Introducing Personal Pension Plan in Nigeria: Everything You Need to Know

Before its introduction in 2014 by the Pension Reform Act (PRA), many Nigerians working in the informal sector had virtually no access to retirement savings. There was no structure in place that allowed informal sector workers such as artisans (tailors, barbers, gold smiths, etc.), influencers, anyone who was self-employed or worked in small organizations with less than 3 employees to properly plan for retirement because they were not covered by the Contributory Pension Scheme (CPS). This often led to many cases of old age poverty, and a general lack of support for retirees in the informal sector, who make up a larger percentage of Nigeria’s working population.

To bridge this gap, the National Pension Commission (PenCom) introduced the Micro Pension Plan (MPP) in 2019, offering informal workers a flexible way to save for their future. However, with adoption lagging, PenCom recently restructured and rebranded the initiative as the Personal Pension Plan (PPP), a more inclusive, convenient, digitalized, and globally adaptable scheme designed for modern realities. Now also covering formal sector workers that want to make additional contributions to their existing pension.

How does the Personal Pension Plan work?

The Personal Pension Plan (formerly Micro Pension Plan) is a voluntary, flexible pension scheme that enables individuals, whether self-employed, informal employees, or individuals earning income from freelance or digital work to build sustainable retirement savings at their own pace. The introduction of the Personal Pension Plan also consolidates Additional Voluntary Contributions (AVC) which are extra contributions made by formal sector workers looking to grow their retirement savings beyond the mandatory contributions made by their employers into their Retirement Savings Account, thus expanding the scope of the original MPP beyond just informal sector workers.

The plan is administered by licensed Pension Fund Administrators (PFAs) like CardinalStone Pensions with contributions held by Pension Fund Custodians (PFCs) under the strict regulation of the National Pension Commission (PenCom). This structure ensures safety, transparency, and accountability.

One of the most innovative features of the PPP is its 50/50 split structure:

• 50% Contingent Portion: Automatically, 50% of the personal pension contribution is set aside to satisfy any short-term needs that might arise for PPP contributors. After making contributions for at least three months, you can withdraw from this portion a maximum of two times in any calendar quarter.
• 50% Retirement Portion: This portion is locked up and can only be accessed at retirement (at age 50 or above), or in cases of health-related emergencies. This structure ensures that you still have a reliable pool of savings to depend on in your later years.

Another key feature of PPP is that it enables parents or guardians to give their children under eighteen a head start on building their pension savings. Parents can register and make contributions on the behalf of their ward provided these contributions are made solely by the parent or legal guardian until they reach the age of 18. At 18, ownership can then be relinquished to the ward upon a written request from the parent, giving their child a headstart on their retirement plan.

Benefits of the Personal Pension Plan

1. Flexible Contributions: Unlike the contributory pension plan, you can decide how much to contribute and at what frequency. This flexibility makes it ideal for business owners, artisans, and freelancers with unpredictable income streams to contribute at no fixed contribution schedule while formal employees looking to grow their retirement savings can also make additional contributions as agreed with their employer.
2. Safety and Transparency: Contributions are securely managed by PFAs and safeguarded by PFCs, under PenCom’s oversight. You can be rest assured that your funds are not at risk of being mismanaged by employers, individuals, or even your PFA of choice.
3. Access to Savings: With up to 50% available for partial withdrawals, contributors can manage emergencies while still building long-term, tax-free retirement savings provided the withdrawal is made at least five years after contributions begin.
4. Financial Inclusion: The PPP is specifically designed to cover millions of Nigerians previously excluded from pension systems, giving them a structured path to financial security at old age.
5. Retirement Dignity: By accumulating savings over time, contributors are financially empowered at old age, reducing reliance on family members or social assistance.
6. Tax Benefits: Pension contributions paid into the PPP come with tax benefits. Thereby providing an additional financial advantage to contributors.

As more Nigerians embrace the plan, the ripple effect could transform not just individual lives but the broader economy because the older generation will have a larger financial safety net and not have to become a burden to their loved ones when they inevitably retire from active service or are no longer able to work.

In the unique case where retirees choose to make PPP contributions, they can still access their accumulated funds every 5 years, subject to approval by their PFA. The Personal Pension Plan in Nigeria is an important step toward ensuring that no one is left behind in retirement planning. By combining flexibility, security, and accessibility, it provides a practical way for millions of informal sector workers to secure their financial future and gives formal sector workers a way to contribute more to their retirement fund.

If you’re self-employed, work in a small business or just want to give your future self the robust retirement they deserve for all their hard work, all you need to do is to open an RSA with CardinalStone Pensions. The process is seamless, and we offer more than just retirement savings, we’ll also make sure your wealth grows depending on your risk appetite.

• Our PPP Conservative Fund (Fund 5A) focuses on preserving your capital while generating stable returns. It is low-risk, and designed for individuals who want safety, minimal fluctuations, and steady but modest growth by investing in low-risk instruments such as government bonds and high-grade fixed-income securities.
• Alternatively, the PPP Growth Fund (Fund 5B) offers higher long-term returns to grow your capital, potentially earning higher returns. Although it is medium to high risk, it offers individuals who want higher growth and can tolerate market fluctuations a chance to exponentially grow their savings by investing more in equities (stocks) and other growth-oriented assets.

By default, your PPP contributions will be invested in the conservative fund, but upon your request, you can be transferred to the Growth Fund which is higher risk but also has the potential for higher returns. This could be one of the smartest financial decisions you’ll ever make. With small, consistent contributions today, you can guarantee a more secure and dignified tomorrow.

So, as the holiday season begins, don’t let Detty December stop you from Saying YES to the soft life you deserve at retirement, with CardinalStone Pensions today.

• New to personal pensions? Start Your Personal Pension contributions with us
• Already have a RSA? Transfer to CardinalStone Pensions for better value and service
• Questions? Call us at +234 906 000 1020 or email pensions@cardinalstone.com