Understanding the Contributory Pension Scheme

Understanding the Contributory Pension Scheme

The Contributory Pension Scheme, CPS, which commenced in July 2004, seeks to, amongst others, ensure that every worker receives his retirement benefits as and when due.

Hence, pension contributions is the total contributions of both employer and employee from July, 2004 to the month of retirement based on applicable grade level/step, salary structure and income earned on the contributions.

Features of the CPS Contributory in nature:
The CPS is contributory in nature. This means that the employer will contribute 10 percent, while the employee will contribute 8 percent to make up the 18 percent minimum monthly contribution. An employer may however elect to contribute the entire 18 percent on behalf of its employees. In addition, voluntary contributions are allowed.

Mandatory in nature:
The CPS is mandatory for employees of the Federal Government, the Federal Capital Territory (FCT) and private sector organizations with three or more employees.

Fully funded:
From onset fund is set aside to fully meet future retirement benefits of contributors.

Individual Retirement Savings Account (RSAs): Personalized and portable with the aid of Personal Identification Number, PIN.

Strict regulation:
The CPS is strictly regulated and supervised by National Pension Commission, PenCom and is private sector driven.

Separation of functions:
There is separation of functions of the Pension Fund Administrators, PFAs, and Pension Fund Custodians, PFCs. PFAs administer the funds while PFCs hold pension funds in the names of the contributors.
Contributions are remitted into individual Retirement Savings Account (RSA) and fully funded.