The Knowledge Gap and Frequently Asked Questions About the Contributory Pension Scheme as a Pilar of Social Protection Floors: Part 5; By Ivo Takor


Continue from last week


IN continuation of our provision of answers to frequently asked questions on the CPS, we will be providing answers to some frequently asked questions on retirement benefits administration under the CPS.

What are the types of retirement benefits under the CPS?

There are two basic benefits under the CPS, namely periodic (monthly or quarterly) pension and one-off lump sum payments.

What are the modes of accessing periodic pension payments under the CPS?

There are two modes for accessing periodic pension payments under the CPS, namely, Programmed Withdrawal (PW) and Life Annuity.

What is Programmed Withdrawal?

This is a method by which the retiree collects his retirement benefits in monthly or quarterly amounts throughout the length of an estimated lifespan, which is determined using mortality (actuarial) tables. This is a product offered by the PFA. When a retiree dies, any balance in the RSA will be paid to the duly nominated beneficiaries.

What is Life Annuity?

This is a series of monthly or quarterly payments paid to a retiree for life. This is a product offered by Life Assurance companies.

What is lump sum payment?

A lump sum payment is an amount of money that is paid once, at retirement, from the RSA.

Will gratuity be paid under the CPS?

An employer may choose to pay additional severance benefits, including gratuity, provided these additional benefits are going to be fully funded by the employer. In addition, the operational modalities and the size of the benefits are at the discretion of the employer.

What is the pension guarantee under Life Annuity?

Life Annuity payments are guaranteed for ten years. Thus, if the retiree dies before attaining ten years of receiving annuity payments, the monthly annuity/pension will be paid to his beneficiaries for the remaining period up to ten years. For example, if a retiree who chose annuity dies six years after retirement, his monthly pension for the next four years will be paid to his beneficiaries.

How can I purchase a Life Annuity contract from a Life Assurance company?

The retiree can buy a Life Annuity contract by paying a portion of his/her RSA as premium to an insurance company, which in turn provides the monthly/quarterly payments (annuity), subject to the Regulations jointly issued by PenCom and the National Insurance Commission (NAICOM).

Can I choose Programmed Withdrawal and later change to Life Annuity?

Yes. It is possible for a retiree to change to Life Annuity after collecting his retirement benefits through Programmed Withdrawal for some time. In this case, the remaining balance in the RSA will be utilized as premium to purchase the Life Annuity from an insurance company, which will be paying him monthly pension/annuity for life.

Can I choose Life Annuity and later change to Programmed Withdrawal?

No. Once a retiree has chosen to collect his/her benefits through Life Annuity, he/she is not allowed to change to Programmed Withdrawal. However, the retiree can change his annuity contract from one insurance company to another after every two years. The amount to be paid as annuity/pension will be based on the balance to be transferred between the insurance companies.

What are the components of the final RSA balance of an employee of a Treasury-Funded FGN MDA who retired under the CPS?

The RSA balance is made up of three components, namely, accrued rights, accumulated monthly pension contributions and income earned on investing the contributions.

What do I need to do for my accrued rights (Retirement Bond) to be paid?

Employees of Treasury Funded FGN MDAs are required to be enrolled by PenCom. The information collected during enrollment exercise will be utilized for the issuance of the Retirement Bond and/or computation of bond value. The enrollment exercise is conducted annually for those retiring in the coming year.

What should I do if I was unavailable and missed the annual enrollment exercise?

Any FGN employee who misses the annual enrollment can come to the Head Office of PenCom for an in-house enrollment, which normally commences two (2) months after the conclusion of the annual enrollment and ends two (2) months before the next annual exercise.

What happens when an FGN employee is promoted after participating in the enrollment exercise?

Where an FGN employee is promoted after enrolling for the payment of accrued rights, a copy of the promotion letter indicating grade level and step and effective date should be forwarded to PenCom along with a copy of his/her registration slip obtained during the enrollment exercise. These will be used to compute and pay any difference in the monthly contributions that may occur as a result of the promotion. However, if a retiring employee’s promotion relates to a period when his MDA had moved to IPPIS, such case will be handled by the IPPIS Office.

What is the retirement age under the CPS?

Retirement age under the CPS depends on each employee’s terms and conditions of employment.

What is the minimum period required by an employee to be eligible for pension under the CPS?

There is no eligibility period for pension under the CPS. If an employee works for an employer, his pension contribution will be paid by the employer into the employee’s RSA for the period of his/her service. However, access to the contributions must be in line with the provisions of the PRA 2014 and the Regulation on the Administration of Retirement and Terminal Benefits issued by PenCom.

When can I have access to my money in my RSA?

An RSA holder will have access to his/her RSA upon retirement based on his/her condition of service or upon attaining the age of 50 years (whichever come first)orismedicallyincapacitated. Where an employee voluntarily retirees, disengages or is disengaged while still under 50 years of age, he/she can have access to 25% of his/her RSA provided that such employee is unable to secure another employment after 4 (four) months of such retirement/disengagement.

What happens when an employee who has been contributing under CPS dies before his retirement?

Where an employee who has been contributing under the CPS dies before retirement, his/her benefits shall be paid to the named beneficiary as provided under a will or to the next of-kin. In the absence of such designation, the benefit shall be paid to any person appointed by the Probate Registry as the Administrator of the estate of the deceased.

What happens to an employee who retire under the CPS due to physical or mental incapacity, but subsequently is recertified fit and proper for employment?

Such an employee may re-enter the Scheme upon securing a new employment. The new employer would remit his pension contributions into his original RSA.

What happens to the balance in the RSA after any lump sum withdrawal?

The balance in the RSA will be applied towards the payment of monthly pension to the retiree on programmed withdrawal. In the case of annuity, it is applied to procure a monthly annuity for life from a Life Assurance company.

Can I make a lump sum withdrawal of more than 25% of my RSA balance?

This is possible provided the amount left in the RSA after such lump sum withdrawal shall be sufficient to fund a Programmed Withdrawal or Life Annuity of not less than 50% of the retiree’s monthly remuneration as at the date of retirement.

What happens to a retiree with an insufficient balance in his/her RSA?

A retiree with RSA balance of not more than N550,000 will be entitled to withdraw the entire balance in the RSA as lump sum at retirement. For RSA balance of more than N550,000, the retiree will be placed on monthly pension. However, when the retiree has contributed for a certain number of years, to be determined by PenCom from time to time, he/she will be entitled to a guaranteed minimum pension as provided by PRA 2014.

Why would the RSA balance of two employees who were employed on the same day/level be different at retirement?

The RSA balances may differ due to the following major reasons:

i. The timing and regularity of their promotion may be different;

ii. Their respective Grade Levels/Steps as at June 2004 and resulting amounts of accrued rights generated under the defunct DB scheme may be different;

iii. The regularity of remittance of pension contributions under the CPS may be different; and

iv. Return on investment by the PFAs may differ slightly due to their investment decisions and prevailing market conditions.

Why would the amount of monthly pension and lump sum differ between employees who retired at the same time and on the same salary grade?

The amounts may differ due to the following major reasons:

i. Differences in their RSA balances as described in No. 23 above;

ii. The age and gender; and

iii. Each of the retirees may have made different choices at retirement. For instance, one retiree may choose to collect the minimum lump sum or no lump sum at all so that his monthly pension can be higher. The other retiree may have chosen to collect a lump sum that is higher than the stipulated minimum and reduce his monthly pension.

What constitutes the consolidated benefits of a deceased employee who died in active service?

The consolidated benefits of a deceased employee include his/her accumulated monthly contribution including any income that accrued from investing the contributions; benefits from Group Life Insurance Policy; and accrued pension benefits.

What is the procedure for accessing the RSA of a deceased employee?

Upon the death of an employee, the employer/Next of Kin (NoK) or representative of the deceased shall notify the PFA, who in turn shall duly notify PenCom. The deceased’s consolidated benefits are, thereafter, paid in bulk to the Executors of his estate or to any person appointed by the Probate Registry as the Administrator of his estate to enable them apply the same in favour of his beneficiaries. The employer should also process the proceeds of the Group Life Insurance Policy and ensure payment by the insurance company to the beneficiaries.

How would the consolidated benefits of an employee who died prior to opening an RSA be processed in favour of his beneficiaries?

For a deceased person who did not open an RSA before his death, the retirement benefits will be processed and paid to the beneficiaries from the Temporary RSA opened for him/her by the employer.

What is the quantum of benefits under the Group Life Insurance Policy?

Every employee is entitled to a Group Life Insurance Policy for at least 3 times his/her Annual Total Emolument.

What is Annual Total Emolument (ATE)?

An employee’s ATE is the total sum of basic salary and all allowances payable as his/her remuneration for one year, as may be provided under the salary structure or terms and conditions of his/her employment.

Who pays the premium for a Group Life Insurance Policy?

The premium for Group Life Insurance Policy is paid by the Employer. The employee does not bear any cost to this effect. The employer is obligated to pay the equivalent amount of the Group Life insurance to the beneficiaries of the deceased where it does not have an existing Group Life Insurance Policy for its employees.

Are employees covered for life by the Group Life Insurance Policy?

No. Employees are covered for the period in which they are in active service of the employer. Hence, the policy does not cover the employee after disengagement/retirement from the service of the employer.

Who provides Group Life Insurance for the employees of Treasury Funded FGN MDAs?

The Federal Government provides Group Life Insurance cover for her employees through the coordination of the Office of the Head of the Civil Service of the Federation (OHOSF).

Can an employer provide Group Life Insurance cover for more than three times the Annual Total Emolument of the employee?

Yes. An employer may provide Group Life Insurance cover that provides benefits over and above three time the ATE of its employees. In addition, any employer that has an existing policy whose terms are better than three times the ATE should maintain such policy.

How long does it take to finish processing applications for payment of benefits?

The timeline for finish processing applications for benefits payment is not more than five (5) working days from the date the application is received by PenCom from the PFA.

Can pension be increased under the CPS?

Pension under the CPS shall be increased after every five years or whenever there is increase in the salaries of active workers in line with the provisions of Section 173 of the 1999 Constitution (as Amended). In addition, pension can be enhanced based on increased RSA balances occasioned by high returns on investment of the retiree assets by the PFAs.


In part 6, answers will be provided to some frequently asked questions on corporate governance and integrity of the CPS.

To be continued…

Related articles:

The Knowledge Gap and Frequently Asked Questions About CPS as a Pilar of Social Protection Floors

The Knowledge Gap and Frequently Asked Questions About Contributory Pension Scheme as a Pilar of Social Protection Floors: Part 2; By Ivor Takor

The Knowledge Gap and Frequently Asked Questions About Contributory Pension Scheme as a Pilar of Social Protection Floors: Part 3; By Ivo Takor

The Knowledge Gap and Frequently Asked Questions About the Contributory Pension Scheme as a Pilar of Social Protection Floors: Part 4; By Ivor Takor


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