By Victor AhiumaYoung

Indications have emerged that workers’ insinuations that Contributory Pension Scheme, CPS, leads to low pension are unfounded and that enrollees of the scheme can earn very high pension at retirement.

According to sources, there are prevailing circumstances that can determine whether contributors under the CPS could earn high or low pension at retirement. The good news is that irrespective of the situation, workers that want to earn higher pensions can influence the situation.

Experts in the pension administration in Nigeria especially on the CPS , who on condition of anonymity, among others acknowledged the concerns raised about low pensions, particularly among public sector retirees, who often have lower pay compared to those in the private sector. 

Giving insight into situations where enrollees could earn low pensions at retirement, one of the experts said 

“The issue of low pensions under the CPS can be attributed to several factors. As a retiree, the amount of pension paid to you is directly related to the contributions made during your working years. The Pension Reform Act 2014 (PRA 2014) mandates a minimum of 18 percent of the employee’s monthly emolument to be contributed to the Retirement Savings Account (RSA) by the employer (10 percent ) and the employee (8 percent). 

However, this is only a minimum. The contribution rates can be increased by both parties, or your employer may decide to bear the full responsibility of the prescribed or higher contribution rate, which would result in higher pensions when you retire. 

“If you retired early under the CPS, especially few years after the commencement of the exit from 1 July 2007, you are likely to have low pensions. A shorter period of participation in the CPS leads to limited accumulated pension savings. As the CPS gathers more momentum having been in existence for 20 years now, this issue will abate. However, some retirees have had a short contribution period before leaving active service, resulting in insufficient accumulation for higher pensions. This was a transitional challenge, which would no longer be a significant issue as the scheme matures.

“You are allowed to withdraw a portion of your pension savings as a lump sum upon retirement. However, pension and lump sum withdrawals have an inverse relationship: the higher the lump sum, the lower the pension, and vice versa. You are advised to balance immediate lump sums with the long-term sustainability of monthly payments. The primary objective of the pension reform in Nigeria is to ensure timely payment of pensions to prevent old age poverty. 

“The CPS offers flexibility, allowing you to make decisions that directly influence your pension savings. For instance, if you have many years to work, you may benefit from choosing an aggressive investment fund within the Multi-Fund Structure, potentially leading to higher pensions. Another crucial decision is the selection of your PFA. 

“You can also transfer your RSA from one PFA to another for better service quality and improved returns. However, it is important to note that withdrawals from your RSA before retirement, such as in cases of temporary job loss or as equity contributions for residential mortgages, can reduce the size of your monthly pension at retirement.” 

“The PRA 2014 provides the path to increased pensions by allowing employers to establish Additional Benefits Schemes , ABS, providing enhanced retirement benefits, including gratuity payments, to their employees. 

“Contrary to misconceptions, the CPS has not abolished the payment of gratuity to employees. The fact is, there are various options available for you to receive high pension under the CPS, contrary to the misconception being circulated.”