Status of Minimum Pension under Contributory Pension Scheme May 2021
The Federal Government has approved the adjustment in pensions of retirees under the Defined Benefit Scheme (Old Pension Scheme), arising from the implementation of the New National Minimum Wage Act 2019. The question that we have received most in the past week is how retirees under the new scheme, Contributory Pension Scheme with Pension Fund Administrators (PFAs) will benefit from Minimum Pension.
Mr Ekpo Nta, Acting Chairman of National Salaries, Incomes and Wages Commission (NSIWC), confirmed in statements after the release of the Circular on the consequential adjustment for retirees sequel to the new National Minimum Wage Act 2019, that the the review would not affect pensioners on the contributory pension scheme.
He said, this review is addressing those on the old pension scheme which is the defined pension scheme. He explained that the conditions of the contributory pension scheme were different from the defined scheme. He also said that the way it is arranged under this new pension scheme the worker can actually take out extra insurance (voluntary contribution) to cover himself or herself and his or her family in arrangement with their Pension Fund Administrator.
Minimum Pension under Contributory Pension Scheme (CPS)
Minimum Pension has not been concluded under CPS but we have information on the amount proposed, how it will be funded, when it could be implemented and what PenCom is currently doing for retirees in the absence of Minimum Pension.
Amount Proposed for Minimum Pension under CPS
In September 2015, National Pension Commission (PenCom) released the Draft Guidelines for the Implementation of the Minimum Pension Guarantee (MPG). The draft said that the Minimum Pension for retirees under CPS shall be an absolute amount which is equivalent to 80% of the National Minimum Wage. This is slightly higher than the approximately 78% of the National Minimum Wage which has been approved for the Old Pension Scheme.
How will Minimum Pension be funded under CPS?
Minimum Pension under CPS will be funded by the Pension Protection Fund (PPF). The PPF will be funded by the Federal Government, National Pension Commission (PenCom), Pension Fund Administrators (PFAs) and Closed Pension Fund Administrators (CPFAs).
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When will Minimum Pension be implemented under CPS?
PenCom has not officially confirmed when minimum pension will be implemented under CPS, but considering the fact that the Draft was released over 5 years ago and with the introduction of minimum pension for Old Pension Scheme, we expect the implementation of Minimum Pension under CPS to commence before the end of the year.
What is PenCom currently doing for retirees under CPS in the absence of Minimum Pension?
Pension Enhancement for retirees, Continuation of pension with Zero RSA balance and Enbloc Withdrawal
Pension Enhancement for retirees
Pension enhancement for retirees is an increase in the amount a retiree receives as monthly or quarterly pension. Retirees on programmed withdrawal whose Retirement Savings Accounts (RSA) have accumulated significant growth and who retired latest by December 2017, can have their monthly pension increased. You can read the publication here, retirees who are not sure if they qualify can contact their PFA to confirm.
Continuation of pension with Zero RSA balance
The National Pension Commission (PenCom) has directed Pension Fund Administrators (PFAs) to continue paying pension to retirees that have fully exhausted their RSAs from the provision made for Pension Protection Levy pending the implementation of the Minimum Pension Guarantee. Based on the draft guidelines, such retirees will be reverted to minimum pension once the Based on the draft guidelines, is finalized.
Enbloc Withdrawal
Retirees under the Contributory Pension Scheme (CPS) are also allowed to withdraw all the balance in their Retirement Savings Account (RSA) where the amount in their RSA is N550,000 or less. PenCom recently increased the amount to N1,700,000 but immediately suspended it, you can read about it here.
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Based on the draft guidelines, a retiree eligible for Minimum Pension Guarantee shall not be paid Enbloc. We are curious to see the path the industry will take on Enbloc Withdrawal when Minimum Pension is finalized under CPS, will the limit for Enblco Withdrawal be maintained, which will lead to more retirees qualifying for minimum pension, which is better for retirees on the long run but will put a strain on the Pension Protection Fund or will the limit be increased which will lead to less retirees qualifying for minimum pension.
Eligibility for minimum pension shall not be automatic, we shall dive extensively into this in our upcoming post on “Everything you need to know about Minimum Pension under Contributory Pension Scheme (CPS). We shall continue to monitor Minimum Pension under the CPS and provide updates accordingly.
Also read
FG approves New Minimum Pension for Pensioners
No DBS Pensioners will be Left Out of the Consequential Adjustment (Minimum Pension)
Full Circular released by National Salaries, Incomes and Wages Commission (NSIWC) on Consequential Adjustment in Pensions Arising From National Minimum Wage 2019
Is PTAD ready to go for payment of Minimum Pension Consequential Adjustment from National Minimum Wage 2019?
Status of Minimum Pension under Contributory Pension Scheme
All Minimum Pension News are available here
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