Nigerian employees may receive a portion of their retirement funds while they are still employed, but only under certain circumstances, according to the National Pension Commission’s regulations for the Contributory Pension Plan.
Monthly contributions to a Retirement Savings Account are made by both employers and employees under the program.
Although these savings are often meant to provide a consistent pension income upon retirement, some situations allow for early withdrawal.
When an employee loses their job and is unemployed for a minimum of four months, they are subject to one such condition.
In that case, the person may take out up to 25% of his RSA amount.
In order to be eligible, the employee must provide an official resignation or disengagement letter from his company.
The commission “granted approval for the payment of N6.31 billion (being 25% of their RSA balances) to 9,966 RSA holders under 50 years, 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 contribute voluntarily to their RSAs in addition to the required savings, which provide additional flexibility but are governed by regulations and taxes.
According to PenCom’s current criteria, half of the voluntary contribution is “contingent,” meaning it can be withdrawn, while the other half is frozen until retirement in order to augment pension income.
This contingent component is liable to income tax on any withdrawals.
“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 or those working for very tiny businesses.
According to reports, they can take out up to 40% of their RSA savings after making payments for at least three months, with the remaining 60% set aside for retirement.
Nigerians who do not have access to traditional formal retirement benefits can now receive pensions.
Using RSA savings to finance a home mortgage’s equity component is another option.
The equity part of a home loan may be funded by qualifying RSA holders with up to 25% of their RSA balance, according to criteria based on Section 89(2) of the Pension Reform Act 2014.
The “contingent” part of their voluntary contributions may also be used to cover the equity payment.
Although these qualities promote objectives like home ownership and provide flexibility, experts caution that there are trade-offs.
Early withdrawals lower the amount of money available in retirement, which may result in smaller pension stipends each month.
Many people who have access to both mortgage-equity savings and job-loss withdrawals may only receive a little income in retirement.
