Under the National Pension Commission’s rules for the Contributory Pension Scheme, Nigerian workers may access part of their retirement savings while still employed, though only under specific conditions.
Under the scheme, both employers and employees contribute monthly to a Retirement Savings Account.
Normally, these savings are intended to provide a regular pension income at retirement; yet, certain circumstances enable early withdrawal.
One such condition applies when a worker loses his job and remains unemployed for at least four months.
In that scenario, the individual is eligible to withdraw up to 25 per cent of the balance in his RSA.
To qualify, the worker must present a formal acceptance letter of resignation or disengagement issued by his employer.
According to PenCom’s Q4 2022 report, the commission “granted approval for the payment of N6.31 billion (being 25% of their RSA balances) to 9,966 RSA holders under the age of 50 years, who were disengaged from employment and unable to secure another job within four months.”
In addition to mandatory savings, employees can make voluntary contributions to their RSAs, which offer further flexibility but are subject to rules and taxes.
Under current guidelines issued by PenCom, half of the voluntary contribution is classified as “contingent” (available for withdrawal), while the remaining 50 per cent is locked until retirement to supplement pension income.
Any withdrawal from this contingent portion is subject to income tax.
PenCom’s guidelines for Voluntary Contributions stated, “In line with Clause 3.13 above, (50%) of every amount lodged as Voluntary Contribution shall be treated as ‘contingent’ and available for withdrawal by a contributor while the balance of 50% shall be treated as ‘fixed’ until retirement date.”
Informal-sector workers — self-employed individuals or those employed by very small firms — are covered under the Micro Pension Plan.
PUNCH Online reports that after at least three months of contributions, they may withdraw up to 40 per cent of their RSA savings, with the remaining 60 per cent reserved for retirement.
This option opens pension access to Nigerians who lack traditional formal retirement benefits.
Another available route is using RSA savings to fund the equity portion of a home mortgage.
Under guidelines based on Section 89(2) of the Pension Reform Act 2014, eligible RSA holders may apply up to 25 per cent of their RSA balance to fund the equity portion of a home loan.
If they have made voluntary contributions, the “contingent” portion of those savings can also be tapped for the equity payment
While these features enhance flexibility and support goals like home ownership, experts warn they come with trade-offs.
Early withdrawals reduce the funds available at retirement, which could lower the monthly pension stipends.
Many of those who access both job-loss withdrawals and mortgage-equity funds may end up with only a modest pension at old age.
