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The Micro Pension Plan (MPP) and Its many benefits – Part 2

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In the second part of this article, we will look at the different ways contributions can be made into a micro pension plan account. You can read the first part of the article here.
 

How Are Contributions Made Into the MPP RSA?

The MPP contributor will be assigned a unique Personal Identification Number (PIN) by PenCom after successfully registering with the PFA. The Contributor can make contributions to his RSA account using the PIN, either with cash or through a CBN-approved payment channel.

The PFAs have agents in various regions who assist them in collecting contributions. Contributions to the MPP can also be made via electronic modes of payment. The PFAs normally offer the contributor instructions on how to deposit money into their RSA account.

Please note that every contribution that is made is charged an administrative fee, which is the total and final charge by the fund administrator. Any contribution that is less than ₦4,000.00 is charged a flat amount of ₦20.00 and all contributions from ₦4,000.00 and above is charged a flat amount of ₦80.00.

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Making Withdrawal From MPP RSA

To make a withdrawal from the MPP RSA account, the contributor has various options.
There are withdrawals allowed before retirement and there are those allowed only at retirement.
 

Withdrawals Allowed Before Retirement

Only the contingent fraction of an MPP contributor’s total contributions can be withdrawn from his RSA account before retirement. The contingency part is made up of 40% of the contributions set aside in the contributor’s RSA for a contingent purpose. The first withdrawal, however, can only be made three months after the original donation; after that, withdrawals can be made once a week.

If the contributor desires, the complete amount of the contingent component in the RSA account can be totally withdrawn.

Please keep in mind that withdrawing the contingent component of your contributions before the end of the 5-year period has tax implications. If the contingent portion of the contribution is withdrawn before the end of the 5-year period, it will be taxed under the applicable PITA Cap P8 LFN 2011.

In accordance with S10(4) of PRA 2014, the contingent component is treated as a voluntary contribution. More information on voluntary contributions and the applicable tax rate can be found in our previous piece.

A contributor can also transfer or convert the Contingent portion of his RSA account to the Fixed portion at the end of every year i.e. once a year. This is so allowed to enhance the fixed portion available at retirement.

In the same vein, a contributor can also transfer the balance in the Contingent portion of his RSA at retirement to form part of the total pension payment package. This is can also happen where the MPP contributor secures employment in the formal sector where his/her contributions will be moved to the appropriate fund under the CPS according to his/her age.

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Withdrawals Allowed Only At Retirement

An MPP contributor is allowed to withdraw the fixed portion of his contribution only at retirement. The Fixed portion represents 60% of all contributions set aside for retirement purposes. Retirement happens at the age of 50 years or on medical grounds duly certified by a qualified health professional.

No amount of the fixed portion is allowed to be withdrawn before retirement. This portion of the contribution is not subject to tax as it is tax-exempt, unlike the contingent portion that can be subject to tax if withdrawn before the end of 5 years of contribution.

It is important to emphasize that when an MPP contributor secures formal employment in the formal sector and intends to convert to formal pension funds under the mandatory CPS Multi-Fund structure, the PFA should be notified immediately. If the contributor fails to do so, the PFA has the authority to transfer the MPP contributor’s RSA balance to the relevant funds under the CPS Multi-Fund structure after the second contribution from the new employer is received, without waiting for the contributor’s instructions.
 
You can talk to your PFA to know more about their MPP services and ways they can help you further.

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