Retirement from active employment is inevitable. At some point, an employee will have to retiree either voluntarily or statutorily. At retirement, the most important thing for a retiree is his or her entitlements in form of gratuity or/and pension.

A retired worker who has duly maintained an RSA under the CPS is entitled to a monthly pension after attaining the retirement age.

There are instances where a person could be retired even before attaining the age of 50 years. This can be due to:

- Voluntary retirement
- Compulsory retirement
- Retirement due to contractual terms and conditions.

However, if any of the above-mentioned 3 reasons form the basis of retirement, such an employee will not receive monthly pension payment. The only entitlement receivable is 25% “lump sum” if applied for. The remaining balance will be held in the RSA balance until the RSA holder attains the age of 50 years old.

To qualify for a monthly pension under the CPS, the following conditions must be met:

- The balance in the RSA is more than N550k.
- The RSA holder is not less than 50 years old.
- The RSA holder has duly retired from active service.

If these conditions above are met, then the RSA holder is qualified to earn monthly pension according to the PRA 2014.

**How the monthly pension payment is calculated **

A retired worker under the CPS is qualified to receive monthly pension payment if after retirement he or she is 50 years and above and has more than N550k (as stated above). To calculate the monthly pension payment, the PFAs are guided by PenCom regulations.

However, if any of the above-mentioned 3 reasons form the basis of retirement, such an employee will not receive monthly pension payment. The only entitlement receivable is 25% “lump sum” if applied for.

**How the monthly pension payment is calculated**

A qualified retired worker under the CPS is qualified to receive monthly pension payment if after retirement he or she is 50 years and above and has more than N550k (as stated above). To calculate the monthly pension payment, the PFAs are guided by PenCom regulations.

The following are usually considered when the final monthly receivable pension is calculated by the PFA:

1. Age at retirement

2. Balance in RSA at retirement

3. Latest salary received before retirement

4. Other factors eg life expectancy**Let’s take a look at a practical example below**

Mr R who is 60 years old has retired from active employment and is due for monthly pension. His last monthly salary is N120,000. Mr. R RSA balance as at the time of retirement is N6,000,0000. How much monthly pension is Mr R going to receive.?

**Answer:**

Mr R is qualified to receive monthly pension because he is older than 50 and has more than N550k in his RSA.

Before, any calculation is done, the following must be established:

a) that Mr R will get a lump sum of at least 25% and maximum of 50% of his RSA balance.

b) that Mr R monthly pension should not be less than N60,000 (ie 50% of his last salary) although this depends on how large enough his RSA balance is.

c) that the monthly receivable pension should last the number of years he is expected to receive monthly pension as calculated by the PFA. Note that a retiree is expected to receive pension for life. Notwithstanding, there are other factors that is put into consideration especially if the RSA balance is not much.

In our example, the following assumptions will apply:

a) Mr R will receive a lump sum of N3m maximum (ie 50% of his total balance). This is because his RSA balance can accommodate the maximum 50% allowable.

b) Mr R monthly pension is expected to be N60,000 ie half of his last salary before retirement.

This is arrived at by considering the following:

1) His life expectancy is estimated to be 70 years.

2) His RSA balance is enough to receive a monthly pension of N60,000.

3) The estimated annual growth rate is expected to be 10%.

In conclusion, he will get the following at retirement:

a) a lump sum of N3m

b) a monthly pension of N60,000.

Note that the balance in his RSA is expected to continue to grow as this is being reinvested into profit-yielding investment products by the PFA. Therefore, if he lives even above the expected 70 years, there will still be funds available in his RSA to continue to pay his pension provided the cumulative annual growth rate does not fall below the assumed rate.

**NB: **The above example is clearly for illustration purpose. This is likely to be different in real-life situation as the PFA mode of computation would be slightly different from the example given above.

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