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Destiny .M. George
- 6 Min Read
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What Happens To Your Pension When You Change Jobs In Nigeria?
In Nigeria, pension schemes are a crucial part of the financial security plan for employees, ensuring that after years of work, they have a reliable source of income during retirement. However, the question that often arises for many Nigerian employees is: "What happens to my pension when I change jobs?" Understanding how pensions work when transitioning between employers is vital for ensuring that your financial future remains secure, regardless of job changes.
The Nigerian Pension Scheme: A Quick Overview
The Nigerian pension system has undergone significant reforms in the past two decades, mainly driven by the Pension Reform Act (PRA) of 2004 and its subsequent amendments, including the Pension Reform Act of 2014. This law established the Contributory Pension Scheme (CPS) as the standard for both public and private sector employees. The scheme involves both the employee and employer making monthly contributions toward the employee’s retirement savings account.
For employees in the private sector, the scheme is mandatory for all companies with more than three employees. The contribution rate is typically set at 18% of an employee’s monthly salary, where 8% is contributed by the employee, and the employer contributes the remaining 10%. For government employees, the contributions are slightly different, but the essence remains the same — to build a secure financial future for employees after retirement.
Now, let’s delve into what happens to your pension when you change jobs in Nigeria.
1. Transfer of Pension Funds Between Employers
When you change jobs in Nigeria, the first thing to understand is that your pension funds do not disappear with your old employer. One of the significant advantages of the Contributory Pension Scheme is that it is individual-based, meaning your pension savings are tied to you personally, not your employer. Your contributions, as well as the employer’s contributions, are paid into a Retirement Savings Account (RSA) that is managed by a Pension Fund Administrator (PFA) of your choice.
If you are switching jobs, you can easily transfer your RSA from the old employer’s PFA to the new one. The key steps involved in this process include:
Notifying the new employer: When you join a new company, you should inform the employer of your existing RSA. Most employers will ask for the details of your previous RSA to ensure that your pension contributions are properly accounted for.
RSA Transfer Process: After notifying the new employer, they will initiate the process of transferring your RSA from the old PFA to the new one. This transfer can be done electronically, and the funds in your account remain intact. Both employers will ensure that there is a smooth transition.
No loss of pension benefits: Since the contributions are stored in your RSA, changing employers does not result in the loss of your pension contributions or benefits. This transfer system ensures that your savings are secure, and you don’t lose any benefits due to job transitions.
2. What if You Don’t Transfer Your Pension Fund Immediately?
In some cases, you may not immediately transfer your pension funds from your previous employer’s PFA to your new employer’s PFA. This situation could arise for several reasons, such as:
Delayed or Complex Transfer Process: Sometimes, due to administrative challenges or delays, the transfer of pension funds may take longer than expected. In such cases, your funds remain intact with the previous PFA until the transfer is completed.
Non-compliance by Employers: If your new employer does not immediately make contributions to your pension scheme or is slow in registering your new RSA, your funds will still be held in your previous PFA, and you can continue to access your retirement benefits.
It is important to note that although you can continue to access your pension funds and benefits, it is advisable to ensure that the transfer process is completed as soon as possible. Delays in transferring funds can cause you to lose track of your pension contributions and could lead to complications when it’s time to retire.
3. What Happens to Unpaid Contributions?
In some cases, employees may leave their jobs with unpaid contributions, either from the employer’s side or from their own personal contributions. When you change jobs, there are several things to keep in mind regarding unpaid contributions:
Employer’s Unpaid Contributions: If your employer has failed to make the required contributions into your RSA, you have the right to pursue the employer for the unpaid contributions. The National Pension Commission (PenCom) regulates these contributions, and employers are legally obligated to remit both the employee's and employer’s share of pension contributions into the employee’s RSA.
Employee’s Unpaid Contributions: If you, as an employee, have not consistently contributed to your pension scheme, the situation is a little more complicated. The law requires employees to contribute a portion of their salary to the pension fund, and failure to do so may result in penalties or fines. However, in the event of unpaid personal contributions, the employee can try to rectify the situation by making backdated contributions if necessary.
4. What Happens to Your Pension if You Leave the Workforce Temporarily?
Sometimes, an employee may leave the workforce temporarily due to reasons such as further studies, medical leave, or personal choice. If you decide to pause your career temporarily but intend to return to work at a later stage, your pension savings remain intact. The important thing to note is that your RSA continues to grow based on the contributions made up until that point.
However, during the period when you are not employed, your RSA will not receive any new contributions unless you choose to make voluntary contributions. The good news is that your accumulated pension savings will continue to grow with interest, and once you return to the workforce, your contributions will resume from your new employer.
5. What Happens If You Choose Not to Transfer Your Pension?
Although transferring your pension funds to your new employer is the best option, there may be instances where an employee decides not to transfer the pension funds. This decision can have long-term consequences, and employees should carefully consider the implications. Some of the consequences of not transferring your pension include:
Difficulty in Accessing Pension Funds: If you do not transfer your pension to a new employer’s PFA, it could become challenging to keep track of your pension savings. This could create administrative difficulties when you eventually retire, leading to delays in accessing your pension.
Lost Interest or Earnings: Over time, not transferring your pension savings could lead to missed opportunities for additional earnings or interest that you might have accrued had your funds been properly invested by a new PFA.
Penalties or Fees: There might be certain fees or penalties involved for not properly transferring or maintaining your pension savings, depending on your specific PFA.
6. The Role of the Pension Fund Administrator (PFA)
The Pension Fund Administrator (PFA) plays a critical role in the transfer process. When you change jobs, the PFA is responsible for ensuring that your pension savings are handled appropriately, whether it’s transferring to a new RSA or managing your existing pension funds.
It is advisable to maintain a good relationship with your PFA and ensure that you stay informed about your pension account. Regularly monitoring your account statements, checking for any discrepancies, and ensuring that your contributions are properly made are essential steps for managing your pension savings effectively.
Conclusion
Changing jobs in Nigeria does not mean you have to lose your pension savings. With the Contributory Pension Scheme, your pension contributions remain securely tied to you, regardless of your employer. By following the appropriate procedures for transferring your pension funds to a new PFA, you ensure that your pension savings continue to grow, keeping your retirement plans on track.
It is essential to stay proactive and ensure that your pension contributions are properly tracked during job changes, address any unpaid contributions, and keep informed about your pension fund’s status. In doing so, you can maintain your financial security for the future, no matter where your career path takes you.
