Retirement from active employment becomes inevitable. At some point, an employee will have to retire, either voluntarily or by statute. At retirement, a retiree’s entitlements in the form of gratuity or/and pension become the most important concern.

A retired worker who has maintained an RSA under the CPS is entitled to a monthly pension after attaining the retirement age.

There are instances where a person could be retired even before reaching the age of 50 years. This can happen due to:

– Voluntary retirement

– Compulsory retirement

– Retirement due to contractual terms and conditions.

However, if any of the above-mentioned three reasons constitute the basis of retirement, such an employee will not receive monthly pension payment. The only entitlement receivable is a 25% “lump sum” if applied for. The remaining balance will be held in the RSA balance until the RSA holder attains the age of 50 years old.

To qualify for a monthly pension under the CPS, the following conditions must be met:

– The balance in the RSA is more than N550k.

– The RSA holder is not less than 50 years old.

– The RSA holder has duly retired from active service.

If these conditions are met, then the RSA holder qualifies to earn a monthly pension according to the PRA 2014.

A retired worker under the CPS qualifies to receive monthly pension payment if after retirement he or she is 50 years and above and has more than N550k. To calculate the monthly pension payment, the PFAs are guided by PenCom regulations.

However, if any of the above-mentioned three reasons constitute the basis of retirement, such an employee will not receive monthly pension payment. The only entitlement receivable is a 25% “lump sum” if applied for.

A qualified retired worker under the CPS is entitled to receive monthly pension payment if after retirement he or she is 50 years and above and has more than N550k. To calculate the monthly pension payment, the PFAs are guided by PenCom regulations.

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The PFAs usually consider the following factors when calculating the final monthly receivable pension:

- Age at retirement
- Balance in RSA at retirement
- Latest salary received before retirement
- Other factors such as life expectancy

Let’s take a practical example:

Mr. R, who is 60 years old, has retired from active employment and is due for monthly pension. His last monthly salary is N120,000. Mr. R’s RSA balance at the time of retirement is N6,000,000. How much monthly pension is Mr. R going to receive?

Answer:

Mr. R is qualified to receive a monthly pension because he is older than 50 and has more than N550k in his RSA.

Before any calculation is done, the following must be established:

- a) Mr. R will get a lump sum of at least 25% and a maximum of 50% of his RSA balance.
- b) Mr. R’s monthly pension should not be less than N60,000 (i.e., 50% of his last salary), although this depends on how large his RSA balance is.
- c) The monthly receivable pension should last for the number of years he is expected to receive monthly pension as calculated by the PFA. Note that a retiree is expected to receive a pension for life. Nonetheless, other factors are considered, especially if the RSA balance is not substantial.

In our example, the following assumptions will apply:

- a) Mr. R will receive a lump sum of N3m maximum (i.e., 50% of his total balance) because his RSA balance can accommodate the maximum 50% allowable.
- b) Mr. R’s monthly pension is expected to be N60,000, i.e., half of his last salary before retirement.

This is arrived at by considering the following:

1) His life expectancy is estimated to be 70 years.

2) His RSA balance is enough to receive a monthly pension of N60,000.

3) The estimated annual growth rate is expected to be 10%.

In conclusion, he will get the following at retirement:

- a) a lump sum of N3m
- b) a monthly pension of N60,000.

Note that the balance in his RSA is expected to continue to grow as it is reinvested in profit-yielding investment products by the PFA. Therefore, if he lives even above the expected 70 years, there will still be funds available in his RSA to continue to pay his pension provided the cumulative annual growth rate does not fall below the assumed rate.

NB: The above example is purely for illustration purposes. Real-life situations may differ as the PFA’s mode of computation may vary slightly from the example given above.