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Types Of Retirement Under the CPS


Jul 14, 2021
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By: PensionTalk

There are different ways an employee can retire under the Contributory Pension Scheme (CPS). When an employee retires, he or she will have access to either a part of or a whole of his or her pension entitlement.

Typically, a worker is deemed to have attained the retirement age upon which he or she can then access the pension benefits in the Retirement Savings Account (RSA). Notwithstanding, a worker under the CPS can also be deemed to have retired even before the age of 50 years and will still be able to access funds in his or her RSA.

The following are the various types of retirement under the CPS and the types of pension benefits accessible by the RSA holder under each type.

  • Mandatory Retirement
  • Compulsory Retirement
  • Retirement on Medical grounds

Mandatory Retirement

According to the regulations for the administration of retirement and terminal benefits, mandatory retirement shall be when an employee disengages from active service at the retirement age or completion of the length of service based on the terms of his/her employment, after attaining the age of 50 years.

This means that when an RSA holder retires according to his employment terms and has attained the age of 50 years and above, then he or she has retired under the mandatory type of retirement. In practice, the common retirement age in both the private and public sectors is between 60 to 70 years.

When an employee retires mandatorily, he or she will have access to the full benefits available to retirees which include lump-sum payment and periodic pensions.
However, where the total value of his or her RSA balance is not more than N 550,000, then he will be paid the whole amount en bloc.

Compulsory Retirement

Compulsory retirement occurs where the RSA holder retires or disengages from active service (voluntarily or non-voluntarily) in accordance with the terms and conditions of his employment but before attaining the age of 50 years.

Under this type of retirement, an employee can decide to retire voluntarily of his or her own volition. Also, the employee can be disengaged from employment due to other reasons which are non-voluntary e.g. retrenchment, sack, etc and this is another form of compulsory retirement as long as it is in line with the terms and conditions of his or her employment.

Compulsory retirement whether voluntary or not occurs before the employee is below the age of 50 years.

As a consequence, because the employee retires or disengages before the age of 50 years, he or she will only have access to a maximum of 25% of his RSA balance (on application) and the rest will be accessible when he or she attains the age of 50 years, which is considered to be the legal retirement age under the CPS.

Retirement under medical grounds

An employee can also be disengaged from employment based on the advice of a suitably qualified physician or medical board when he or she is no longer mentally or physically fit to carry out his or her official functions or due to total or permanent disability.

An employee who has been suitably certified by qualified medical personnel or has a total or permanent disability either of mind or body can retire on these grounds and when they do, can begin to access the funds in his or her RSA.

If this occurs before the age of 50 years, the RSA holder will have access to only 25% of the RSA balance, otherwise, if the RSA holder is 50 years or older, he or she will be to access the full balance in the RSA spread between the lumpsum payment and periodic pensions or en bloc payment as the case may be.

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