It is a contributory, fully funded, and privately managed pension scheme that is based on individual accounts. It has been designed to ensure that benefits are paid to all retired workers. Its unique features include a mandatory contribution by employers and employees and the separation of pension administration/management from custody. This separation minimizes the possibility of mismanagement and fraud by operators, as Pension Fund Administrators (PFA) and Pension Fund Custodians (PFC) cannot be related. Furthermore, a new government body (PenCom) has been set up to effectively regulate and supervise all operators in the pension industry.

Does the New Scheme affect every worker in Nigeria?

No. The Scheme will not affect those with 3 years or less to retirement, judicial officers under section 291 of the Nigerian Constitution and State Government employees. However, the New Scheme affects all other employees in the Federal Public Service, the FCT and the private sector with 5 or more employees. It is however voluntary for other categories of employees.

What is the difference between a Pension Fund Administrator ("PFA") and a Pension Fund Custodian ("PFC")?

A PFA is a licensed entity responsible for managing and investing pension contributions while the PFC is responsible for holding pension contributions and assets in safe custody in trust for employees and to the order of the PFA. Authorised paid-up capital for a PFA is N150 million whilst a PFC should have a minimum net-worth of N2 billion.

Can my employer force me to use a PFA of its choice?

No. You have a right to choose a PFA although responsible employers might offer advice and guidance to their staff.

Can I change PFAs?

Yes. Employees can change PFA once a year.

What is the Government's role?

The Government's role is confined to that of ensuring a successful pension industry by setting up the regulator - National Pension Commission ("PenCom").

What are some of PenCom’s functions?

Pencom (The National Pension Commission) has the following functions:

• Regulate and supervise pension schemes
• Formulate, direct and oversee pension affairs in Nigeria
• Approve, license and supervise PFAs and PFCs
• Maintain National Databank on Pension matters
• Receive and investigate complaints against PFAs, PFCs and employers.

Can I use my RSA as a collateral for a loan?

No. You cannot use your RSA as collateral to obtain a loan.

Can organisations with less than 5 people participate?

Yes. But participation is optional for these categories of people.

What ensures the safety of my contributions?

The separation of investment administration and management from custody is global best practice. This minimizes the possibility of mismanagement and fraud by operators, as PFA & PFC cannot be related. Custodians are required to separate pension assets from their own assets to eliminate commingling of funds. Furthermore, PenCom will also effectively regulate and supervise all operators in the pension industry.

Contributions under the Act are tax deductible under income tax law for both employers and employees. Also retirement benefit is not taxable.

How do I monitor my contributions?

Every employee opens a Retirement Savings Account ("RSA") with a PFA of his/her choice. The PFA is responsible for issuing periodic statements of account showing how much is contributed as well as returns on investment generated from the contributions.

What happens to my RSA and contributions when I change employers?

Your RSA remains with you for life and a change of employers does not affect your account. However, you will have to notify a new employer of the PFA that manages your RSA with your details and the PFC account number. The new employer will then remit your contributions to your RSA.

How do I protect my contribution from inflation?

The responsibility of choosing a PFA should be taken seriously. The selected PFA should possess requisite investment expertise to achieve reasonable long-term returns on investment without excessive risk.

What happens to my contributions if my PFA winds up business?

Nothing. The assets are transferred to another PFA.

What about Nigeria Social Insurance Trust Fund ("NSITF")?

You are no longer compulsory to contribute to NSITF. Previous contributions will be held by NSITF from commencement of the Act. The funds credited to the temporary RSA will remain with the PFA of NSITF for 5 years from the commencement of the Act. Thereafter, each beneficiary is free to transfer these funds to his/her actual RSA with the chosen PFA.

What ensures the safety of my contributions?

The separation of investment administration and management from custody is global best practice. This minimizes the possibility of mismanagement and fraud by operators, as PFA & PFC cannot be related. Custodians are required to separate pension assets from their own assets to eliminate commingling of funds. Furthermore, PenCom will also effectively regulate and supervise all operators in the pension industry.

Can I give my PFA instructions on how to invest my funds?

No. The investment decisions are solely made by the PFA under broad guidelines from PenCom. This therefore underscores your need to choose a PFA with an impeccable track record.

When can I access my benefits under the New Scheme?

At age 50 or upon retirement, whichever is later.

Can I take all my money at once when I retire?

No. A lump sum withdrawal is permitted provided that what is left is sufficient to procure an annuity from a Life Insurance Company or fund a programmed withdrawal that will generate at least 50% of your last salary at retirement on a monthly or quarterly basis for your expected life span. However, for early retirement, a lump sum of 25% of the balance in the RSA is permitted.

What happens to my contribution when I die?

Your entitlements will be paid to the beneficiary under a will OR to your spouse and children OR in the absence of a wife and child, to your recorded next-of-kin OR any person designated by you during your life time OR in the absence of such designation, to any person appointed by the Probate Registry as the administrator of your estate.

Who will pay me when I retire?

The PFA will instruct its PFC to make payments to you upon retirement from your RSA as specified in the Act and on a basis agreed with you under a programmed withdrawal. Under an annuity arrangement, payments will come from the insurance company.