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  • Writer's pictureDamilola Agubata

7 Benefits of the Contributory Pension Scheme You Wish You Knew Earlier

As an employee living and working in Nigeria, you’ve probably heard of the Contributory Pension Scheme (CPS). While you may know how it affects you, there are a lot of benefits that come with it that you do not know about — yet.

This blog post will focus on the benefits of the CPS for workers like you and me so I advise you to stick around to the end.

What is the concept of the Contributory Pension Scheme (CPS)?

The Contributory Pension Scheme (CPS) is an arrangement where both the employer and the employee contribute a portion of an employee's monthly earnings towards the payment of the employee's pension at retirement.

When was the Contributory Pension Scheme (CPS) established?

The CPS was established in June 2004 by the Pension Reform Act (PRA) 2004, which was repealed and reenacted in July 2014.

How is it different from the Defined Benefits Scheme (DBS)?

Under the CPS, both the employer and employee contribute certain percentages of the employee's monthly emoluments to build a retirement fund from which benefits are paid at retirement while under the Defined Benefits (DB) Scheme, the employer is solely responsible for the employee’s retirement fund contributions.

What is the main objective of CPS?

The main objective of the CPS is to ensure that every person who worked in either the public or private sectors in Nigeria, including self-employed persons, receives his/her retirement benefits as and when due.

What are the features of the Contributory Pension Scheme (CPS)?

Here are the basic features of the CPS:

It is contributory:

Both the employer and employee are obligated to contribute towards the employee’s retirement. The employer is mandated to contribute a minimum of 10% while the employee is mandated to contribute a minimum of 8% to the employee’s Retirement Savings Account (RSA).

It is fully funded:

The Contributory Pension Scheme is a pension scheme that has

sufficient assets to fully pay the retirement benefits of its members at all times.

Individual Retirement Savings Account (RSA):

Each employee owns an individual Retirement Savings Account (RSA).

Privately managed:

It is privately managed by the Pension Fund Administrators (PFAs) under the custody of Pension Fund Custodians (PFCs).

Provision of Group Life Insurance:

It creates room for group life insurance for employees.

7 Benefits of the Contributory Pension Scheme You Wish You Knew Earlier. Credit: Oak Pensions
7 Benefits of the Contributory Pension Scheme You Wish You Knew Earlier. Credit: Oak Pensions

How do I know if I am eligible for the Contributory Pension Scheme?

The CPS mandatorily covers employees in the:

  • Public Service of the Federation

  • Federal Capital Territory

  • States

  • Local Governments and private sector organizations with

  • 3 or more employees.

Those who are not covered by the CPS are:

  • Judicial Officers

  • Members of the Armed Forces

  • The Intelligence and Secret Services of the Federation;

  • Retirees under any pension scheme existing before 30 June 2004; and employees who had 3 or fewer years to retire as of 30 June 2004.

You can voluntarily participate in the CPS if you are:

  • An employee of an organisation with less than 3 employees

  • Self-employed

However, you will participate through the Micro Pension Plan under the CPS.

You can also voluntarily participate in the CPS if you are:

  • A foreigner working in Nigeria

  • A Nigerian citizen working abroad

What are the benefits of the Contributory Pension Scheme (CPS)?

There are seven major benefits of the CPS. They are:

1. It is easy to open a Retirement Savings Account (RSA):

All you have to do is contact the PFA of your choice, stating your interest in opening a Retirement Savings Account and you’re headed on the journey to a beautiful retirement!

2. You can switch from one PFA to another:

When you leave a job for another employer and decide to change your PFA, it’s possible to switch to a new PFA of your choice.

3. The National Pension Commission (PenCom) regulates all activities:

You feel more relaxed knowing that no mischief can occur with your money because the National Pension Commission regulates everything, enforcing compliance and safeguarding the interests of pension contributors.

4. You are covered as a self-employed individual:

Many people, for a long time, believed that pension is only for corporate workers but the Contributory Pension Scheme covers self-employed business owners and entrepreneurs too.

5. Your pension contributions are invested to yield greater returns:

Perhaps the most important benefit of the CPS is that your PFA is obligated to invest your retirement funds in shares/stocks, bonds, money market instruments and alternative instruments.

6. You are free to increase your savings:

This is known as the Additional Voluntary Contributions (AVCs) and it helps you increase the value of your retirement savings.

7. You can withdraw your retirement savings for a mortgage:

Have you ever dreamed of becoming a property owner? You can fulfil your dreams with the CPS as there is an option to withdraw up to 25% of your pension fund to apply for a residential mortgage.

Key Takeaway: Take advantage now

Take advantage of these benefits and experience peace knowing that you are covered in retirement. The Contributory Pension Scheme (CPS) is here to stay.

Want to secure your retirement better? Transfer your RSA to Oak Pensions. Send us an email via or call the Marketing Manager at 09087448661.


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