How CPS helps with Financial Security amidst Job Loss Challenges
In a sustained stride towards ensuring the financial security of workers under the Contributory Pension Scheme (CPS), the National Pension Commission (PenCom) approved the disbursement of N20.35 billion to 21,549 Retirement Savings Account (RSA) holders who were disengaged from work in the first half of 2023. The action demonstrates PenCom’s dedication to upholding the rights of Retirement Savings Account (RSA) holders in the event of a temporary job loss, as stated in the Pension Reform Act of 2014 (PRA 2014).
The PRA 2014, a visionary piece of legislation, introduced a vital provision allowing pension contributors under 50 years to access 25 percent of their RSA balance in case of temporary job loss. This provision aims to provide a financial cushion to individuals who face the unfortunate circumstance of job loss. Temporary job loss, as stipulated by the PRA 2014, is recognised when an employee remains unemployed for four months after disengagement.
Crucially, Section 7 (2) of the PRA 2014 states that “where an employee voluntarily retires, disengages, or is disengaged from employment as provided for under Section 16 (2) and (5) of the PRA 2014, the employee may, with the approval of the Commission, withdraw an amount of money not exceeding 25% of the total amount credited to his RSA, provided that such withdrawals shall only be made after four months of such retirement or cessation of employment and the employee does not secure another employment.”
The above provision of the PRA 2014 is one of the novel changes made by the CPS. Unlike the old Defined Benefits Scheme (DBS), which left many employees who lost their jobs without retirement benefits, Section 7(2) of the PRA 2014 guarantees financial security to employees under the CPS as they have their RSA balances to fall back on in case of temporary job loss. It is pertinent to note that RSAs are individualised; therefore, account holders can change employers without fear of losing their retirement benefits.
The recent disbursement of N20.35 billion is a testament to the forward-thinking nature of the PRA 2014 and PenCom’s proactive approach to safeguarding the financial well-being of disengaged workers. This move not only addresses immediate financial concerns but also reflects the overarching goal of fostering financial security for those who are unemployed but unretired.
From the inception of the CPS to the end of June 2023, PenCom has approved N208.86 billion in respect of 475,235 requests from individuals seeking to access 25 percent of their RSA balances due to temporary loss of employment. The approvals were granted to PFAs after the Commission authenticated that the RSA holders who lost jobs were under 50 and could not secure another job four months after their disengagement. A breakdown of the approvals in the first half of 2023 showed that during the first quarter, PenCom approved PFAs to pay N12.72 billion to 13,126 RSA holders who were disengaged from employment. In the second quarter of 2023, PFAs paid N7.63 billion to 8,423 RSA holders regarding job losses.
Furthermore, the PRA 2014 provides that where an employee has accessed the 25 percent for temporary loss of job, such employee shall subsequently access the balances in the retirement savings account only at the time of retirement.
Notwithstanding the provision of Section 7(2) of the PRA 2014, it is pertinent for RSA holders to understand that the CPS is designed to cater for life in retirement. Therefore, the RSA is unlike a regular savings account with a commercial bank, where a customer deposits and withdraws funds at any time. Consequently, all withdrawals from an employee’s RSA are based on conditions allowed under the PRA 2014, including the 25 percent access for temporary job loss.
In conclusion, PenCom’s swift and impactful response to the financial needs of unwaged RSA holders underscores the importance of a progressive and adaptable regulatory environment. With its commitment to empowering workers, PenCom continues to pave the way for a more secure and promising future for all RSA holders. Notably, an employee who accessed 25 percent of his RSA balance due to job loss is expected to resume pension contributions once he secures another job by providing his new employer with his RSA details.
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