Status of Minimum Pension under Contributory Pension Scheme March 2023

April 4, 2023April 4, 2023 PensionNigeria

The National Pension Commission (PenCom) has provided an update on Minimum Pension under the Contributory Pension Scheme (CPS) in its report.

The Minimum Pension guarantee will ensure that a minimum amount is paid as pension to all retirees under the Contributory Pension Scheme. This means that even when a retiree has withdrawn all the balance in his/her Retirement Savings Account (RSA) the retiree will still continue to receive a Minimum Pension until the RSA holder is deceased.

PenCom disclosed that it has incorporated the input from the Pension Fund Operators (PFOs) on the draft Regulation on Pension Protection Fund and the Regulation is currently under-going approval process. PensionNigeria expects PenCom to release the Regulation once it is approved.

PenCom had earlier disclosed that it has also determined the financial implication and other modalities for the successful implementation of the Pension Protection Fund (PPF). PenCom said the determination of the financial implication and other modalities are very important because they were preparatory to concluding the requisite Framework and Guidelines for the eventual implementation of the Minimum Pension Guarantee (MPG).

The Regulation on Pension Protection Fund (PPF) and the Guidelines for the implementation of the Minimum Pension Guarantee (MPG) are crucial for the implementation on Minimum Pension under CPS.

PensionNigeria notes that Minimum Pension has been in the Pension Reform Act since inception of the Contributory Pension Scheme in 2004 and its implementation has been expected for ages, we hope it will be fully implemented soonest.

Section 71(1) of PRA 2004 states that “All retirement savings account holders who have contributed for a number of years to a licenced pension fund administrator shall be entitled to a guaranteed minimum pension as may be specified from time to time by the Commission.”

Section 84 of Pension Reform Act 2014 states that, “All Retirement Savings Account holders who have contributed to a licensed Pension Fund Administrator for a number of years to be specified by the Commission shall be entitled to a guaranteed minimum pension as may be specified from time to time by the Commission.”

While we await the implementation of Minimum Pension under CPS, we have information on the amount proposed for minimum pension, how it will be funded, when it could be implemented and what PenCom is currently doing for retirees in the absence of Minimum Pension.

Amount Proposed for Minimum Pension under CPS

In September 2015, National Pension Commission (PenCom) released the Draft Guidelines for the Implementation of the Minimum Pension Guarantee (MPG). The draft said that the Minimum Pension for retirees under CPS shall be an absolute amount which is equivalent to 80% of the National Minimum Wage but the minimum pension rate is subject to review by PenCom from time to time, based on the prevailing minimum wage and sustainability. 80% of current national minimum wage is N24,000, but the amount could be reduced further by PenCom if the projections reflect that the amount is not sustainable.

How will Minimum Pension be funded under CPS?

Minimum Pension under CPS will be funded by the Pension Protection Fund (PPF). The PPF will be funded by the Federal Government, National Pension Commission (PenCom), Pension Fund Administrators (PFAs) and Closed Pension Fund Administrators (CPFAs).

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When will Minimum Pension be implemented under CPS?

PenCom has not officially confirmed when minimum pension will be implemented under CPS, but considering the fact that PenCom has now confirmed that the Regulation is currently under-going approval process, we expect the implementation of Minimum Pension under CPS to commence before the end of the year.

What is PenCom currently doing for retirees under CPS in the absence of Minimum Pension?

The National Pension Commission (PenCom) has implemented Pension Enhancement for retirees, Continuation of pension for retirees with Zero RSA balance and increase in amount for Enbloc Withdrawal.

Pension Enhancement for retirees

Pension enhancement for retirees is an increase in the amount a retiree receives as monthly or quarterly pension. Retirees on programmed withdrawal whose Retirement Savings Accounts (RSA) have accumulated significant growth have had their monthly pension increased. PenCom has carried out three editions of pension enhancements for retirees under CPS, the maiden edition was in December 2017, the second was in February 2020 while the third edition commenced in February 2023 and will be concluded by 31 July 2023.

Continuation of pension for retirees with Zero RSA balance

The National Pension Commission (PenCom) directed Pension Fund Administrators (PFAs) to continue paying pension to retirees, whose Retirement Savings Accounts (RSAs) balance became zero due to payment of monthly pension, from the provision made by the PFA for Pension Protection Levy, pending the implementation of the Minimum Pension Guarantee. Based on the draft guidelines, such retirees will be reverted to minimum pension once the draft guideline, is finalized.

Enbloc Withdrawal

Retirees under the Contributory Pension Scheme (CPS) are allowed to withdraw all the balance in their Retirement Savings Account (RSA) En-bloc, where the RSA balance cannot provide a monthly/quarterly pension or annuity of at least one third of the prevailing minimum wage, ie N10,000 at current minimum wage of N30,000. Based on the above, retirees have confirmed been able to withdraw about N1,000,000 enbloc. Prior to this provision, En-bloc payments were pegged at N500,000, however, this has become inadequate due to varying economic realities. Based on the draft guidelines, a retiree eligible for Minimum Pension Guarantee shall not be paid Enbloc.

Eligibility for minimum pension shall not be automatic, we shall dive extensively into this once the Guidelines on Minimum Pension Guarantee (MPG) and Regulation of Pension Protection Fund (PPF) are released.

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