Under the National Pension Commission’s (PenCom) rules for the Contributory Pension Scheme, Nigerian workers can access part of their retirement savings while still employed, but only under specific circumstances.
The scheme requires monthly contributions from both employers and employees to a Retirement Savings Account (RSA), primarily intended to provide pension income at retirement. However, certain situations allow for early withdrawal.
One key provision applies to workers who lose their jobs and remain unemployed for at least four months. In such cases, individuals may withdraw up to 25 per cent of their RSA balance, provided they submit a formal acceptance letter of resignation or disengagement from their employer.
PenCom’s Q4 2022 report revealed that the commission approved N6.31 billion in withdrawals (25% of RSA balances) for 9,966 RSA holders under 50 years who had been disengaged from employment and unable to secure new jobs within four months.
In addition to mandatory contributions, employees can make voluntary contributions to their RSAs, which provide further flexibility but are subject to taxation. Current guidelines classify 50 per cent of voluntary contributions as ‘contingent’, available for withdrawal, while the other 50 per cent remains locked until retirement to supplement pension income. Withdrawals from the contingent portion are subject to income tax.
Informal-sector workers, including self-employed individuals or those working in very small firms, are covered under the Micro Pension Plan. After at least three months of contributions, they may withdraw up to 40 per cent of their RSA savings, with the remaining 60 per cent reserved for retirement, extending pension benefits to Nigerians outside traditional formal employment.
Another route for early access is using RSA savings for the equity portion of a home mortgage. Eligible RSA holders may apply up to 25 per cent of their RSA balance to fund home equity, including tapping the contingent portion of voluntary contributions.
While these provisions provide flexibility and support goals such as home ownership, experts caution that early withdrawals reduce the funds available at retirement, potentially lowering future monthly pension payments. Those who tap both job-loss withdrawals and mortgage-equity funds may face only modest pensions in old age.
