on salary and years of service.[4]
THE
THE BENEFITS OF PENSION SCHEMES IN NIGERIA
The benefits of the Pension scheme in Nigeria cannot be overemphasized. It is a scheme that was brought to ameliorate hardship after retirement. Some of the benefits will be examined anon.
1. Retirement Planning: One of the most important parts of financial planning is retirement planning. It entails setting aside money for the time when a person will not be employed. Pension plans offer a guaranteed income to people, which can help them sustain their lifestyle throughout retirement. This is particularly important because pension payments can act as a safety net for retirees, since they are no longer receiving regular wages.
2. Income Replacement: Pensions provide retirees with a reliable stream of income to supplement what they were paid during their working years. Particularly for people who have no other sources of support in retirement, this income is vital. Pensions help retirees retain their lifestyles by providing financial stability.
3. Decrease in Poverty: Pensions play a major role in lowering retirees’ poverty. It offers a reliable source of income that helps to maintain their standard of living and paying bills. Pensions help keep retirees from burdening their communities, families, or the government. Additionally, it lowers the chance of financial vulnerability and provides financial stability.
4. Economic Growth: A vital component of the Nigerian economy is the pension sector. It encourages saving, which can be put towards a variety of endeavours, including real estate, infrastructure, and other vital areas. Development and economic growth may be aided by this investment.[5]
Comprehending the significance of pensions in Nigeria contributes to economic progress, lowers the danger of poverty, and provides financial security. Retirement planning is crucial.
THE ROLE OF THE PENSION REFORM ACT OF 2014 IN SAFEGUARDING THE RIGHTS AND INTERESTS OF PENSIONERS.
The fundamental tenets of the pension reform program are sustainability, accountability, transparency, equity, flexibility, inclusivity, consistency, and practicability.
Section 1(1) of the Pension Reform Act 2014 provides for the objectives of the Act as follows:
- To establish uniform set of rules for the operation of Voluntary Contributions and eligibility criteria for participation in Voluntary Contributions.
- To provide the procedure for making Voluntary Contributions and provide necessary safeguards and modalities for its withdrawals.
- To utilize Voluntary Contributions for the purpose of enhancing future retirement benefits for active or mandatory contributors.
- To encourage retirees under CPS, utilize part or all of the Voluntary Contributions to augment their existing pension.
- To assist retirees under defunct Defined Benefit, Exempted Persons and foreigners to save to cater for their livelihood during old age”.[6]
THE ROLE OF THE PENSION FUND ADMINISTRATORS (PFA)
The Contributory Pension Scheme requires pension funds to be privately managed exclusively by licensed Pension Fund Administrators (PFA). The main functions of the PFA are to open a Retirement Savings Account (RSA) for employees; invest and manage pension fund assets; payment of retirement benefits and account for all transactions relating to the pension funds under their management.[7]
The Commission considers applications for license to operate as a PFA from entities that fulfil the requirements as enshrined in Section 60 of the Pension Reform Act (PRA)2014. Prior to the issuance of an operating license, the PFA must be a limited liability company whose sole object is the management of pension fund assets. The PFA must also satisfy the Commission that it has the professional capacity to manage pension funds and administer retirement benefits.[8]
CONCLUSION
Understanding the retirement landscape and planning for financial security is crucial for individuals in Nigeria. The Pension Reform Act of 2014 plays a pivotal role in safeguarding the rights and interests of pensioners. By participating in a pension scheme, individuals can enjoy the benefits of long-term financial stability during their retirement years. However, it’s important to be aware of the challenges and opportunities within the Nigerian pension system. By making informed decisions and following practical tips, individuals can navigate the system effectively and secure their future.
- . (1994) 8 NWLR (P. 350. Para. A) ↑
- The Pension scheme in Nigeria by Oak Pensions available at; https://www.oakpensions.com/building-a-secure-future-for-retirees-with-the-pension-scheme-in-nigeria.aspx#:~:text=Over%20the%20years%2C%20the%20system,Defined%20Benefits%20Scheme%20(DBS). ↑
- The Pension Scheme in Nigeria; Oak Pensions, available at https://www.oakpensions.com/building-a-secure-future-for-retirees-with-the-pension-scheme-in-nigeria.aspx#:~:text=Over%20the%20years%2C%20the%20system,Defined%20Benefits%20Scheme%20(DBS). ↑
- The Pension Scheme in Nigeria; Oak Pensions, available at https://www.oakpensions.com/building-a-secure-future-for-retirees-with-the-pension-scheme-in-nigeria.aspx#:~:text=Over%20the%20years%2C%20the%20system,Defined%20Benefits%20Scheme%20(DBS). ↑
- The Pension Scheme in Nigeria; Oak Pensions, available at https://www.oakpensions.com/building-a-secure-future-for-retirees-with-the-pension-scheme-in-nigeria.aspx#:~:text=Over%20the%20years%2C%20the%20system,Defined%20Benefits%20Scheme%20(DBS).
- S.1, Pension Reform Act 2014 ↑
- Section 60, Pension Reform Act 2014. ↑
- Pension Fund Administrators (PFA); National Pension Commision also available at;( https://www.pencom.gov.ng/pension-fund-administrators/#:~:text=PENSION%20FUND%20ADMINISTRATORS%20(PFA)&text=The%20main%20functions%20of%20the,pension%20funds%20under%20their%20management.) ↑
