PenCom Approves 50% Lump Sum Withdrawal for Retirees Under the Contributory Pension Scheme

The National Pension Commission (PenCom) has issued a directive allowing retirees under the Contributory Pension Scheme (CPS) to access up to 50% of their Retirement Savings Account (RSA) balance as a lump sum upon retirement, provided they meet specific conditions. This was communicated in a Guidance Note on the Revised Programmed Withdrawal Template Version 2, sent to Pension Fund Administrators (PFAs).

Key Highlights of the Revised Directive:

1. Increased Lump Sum Accessibility:
   Retirees can now withdraw up to 50% of their RSA balance as a lump sum if the remaining balance is sufficient to:
   • Procure an annuity or fund a programmed withdrawal that guarantees not less than 50% of their annual remuneration as of the date of retirement.
2. Removal of Retirement Age Limitation:
   The revised template eliminates the retirement age cap, allowing retirees aged 65 years and above to access the CPS benefits. This update accommodates retirees from diverse sectors of the economy, especially those who retire later in life.
3. Eligibility Criteria:
   The new rules apply only to:
   • Employees retiring under the CPS who have not yet been programmed as of the release date of the revised template (i.e. December 2024).
   • Retirees choosing either the Programmed Withdrawal (PW) or the Retiree Life Annuity (RLA) option at retirement as of the release date.
4. Standardized Calculation Process:
   PenCom has introduced a structured approach to calculating retirement benefits, which includes:
   • Lump sum, monthly/quarterly pensions, and pension arrears, using variables such as:
     • Age
     • Gender
     • Final salary
     • RSA balance
     • Pension arrears
     • The A55 adjusted mortality table for eligible retirees.

Objectives of the Revised Guidance Note:

PenCom’s updates aim to:

• Enhance flexibility and ease of access for retirees under the CPS.
• Promote fairness by ensuring retirees can maximize their retirement savings while maintaining adequate long-term income security.
• Simplify and streamline the retirement benefit calculation process for PFAs to ensure consistency and accuracy.

The new guideline is expected to provide more flexibility for retirees while ensuring they still have sufficient savings to support their retirement years. Retirees are encouraged to consult their respective PFAs for detailed guidance on accessing their benefits under the revised framework.