PenCom Outlines Conditions For Early Access To Pension Savings Under Contributory Scheme

The National Pension Commission (PenCom) has clarified that Nigerian workers enrolled in the Contributory Pension Scheme (CPS) can access part of their retirement savings before retirement, but only under specific circumstances.

Under the CPS, both employers and employees make monthly contributions into a Retirement Savings Account (RSA), which is primarily intended to provide a steady income after retirement. However, PenCom’s regulations allow limited early withdrawals in certain cases.

One key condition applies when a worker loses their job and remains unemployed for at least four months. In such cases, the affected employee may withdraw up to 25% of the balance in their RSA, provided they submit a formal letter of resignation or disengagement from their employer.

According to PenCom’s fourth-quarter 2022 report, the commission approved the payment of ₦6.31 billion—representing 25% of RSA balances—to 9,966 account holders below the age of 50 who lost their jobs and were unable to secure new employment within four months.

In addition to mandatory contributions, workers may also make voluntary pension contributions, which offer additional flexibility but are subject to specific withdrawal and tax rules. Under current guidelines, 50% of each voluntary contribution is treated as “contingent” and can be withdrawn before retirement, while the remaining 50% is “fixed” and reserved for post-retirement use. Withdrawals from the contingent portion attract income tax.

PenCom’s guidelines state: “Fifty per cent of every voluntary contribution shall be treated as contingent and available for withdrawal by the contributor, while the balance shall be fixed until retirement.”

The commission also caters to informal-sector workers—such as the self-employed and employees of small businesses—through the Micro Pension Plan. Under this scheme, participants may withdraw up to 40% of their savings after three months of contributions, while 60% remains preserved for retirement. This initiative extends pension coverage to Nigerians outside the formal workforce.

Another provision of the Pension Reform Act 2014 allows RSA holders to apply up to 25% of their savings toward the equity portion of a home mortgage. Contributors with voluntary savings may also use the “contingent” portion to support the equity payment.

While these options increase flexibility and promote goals like home ownership, pension experts caution that frequent early withdrawals can significantly reduce the amount available at retirement, potentially leading to smaller monthly pension payments.

They advise workers to weigh the long-term impact of accessing their RSA funds early, noting that doing so could diminish financial security in old age.