There are signs that workers’ claims that the Contributory Pension Scheme (CPS) results in a low pension are untrue, and that those who register in the plan can get extremely large pensions upon retirement.
Sources claim that certain conditions may influence whether CPS contributors will receive a high or low pension in retirement. The good news is that employees can make a difference in the circumstances if they wish to receive larger pensions.
Experts in Nigeria’s pension system, particularly with regard to the CPS, confirmed the concerns expressed regarding low pensions, especially for retirees from the public sector, who frequently earn less than their private sector counterparts. These experts spoke on the condition of anonymity.
One of the experts offered insight into scenarios in which enrollees would receive low pensions upon retirement, saying, “There are multiple factors contributing to the issue of low pensions under the CPS.” The amount of your pension as a retiree is directly correlated with the contributions you made while you were employed.
The Pension Reform Act 2014 (PRA 2014) requires the employer to pay 10% and the employee to contribute 8% of the employee’s monthly remuneration, or a minimum of 18%, to the Retirement Savings Account (RSA). This is merely a minimum, though.
Both parties have the option to raise the contribution rates, or your employer may choose to assume full responsibility for the mandated or higher contribution rate. In the latter case, you would receive a larger pension upon retirement.
“You are probably going to get a small pension if you left the CPS early, particularly if it was only a few years after the exit started on July 1, 2007.” Limited cumulative pension funds result from a shorter CPS membership time.
This problem will go away once the CPS, which has been around for 20 years, gains more traction. Some retirees, on the other hand, only made a few contributions prior to ending their active service, which prevented them from accruing enough to qualify for larger pensions. This was a transitional problem that would go away when the plan gets more established.
As you retire, you can take a lump sum withdrawal of some of your pension resources. Nevertheless, there is an inverse link between pension and lump sum withdrawals: the bigger the lump sum, the lower the pension, and vice versa.
It is advisable that you weigh the long-term viability of monthly payments against the immediate lump sums. Ensuring timely pension payments is the main goal of Nigeria’s pension reform, which aims to eliminate old age poverty.
With the flexibility provided by the CPS, you can make choices that will directly affect your pension savings. For example, if you have a long work history, you can choose to invest in an aggressive fund inside the Multi-Fund Structure, which could result in a larger pension. The choice of your PFA is another important consideration.
Transferring your RSA from one PFA to another can also help you receive better service and provide higher profits. It is crucial to remember that withdrawals from your RSA prior to retirement may result in a smaller monthly income upon retirement. Examples of these withdrawals include equity contributions for residential mortgages and temporary job losses.
“The PRA 2014 paves the way for higher pensions by permitting businesses to set up Additional Benefits Schemes, or ABS, which give their staff members more retirement benefits, such as gratuity payments.
“The CPS has not eliminated the giving of gratuities to employees, despite what some people may believe. Contrary to popular belief, you can actually choose from a number of options to obtain a large pension under the CPS.
