Pension Insight: The contributory pension scheme — a superior choice for modern times | TheCable
Firstly, let us clarify the fundamental difference between the two systems. Under the defined benefits scheme, retirement benefits are predetermined based on factors such as years of service and final salary. In contrast, the CPS requires employees and employers to make regular contributions to an individual retirement savings account . The accumulated funds are then invested, and the retirement benefit is determined by the value of the account at the time of retirement.
One of the primary advantages of the CPS is its sustainability in the face of demographic shifts. As life expectancy and birth rates increase in Nigeria, the burden on traditionally defined benefits systems becomes unsustainable. With a contributory system, the retirement benefit is directly linked to the individual’s contributions and investment returns. This ensures that the pension system remains financially viable, even as the population ages.
The National Pension Commission developed strong investment guidelines underscoring fair returns and the safety of pension funds. PFAs strictly adhere to these guidelines, ensuring a steady growth of pension assets. As of March 2023, total pension assets stood at15.58 trillion and still growing.
Significantly, the CPS ensures timely payment of pension, which was one of the objectives of the pension reform in Nigeria. From the inception of the CPS to March 2023, a total of 326,248 pensioners on programmed withdrawal have been paid14.66 billion as monthly pension.
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