Pension Act 2004

Till June 2004, Nigeria had operated especially in the general public sector, a defined reward pension scheme, which was mostly unfunded and non-contributory. The procedure was characterized as fork out-as-you-go (PAYG) plan considering the fact that retirees had been to be supported not by their past contributions but once-a-year budgetary provisions so the enormous accumulation of pension financial debt, which was estimated at far more than one particular trillion naira.

Next the evident collapse of the general public sector pension plan, as evidenced by the countless numbers if not hundreds of thousands of inadequate, embittered retirees manufactured in excess of the decades and an equally big number of small-altered private sector workers, the authorities of Nigeria acted sensibly to reform the process with the Pension Act in 2004.

The coming into power of the Pension Reform Act in 2004 has been hailed as a hugely workable answer to the issue of pension, which for most workers now, stays the likely source of earnings in their retirement a long time.

The new pension scheme arrived to substitute the past outlined benefit plan. The new scheme is outlined contribution scheme, which is contributory in mother nature, generating it obligatory on businesses and personnel (in the general public sector and non-public sector corporation with 5 or much more personnel) to add 7.5% each individual of the emoluments of the worker into a Retirement Personal savings Account (RSA).However, for the armed service, the contribution price is 2.5% with the government contributing 12.5%.

Less than the aged defined advantage plan, no contributions have been manufactured, and projections had been demanded to be built of the pension entitlements of every personnel by the employer, with such projections becoming identified by the employee’s decades of service and earnings. Therefore, the obligations are effectively the personal debt obligation of the employer, which assumes the danger of owning insufficient resources to satisfy the contractual payments that need to be created to retired workers.

However, beneath the defined contribution plan, the employer is dependable only for generating unique contributions on behalf of qualifying individuals. Nevertheless, the employer does not promise any specific amount of money in retirement. The payment that will be produced to qualifying participants on retirement will rely on the development of the scheme belongings. The key goal of the scheme is to accumulate enough resources to make certain normal every month payments to the contributor immediately after he or she retires.

A contributor has the alternative to possibly obtain an annuity from an insurer or draw immediate payment from his Retirement Financial savings Account (RSA) balance to an insurance provider in exchange for a certain every month or quarterly payment for an agreed period of time this could be risky in that such payment could halt when the retiree dies.

On the other hand, you can have an arrangement for programmed withdrawals from your Retirement Personal savings Account (RSA), which could warranty everyday living long payment and a lump payment to a contributor’s survivors in circumstance of dying prior to the funds operate out. The plan also provides allowance for bulk payment to allow a retiree acquire a property or start a business enterprise delivered the stability on the contributor’s Retirement Savings Account (RSA) could fund a monthly payment for the relaxation of the contributor’s lifetime that is not considerably less than 50 % of the contributor’s final salary.

For case in point, if your whole contribution to a RSA quantity to N20,000 for each month for a period of time of 20years at an regular once-a-year return of 10% and lifestyle right after retirement is envisaged to be 25yrs.You would have gathered about N15,000,000 and this entitles you to a month to month payment of about N138,000 for that interval.

Allow us think you now retire with a every month final income of N150, 000 and would like a lump sum payment, which usually means, you will want to present for a monthly retirement benefit of N75, 000, you can hence take a lump sum of N12.9 million or retirement dependent on cash gathered.
However, for a human being who stars out early to lead the exact same volume for 40a long time at the exact same fee of returns would have accumulated N126 million in his or her RSA and would be entitle to a regular monthly payment of N1.1 million.

Given that the defined contribution plan encourages labour current market flexibility, the worker is no cost to transfer with his or her account as he or she moves to an additional location of work and or residence. Ultimately, the immediate contribution scheme is think to have the potential to create good financial externalities, which includes the advertising of further, extra aggressive, and much more liquid economic market place.


The pension fund directors and pension fund custodians are to hold and control the contributions up until the time a contributor retires at the age of 50yrs or higher than. The regulation of the plan is offered by the pension commission to reduce abuses and safeguard the funds under management. However, care ought to be taken in deciding upon a PFA (Pension Fund Administrator) to regulate your Retirement Personal savings Account. Most of the Pension Fund Administrators are fundamentally star-ups, however all are connection to one particular group of economic establishment or a further, these types of as banking companies and coverage corporations.

Attributes this kind of as a demonstrated knowledge of massive fund management, transparency and integrity as well as purchaser assistance difficulties need to be consider. A small investigation into the antecedents and report of accomplishment of the operator establishments and their directors would enable in making the proper choices. Keep in mind that no employer can force any workers to use a distinct Pension Fund Administrator, whilst the regulation allows a contributor to suitable any error of preference by transferring his or her account from one particular Pension Fund Administrator to a different once a calendar year devoid of acquiring to give causes.