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75% Lump-Sum proposal would harm contributors under the CPS – PenOp Warns


Mar 7, 2022
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The Pension Funds Operators Association of Nigeria (PenOp) has cautioned that a bill proposing a 75% lumpsum payment for retirees under the Contributory Pension Scheme (CPS) would harm contributors under the CPS.

It made the statement in response to a bill presently before the House of Representatives that would increase the lumpsum payable to retirees to at least 75% of their Retirement Savings Account (RSA) balance.

“While the idea to increase lumpsum payments to 75% may appear popular and laudable, it actually badly affects both the retiree and active contributors,” PenOp stated in a presentation.

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According to the operators, research has shown that when people who aren’t accustomed to receiving large sums of money are given a significant sum of money, they tend to spend it on consumption rather than productive activities.

“When huge rewards are granted to retirees, they will have no other options and will eventually become a liability to society,” PenOp added.

“If we are advocating for a larger lump sum payment of at least 75% as proposed under this bill, then we need to ask if the 25% remaining is enough to sustain you on a periodic basis for the rest of your time on earth,” it said, explaining that the pension balance is made up of what the worker saves plus investment returns. “The response is an emphatic no.”

It explained why workers should join the CPS early by stating that if both the employer and the employee pay consistently over time, the money in the individual’s RSA account will be adequate to provide a fair lump sum with enough funds remaining to earn a decent pension.

It was important to highlight, according to PenOp, that the CPS in its current state had contributed significantly to the development of a savings culture in Nigeria.

“Many Nigerians do not have any other type of savings, except through this contributory pension program,” the operators claimed.

“Rather than trying to undermine the system, we should be encouraging more of these saves as a society. Most Nigerian workers are unlikely to be able to save for their retirement years in any other way.”


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