How to calculate pension contribution in Nigeria
For all the people who do not know how to calculate pension contribution in Nigeria, we have your back. In this post, we are going to tell you everything you might want to know about pension contribution, how it works and how you will be able to use it in the future. Check this out and learn more!
How the current pension contribution scheme works
The pension contribution scheme exists so that every hardworking Nigerian is guaranteed to receive the pension they deserve when the time comes. It is regulated by the Pension Commission and designed in a way that your employer has no say in how your pension should be invested and paid to you.
As of today, workers are supposed to contribute 8% of their salary every month. However, when calculating this 8%, you only need to take into account your Basic + Housing + Transport (BHT) allowance and not the whole salary.
In addition to this, your employer has to contribute 10% of your salary (calculated in the same way) each month on your behalf. This means that at least 18% (your 8% and employer’s 10%) need to go to your Retirement Savings Account by the end of each month.
A lot of people are curious whether they can contribute more to their pension fund. It turns out that it is entirely possible! If you want, you can contribute more than just 8%, and if your employer has a heart of gold, they can contribute the whole 18% for you. You can also contribute a lump sum in case you have some extra money that you do not know what to do with.
Another thing you might want to know is whether this contribution is taxable. As a matter of fact, it is not. However, this only applies to the mandatory contribution. When it comes to voluntary contributions, they are taxable upon withdrawal if the withdrawal is made less than five years after the contribution was made.
There are two categories of people exempted from paying the pension contribution, although only one of them is still relevant. That is because the first category is for people that were to retire three years (or less) before 2004 (the year when the Pension Reform Act commenced). All those people have long been enjoying their retirement.
The second category refers to judicial officers and members of the Armed Forces. These two groups are not supposed to contribute to the pension scheme.
How you can access your pension contribution in Nigeria
By now, you might be wondering: how does one access the money in their pension fund? Well, you cannot withdraw from your retirement savings account until you are 50 years old, unless you retire:
- based on the decision from a qualified physician who states that you are no longer capable (mentally or physically) of carrying out your functions at work:
- due to a permanent disability, be it of your mind or your body;
- before you are 50 but in accordance with your employment’s terms and conditions. This includes people who have lost their jobs or have been fired, but they can only withdraw money 6 months after they are fired.
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Once you retire or reach the age of 50, you can decide how the money is paid to you. You have a few options to choose from. You can:
- withdraw money on a monthly/quarterly basis;
- get paid monthly/quarterly by the National Insurance Commission if you purchase life annuity;
- withdraw a lump sum if there is enough money left for you to withdraw later in the future (the lump sum should be from 25 to 50% of the money in your retirement account);
- be paid 25% of the money from your retirement savings account if you have been fired or lost your job, provided that six months have passed and you have not been able to find another job (after you get the 25%, you cannot access the rest until you reach retirement age).
What will happen with your pension fund if you go missing or even die? If you go missing and you could not be found within a year since you were declared missing, the board of inquiry set up by the Commission will presume that you are dead.
If you are dead or presumed dead, your retirement money will be paid to the beneficiary you mention in your will, your spouse and child (children) or your next of kin.
To sum up, your pension contribution consists of 8% of your BHT allowance paid by you and 10% of your BHT allowance paid by your employer. You can also pay more than that, or your employer can cover the whole amount. The retirement fund can be accessed after you are 50 (unless it is an exception), and you decide for yourself how you want to access it. We hope we have been able to clarify this topic for you.
READ ALSO: How to calculate PAYE in Nigeria?
Source: Legit.ng
