Micro-Pension for Self-Employed Retirement Plan: What You Need to Know
The National Pension Commission (PENCOM) defines Pension as a regular income received by a person at retirement when he/she stopped working because of having reached a certain age or based on health condition in order to cater for his/her needs at old age.
Many Nigerians actually think pension is for people that earn salaries from pay employment. Retirement planning is broader than providing coverage for few people. Self-employed people are also allowed to plan for their future retirement plans with micro-pension scheme.
- What is Micro Pension Plan? Micro Pension Plan refers to an arrangement under the Contributory Pension Scheme (CPS) that allows the self-employed and persons working in organisations with less than three (3) employees to make financial contributions towards the provision of pension at their retirement or incapacitation.
- Why Micro Pension? Micro Pension guarantees secured future through steady income at retirement. It reduces old age poverty and the process is easy, simple and flexible.
- Has the Micro Pension Plan been successful in other Countries? Yes, Micro Pension Plan has been successful in countries like Ghana, Kenya and India.
- Is the mandatory Contributory Pension Scheme different from the Micro Pension Plan? The mandatory pension and Micro Pension Plan are arrangements under the Contributory Pension Scheme (CPS). The only difference between the two is the nature of participation.
Thus, the mandatory pension is obligatory for all eligible employees and both the employer/employee contribute towards the payment of the employee’s pension at retirement. Micro Pension on the other hand is voluntary and solely funded by the contributor.
- Who can participate in the Micro Pension Plan? A Micro Pension prospect must: a) Be a Nigerian, not below 18 years of age; b) Have a legitimate source of income; c) Belongs to trade/association/profession; and d) May be self-employed or an employee of an organization with less than three employees with or without a formal employment contract.
- Can one have more than one Retirement Savings Accounts? No. A contributor can only have one Retirement Savings Account (RSA) in his/her lifetime.
- Can an individual in the formal sector who already has an RSA also participate in the Micro Pension plan? No. An individual who is contributing under the mandatory pension arrangement cannot participate in the Micro Pension Plan.
- How do I register/enroll for Micro Pension Plan? An eligible Micro Pension contributor can enroll/register through any Pension Fund Administrator (PFA) of his/her choice, obtain and complete the Retirement Savings Account (RSA) Opening Form either physically or electronically.
A unique Personal Identification Number (PIN) would be issued to the registered contributor.
- Where do I locate the Pension Fund Administrator (PFA) of my choice? The detailed list and addresses of all Licensed Pension Fund Administrators (PFAs) can be accessed via National Pension Commission’s website www.pencom.gov.ng.
- Who will manage and keep custody of funds accumulated under the Micro Pension Plan? The Pension Fund Administrator (PFA) manages and invests funds accumulated under Micro Pension Plan on behalf of the contributor, while the Pension Fund Custodian (PFC) keeps the fund and assets in safe custody.
- What measures have been put in place by the National Pension Commission to safeguard the funds under the Micro Pension Plan?
There is effective monitoring and supervision of the Plan by the Commission through daily monitoring of the Plan asset and investment decisions made by Pension Fund Administrators to ensure that their decisions are in line with relevant laws and Investment Regulations issued by the Commission.
- Is there a provision for the guarantee of the safety of Plan assets under the Micro Pension Plan? Yes. The Pension Fund Custodian (PFC) has provided full guarantee of the total pension assets under its custody. Thus, any kobo lost will be refunded by the Custodian.
- Do contributions in the Micro Pension Retirement Savings Account generate income? Yes. PFAs invest all pension contributions and all income from such investment activities are credited into the RSA of the contributor.
- Would my Contributions under the Micro Pension Plan be subject to any taxes? No. Subject to Regulations issued by the Commission, all interests, dividends, profits, investments and other income accrued to Micro Pension Fund and assets are not taxable.
- Can I decide which financial instruments my contributions should be invested in? No. Investment decisions are made by the Pension Fund Administrators in line with Investment Regulations issued by the National Pension Commission.
- Is the Micro Pension Plan different from a savings account maintained with a Commercial Bank? Yes. Micro Pension Plan is different from savings account maintained with a Commercial Bank because any savings made under the plan can only be withdrawn as monthly pension after retirement.
On the other hand, savings made with Commercial Banks can be withdrawn anytime as the need arises.
- What is the minimum amount of contribution acceptable under the Micro Pension Plan? There is no stipulated minimum amount of contribution under the Micro Pension Plan because it is dependent on the Contributor’s pension aspiration and financial capacity. Thus, higher contributions will result in more money available for pension.
- How often can one contribute under the Micro Pension Plan? Contributions can be made daily, weekly, monthly or as may be convenient to the contributor and shall be subject to reporting requirements under the Money Laundering (Prohibition) Act.
- How can I make contributions under the Micro Pension Plan? Contribution under the Micro Pension Plan can be made by cash deposit or electronic transfer through any payment platform, or other financial service agents approved by the Central Bank of Nigeria (CBN).
- Can a Contributor use his Micro Pension Plan Account as collateral for a loan? No. Micro Pension Plan account cannot be used as collateral for a loan.
- Can a Contributor access an amount from his RSA in excess of his Micro Pension Plan Account balance and repay over a period? No. A Contributor cannot access an amount in excess of his/her Micro Pension Plan account balance because the Pension Reform Act 2014 prohibits such transaction.
- How do I access my RSA under the Micro Pension Plan? A contributor can access the balance in his/her RSA through two means namely; Contingent withdrawal and Retirement benefit withdrawal.
- What is Contingent withdrawal? It is the withdrawal of that portion of the RSA balance (contributions plus returns on investment) made available for withdrawal to ease financial pressures or needs of the Micro Pension contributor before his/her retirement.
- What is Retirement withdrawal? It is the withdrawal of that portion of the RSA balance that the Micro Pension Contributor shall be eligible to access as monthly pension upon retirement in accordance with the Regulation for the Administration of Retirement and Terminal Benefits.
- How do I withdraw my contingent portion? A Micro Pension Contributor can withdraw an amount from his/her contingent portion by applying to his/her Pension Fund Administrator (PFA) in a prescribed format.
- For how long will an individual contribute before he/she can assess the contingent portion? A Micro Pension Contributor shall be eligible to access the contingent portion of the balance of his/her RSA three (3) months after making the initial contribution. Subsequently, he/she can make withdrawals once in a week, from the balance of the contingent portion of the RSA.
- How long does it take to receive payment from my contingent contribution? The Pension Fund Administrator is mandated to approve and pay the amount requested from the contingent portion within 48 hours of application for withdrawal.
- What happens if the Micro Pension Contributor gets a formal employment? The Micro Pension Contributor who secures a formal employment shall notify his/her PFA for conversion into the mandatory pension. The Micro Pension contributor shall also retain his/her existing RSA to be used for the mandatory pension.
- What is the retirement age of Micro Pension Contributor? A Micro Pension Contributor shall retire upon attaining the age of 50 years or on health grounds. However, a Micro Pension Contributor can choose to extend his retirement age beyond 50 years.
- How do I access my contributions after retirement? A Micro Pension contributor shall, upon retirement, access his/her retirement benefits through either Programmed Withdrawal or Life Annuity.
- What is programmed withdrawal? Programmed withdrawal is a mode of benefits withdrawal by which a Micro Pension retiree receives pension through his Pension Fund Administrator (PFA) on a periodic basis, that is, monthly or quarterly.
- What is Annuity? Annuity is a method of receiving pension by a retiree through a contract purchased from a Life Insurance Company. It provides a guaranteed periodic income (pension) to a retiree throughout his/her life after retirement.
- What is the length of the Annuity Guaranteed Period? The Retiree Life Annuity is guaranteed for 10 years. Thus, if a retiree dies before 10 years, the balance of the equivalent monthly pension to complete the remaining period up to 10 years would be paid to his/her beneficiaries.
Where the retiree dies after the guaranteed ten years period, nothing would be paid to the beneficiaries.
- What happens to the balance in the Micro Pension Contributor’s RSA in the event of death? The balance in a Micro Pension Contributor’s RSA shall, in the event of death, be paid to the legal heirs of the deceased/contributor as may be appointed by a Will or Letter of Administration granted by a Probate Registry or as may be directed by a court of competent jurisdiction in the State of residence of the deceased contributor, as the case may be.
- Can I participate in the Micro Pension Plan upon retirement from my job in the formal sector? No. Micro Pension Plan only allows for conversion from Micro Pension Plan to the Mandatory Contributory Pension.
Micro-Pension for Self-Employed Retirement Plan: What You Need to Know