How does the new pension scheme work?
The scheme is a contributory pension scheme initaited by the Federal Government. The scheme requires the employer and employee to contribute a total of 15% of the employee’s monthly emoluments to a Retirement Savings Account (RSA) to be managed by private sector Pension Fund Administrator (PFA). The total sum of contributions plus any attributable investment income would be payable into a Retirement Savings Account specifically opened with the PFA for the purpose.

What are the benefits of the scheme to workers?
It ensures that the worker receives his or her benefits as and when due. In addition, it enables the employee save to ensure a steady income during retirement. Regulations also ensures certain minimum and uniform standards to be adhered to by PFAs and PFCs.

What are the contribution payments?
The employee and the employer contribute a total of 15% of the employee’s monthly emoluments. (i.e.: 7.5% and 7.5% respectively, except for military personnel where the contribution rate is 2.5% and 12.5%). The minimum that the employer can pay is 7.5%. The employer can undertake to pay a higher percentage or even the total 15%. The scheme is for both the private and public sectors.

What makes up the emoluments?
Basic salary, transport and housing allowance.

Does this contribution (7.5% of monthly emoluments) include tax and other dues that are removed from the employees’ salaries?
It does not include tax, which goes directly to the government or other deductions that you and your employer would have agreed on appointment.

Is the contribution tax-free?
Yes, the contributions is tax-free.

How do I know what returns are made on my RSA?
These are provided in statements and can be calculated by the growth in the unit price over the period.

Who is going to handle the Pension funds?
The National Pension Commission (PenCom) will act as the regulatory and supervisory board and as a National Data Bank for the pension funds. The Pension Fund Custodian (PFC) receives and holds the total contributions directly from the employers and the investments, while the Pension Fund Administrator (PFA) administers the RSA and invests/manages the pension fund assets of the employee.

Who is the PFA (Pension Fund Administrator)?
The PFA is a company duly licensed by the PenCom, responsible for the administration of RSAs and investment/management of the employees’ pension fund. The employee chooses his or her own PFA.

Must I have a PFA?
Yes, it is for your convenience. The Federal Government has approved competent professionals to manage your retirement savings.

If yes, then who pays the PFA?
The employee pays the PFA. PenCom has approved fees to be charged against the retirement savings account.

Are there rules and guidelines governing the scheme?
Yes, the Pension Reform Act 2004 and PenCom guidelines provide minimum standards and rules for security, accountability, management and feedback on RSA performance.

What are the fees payable for the service and who pays it?
PenCom has approved Asset Management fees of 2% P.A. of funds and monthly admin fees of N100 per monthly contribution. This is paid by the employee.

Is it like a savings account?
The pension fund is a Retirement Savings Account (RSA) but does not operate as a normal savings account. The employee will not be able to withdraw money from his or her account before the age of 50 years or retirement, except in cases of mental or physical disability. Also, in the cases of prolonged unemployment, partial withdrawal are approved by PenCom. Returns on a RSA will usually be higher than a savings account due to the nature of the investment made by the PFA.

Can I borrow from the money?
No, you cannot as the Pension Reform Act 2004 specifically prohibits this.

How do I get my funds after retirement?
The retirement benefits shall be utilized by the employee to purchase an annuity or programmed withdrawals that are paid out to the beneficiary at periodic intervals. The PFA will provide options available under the programmed withdrawals.

At what time is the fund beneficial to me?
It is beneficial to the employee when he or she gets to the age of 50 years or retires (whichever is later) or in case of physical disabilities or prolonged unemployment.

What happens to my pension funds when I change employment?
The employer does not have any direct dealings with your RSA. It is the PFC that holds the funds/Assets. The employee informs the PFA of change of employer. Your funds remain intact. Your new employer will then take over the remittance of future contributions.

What happens to the pension fund upon death?
The beneficiary of the employee as stated in a Will or letters of administration becomes the beneficiary of the RSA.

Is it meant for all workers?
The scheme is meant for all workers in the private and public sectors except those employees who have less than 3 years to retirement at the time of enacting of the PRA 2004 and categories of persons mentioned in Section 291 of the 1999 constitution, that is, various categories of judicial officers.

Does the Scheme affect Small business enterprise?
The scheme is compulsory for small businesses with 4 employees or less.

Does the Scheme cover my health and life insurance?
No! the act provides only that employers must take out life insurance for three times the annual emolument.

What is going to happen to previous contributions to NSITF?
Funds contributed by any person to the NSITF shall be computed and credited to the Retirement Savings Account of the contributor in his present PFA five years from commencement of the scheme.