If you are a Nigerian employee, you may have a pension account where you contribute a portion of your income every month through a Pension Fund Administrator (PFA). This account, known as the Retirement Savings Account (RSA), can be a source of financial assistance in times of need. You may be wondering how to borrow from your pension fund in Nigeria if you are facing an emergency or want to invest in a project. This article will guide you through the process and the conditions for accessing your pension fund before retirement.
HOW MUCH YOU CAN BORROW FROM YOUR PENSION FUND
The maximum amount you can borrow from your pension fund is 50% of your current RSA balance. However, the amount you can borrow may be lower depending on your monthly income and other financial obligations.
THE INTEREST RATE ON PENSION LOANS
The interest rate on pension loans is currently 9% per annum. This is a competitive rate, especially when compared to the rates offered by commercial banks.
THE REPAYMENT PERIOD
You have up to 10 years to repay your pension loan. However, you can repay it sooner if you wish.
CONDITIONS TO BORROW FROM YOUR PENSION FUND
According to the Pension Reform Act of 2014, you can only withdraw from your pension fund before retirement under three circumstances:
– Have at least 3 years of pension contributions
– Have a current RSA balance of at least N50,000
– You have made additional or voluntary lump sum contributions to your RSA. You can withdraw up to 50% of this amount once every two years, subject to tax deductions.
– You have lost your job and have not secured another one within four months. You can withdraw up to 25% of your RSA balance, tax-free.
– You want to obtain a mortgage loan for a residential property. You can use up to 25% of your RSA balance as an equity contribution for the loan.
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HOW TO BORROW FROM YOUR PENSION FUND IN NIGERIA
If you meet any of these criteria, you will need to approach your PFA with the following documents:
– Letter of termination of appointment issued by your former employer or letter of resignation.
– Three months’ payslip from your PFA.
– A letter from you requesting a percentage of payment from your RSA balance (25% maximum) or a percentage of your voluntary lump sum contribution (50% maximum).
– Evidence of accrued pension rights if applicable (mostly for public sector workers).
– Letter of introduction from your bank or bank statement.
– Proof of age through a birth certificate or sworn declaration of age.
– Letter from your employer confirming full remittance of all contributions made to your RSA (for private sector workers).
– PenCom retiree indemnity form if you work in the public sector.
– A form from your PFA and four passport photographs.
Your PFA will process your request and pay you the approved amount within a stipulated time frame. However, if you want to obtain a mortgage loan, you will also need to satisfy the following conditions:
– You must be in active employment either as a salary earner or self-employed.
– You must have been contributing consistently to your RSA account for at least 10 years.
– Your debt-to-income ratio must not be more than 33.33% of your monthly income at the time of application.
– You must provide all the requested documentation for the mortgage loan.
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THE RISK OF BORROWING FROM YOUR PENSION FUND
There are a few risks to consider before you borrow from your pension fund. These include:
- You will have less money to save for retirement.
- You may have to pay higher interest rates on other loans.
- You may have to make additional contributions to your pension fund to make up for the money you borrowed.
Conclusion
Borrowing from your pension fund can be a helpful way to meet short-term financial needs. However, it is important to weigh the risks and benefits before you make a decision. If you are considering borrowing from your pension fund, you should speak to your PFA to get more information.
