By Rosemary ONUOHA
According to the National Pension Commission, PenCom, only about 8.34 million pension contributors are registered on the Contributory Pension Scheme, CPS, as at third quarter of 2018. This is against over 60 million active workers in Nigeria. This statistic goes to show that many companies and workers are still foot-dragging on embracing the CPS.

What is CPS?


Pension is an arrangement to provide people with an income when they are no longer earning a regular income from a gainful employment. Pension is different from severance pay or gratuity as it is paid in regular installments, while severance pay and gratuity are paid in one lump sum.

Before the commencement of the CPS in 2004, it was a herculean task for retirees to access pension benefits.

However, with the CPS, accessing pension benefits have been easy. The CPS is a pension system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each employee in Nigeria.

The main purpose of the pension reform is to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
As such, the CPS applies to any employee in the public and private sector.

How does the CPS works?
The CPS is mandatory for employers. It is contributory as both employer and employee are to contribute. The employee contributes minimum of eight percent while the employer contributes minimum of 10 percent.

In essence, the CPS is fully funded as from the onset. Fund is set aside to fully meet future retirement liabilities.
Also, each contributor will open an individual Retirement Savings Account, RSA, which is privately managed by a Pension Fund Administrator, PFA, while the funds are kept in the custody of Pension Fund Custodian, PFC.

The CPS also provides for a group life insurance cover, which is three times the employee’s emoluments and the premium is paid by employer. However, this comes up only in the event of death of the individual.

The CPS is strictly regulated by the National Pension Commission, PenCom. PenCom safeguards the scheme by creating a ring fence through the separation of the custody of the contribution from administration of the pension assets.

PenCom sets investment limits and risk taking as well as segregation of pension funds from assets of operators, even as it carries out daily monitoring of investment of pension funds.
The role of the PFA

The PFA is in charge of registration of pension contributors. In essence, the PFA is in charge of RSA administration and investments of pension funds. The PFA is also in charge of retirement benefits administration.
Model for pension contribution

The eight percent employee contribution and 10 percent employer contribution, which make up minimum 18 percent monthly remittance is sent to the PFC. The PFC notifies the PFA who then give investment instructions.

Access to retirement benefits

A retiree can access his retirement benefits through programmed withdrawal or annuity. However, persons who are still working but lose their jobs and could not secure employment within four months can access up to 25 percent of the RSA balance.

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