How to borrow from your pension fund in Nigeria

In Nigeria, owning a pension account has evolved beyond a mere retirement savings strategy; it now serves as a financial lifeline in times of need. With the introduction of statutory requirements for all Nigerian employees to open a pension account, individuals can make token contributions to their Retirement Savings Account (RSA) monthly through a Pension Fund Administrator (PFA). One often overlooked benefit of having an RSA is the ability to borrow from your pension funds when facing financial challenges. In this article, we will provide a step-by-step guide on how to leverage this option responsibly.

Conditions for Borrowing:

To tap into your pension funds before retirement, you must meet one of the following criteria:

1. Additional or Voluntary Contributions:
   • You must have made voluntary lump sum contributions to your RSA, and you can withdraw from this amount before retirement.
2. Job Loss or Inability to Secure Employment:
   • If you’re under 50 years old and lose your job, you can withdraw up to 25% of your retirement account fund within four months, and this withdrawal is tax-free.
3. Mortgage Loan:
   • Individuals intending to obtain a mortgage loan can withdraw up to 25% of their retirement funds.

It’s essential to note that the Pension Reform Act of 2014 strictly prohibits withdrawals from your pension account under any other circumstances.

How to Borrow from Your Pension Fund:

The process varies depending on your Pension Fund Administrator, but generally, you need to follow these steps:

1. Documents Required:
   • Letter of termination or resignation from your former employer.
   • Last three months’ payslips.
   • Request letter specifying the desired percentage of payment from your RSA balance.
   • Evidence of accrued pension rights (if applicable).
   • Bank introduction letter or bank statement.
   • Proof of age (birth certificate or sworn declaration).
   • Confirmation letter from your employer regarding full remittance of contributions (for private sector workers).
   • PenCom retiree indemnity form (for public sector workers).
   • Form provided by your PFA, along with four passport photographs.

For those seeking a mortgage loan, additional criteria include:

1. Eligibility:
   • Active employment as a salary earner or self-employed.
   • Consistent RSA contributions for the last 10 years.
   • Debt-to-income ratio not exceeding 33.33% of your monthly income.
2. Documentation for Mortgage Loan:
   • Application letter to access your RSA account.
   • Mortgage loan offer letter from a licensed Primary Mortgage Bank (PMB) or Deposit Money Bank (DMB).
   • Valid property documents.
   • Confirmation letter from the PMB or DMB to your PFA, signed by at least two directors, with an official stamp or seal.

Conclusion:

While borrowing from your pension funds comes with restrictions, it provides a valuable avenue to meet financial needs, whether acquiring property or addressing other essential requirements. By understanding the conditions and following the necessary procedures, individuals can responsibly leverage their pension accounts for financial flexibility. Explore the possibilities within the outlined criteria to secure your financial well-being and potentially achieve your long-term goals.