An integral feature of the Contributory Pension Scheme (CPS) is the provision of social security through benefits payments during temporary job loss. This innovative measure mitigates the impact of unexpected unemployment on Retirement Savings Account (RSA) holders and helps alleviate the broader effects on the Nigerian economy. This social security for CPS participants underscores the scheme’s commitment to supporting individuals during challenging economic periods, promoting stability, and fostering resilience within the workforce.
The Pension Reform Act 2014 (PRA 2014) allows pension contributors to access 25 percent of the balance in their RSA due to a temporary job loss. 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 4 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 guaranteed 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 the fear of losing their retirement benefits.
The National Pension Commission (PenCom) approved the payment of N14.20bn to 8,651 RSA holders who were disengaged from work in the first quarter of 2024. The beneficiaries were under 50 years old and did not secure jobs within four months of their disengagement. From the inception of the CPS to the end of March 2024, Pension Fund Administrators (PFAs) paid N238.19bn to 518,850 RSA holders who sought to access 25 percent of their RSA balances due to temporary loss of employment.
Accessing 25 percent of RSA balance in the event of a temporary job loss offers several significant benefits. It provides financial support to RSA holders facing temporary unemployment, helping them cover essential expenses such as rent, utilities, and other living costs during the period of job loss. The withdrawal option cushions the financial impact of job loss, reducing the stress and anxiety associated with sudden unemployment and enabling individuals to maintain financial stability.
Significantly, accessing a portion of the RSA balance ensures that individuals can continue to maintain their standard of living and meet basic needs while seeking new employment opportunities.
In addition, by accessing funds from the RSA, individuals can avoid falling into debt or resorting to high-interest loans to sustain themselves during the period of unemployment. By supporting individuals during temporary job loss, the CPS contributes to economic recovery by reducing the negative impact of unemployment on households and communities.
Furthermore, having access to financial resources during unemployment can positively impact mental health and well-being, reducing stress and promoting resilience.
PenCom’s swift and impactful response to the financial needs of unemployed 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.
However, 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 at retirement. Therefore, the RSA is unlike the 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 per cent access for temporary job loss.
Notably, an employee who had accessed his RSA balance due to job loss is expected to resume pension contribution once he secures another employment by providing his new employer with his RSA details. Overall, accessing 25 percent of the RSA balance in the event of temporary job loss under the CPS provides essential financial relief and support, fostering economic stability and individual resilience in challenging times.