The contributory pension scheme (CPS) stands as a cornerstone in Nigeria's efforts to secure retirement benefits for its citizens.
The contributory pension scheme stands as a cornerstone in Nigeria’s efforts to secure retirement benefits for its citizens. The primary goal of the Pension Reform Act 2014 is to ensure individuals save adequately for their post-employment years. Central to this scheme is the provision for lump sum withdrawals upon retirement, aimed at providing retirees with financial stability while receiving periodic pensions.
The retiree also has the option of programmed monthly or quarterly withdrawals or a retiree life annuity purchased from a life insurance company with monthly or quarterly payments.There is a misconception that the lump sum is fixed at 25 percent of a retiree’s RSA balance. This is far from the reality. In line with the provisions of the PRA 2014, the National Pension Commission issued a revised regulation on the administration of retirement and terminal benefits.
Under the CPS framework, retirees must maintain a balance in their RSAs sufficient to secure monthly pensions equivalent to 50 perecnt of their last salary. The remaining funds can be withdrawn as a lump sum, offering flexibility while ensuring long-term financial security during retirement.The template permits an RSA holder to withdraw a lump sum ranging from a minimum of 25 percent to a maximum of 50 percent of the RSA balance.
It is important to note that the primary objective of the CPS is to replace a retiree’s salary with periodic pensions. Consequently, some retirees choose not to withdraw a lump sum in favour of securing higher monthly pensions. This approach ensures a more stable and consistent income stream during retirement.Experience has shown that retirees who opt for large lump sum withdrawals often face financial challenges post-retirement.
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