By Niyi Jacobs
In a challenging economic climate, thousands of Nigerians are turning to their pension savings to support themselves after job losses. The National Pension Commission (PenCom) has revealed that in the first half of 2024, 14,179 holders of Retirement Savings Accounts (RSAs) withdrew a significant 25 percent of their pension funds, totaling N23.4 billion, to meet pressing financial needs. This development reflects a concerning trend among laid-off workers who are increasingly dependent on retirement funds to sustain themselves and their families in a tough job market.
The second quarter report from PenCom details a slight slowdown in withdrawal rates. During the second quarter, a total of 5,528 RSA holders withdrew N9.2 billion, compared to 8,651 individuals who accessed N14.2 billion in the first quarter of 2024. This gradual decline might indicate either a small improvement in employment conditions or perhaps the exhausting of retirement funds among those who lost jobs earlier in the year. Of the 5,528 applicants in Q2, the vast majority—5,223—were from the private sector, with only 305 from the public sector. This trend highlights a disproportionate impact of economic hardship on private-sector workers, who may face greater job insecurity.
Increased Demand for Pension Savings as Economic Support
The rise in RSA withdrawals comes amid economic pressures and inflationary trends that are eroding purchasing power across Nigeria. In the absence of robust unemployment benefits or financial support programs, many laid-off workers have limited options for financial relief. Withdrawing from pension savings offers a short-term solution but also jeopardizes these individuals’ financial security in retirement, as they will face reduced pension balances in the future.
While workers under the age of 50 are legally permitted to withdraw up to 25 percent of their RSA savings after job loss, this trend underscores broader concerns about the long-term sustainability of pensions. Economic analysts warn that frequent withdrawals could leave many pensioners vulnerable in retirement, as diminished savings will affect their standard of living later in life.
A Mixed Picture for Mortgage Financing and Death Benefits
PenCom’s report also highlights other facets of RSA utilization, including applications for residential mortgage financing. In the second quarter of 2024, a total of 1,390 RSA holders applied to access up to 25 percent of their RSA funds to cover equity contributions for home purchases. Out of these, 1,234 requests were approved, amounting to N10.5 billion, while 156 were declined due to incorrect documentation. Notably, public-sector workers represented the majority of approved applications, with 855 approvals compared to 379 from the private sector.
The allocation of pension funds toward mortgage payments marks an attempt by some workers to secure long-term assets, potentially as a hedge against economic uncertainty. By leveraging their RSA balances, these individuals are seeking to acquire stable housing, albeit at the expense of reducing their retirement savings. The PenCom data shows a cautious but growing trend of pension funds being used for asset-building purposes, although analysts caution that reliance on pensions for housing could compromise future retirement security.
In terms of death benefits, PenCom processed a total of 4,387 applications from beneficiaries seeking access to funds left by deceased employees or retirees. Of these, 4,376 were approved, resulting in a payout of N29.3 billion. As with other RSA-related withdrawals, the majority of approved death benefits (3,569) pertained to public-sector employees, while 807 were linked to private-sector workers. The high volume of death benefits processed is indicative of the critical role RSA balances play for families dealing with the loss of income due to a family member’s passing.
Economic Strain Raises Concerns About Pension System Sustainability
The increased use of RSA funds highlights the broader economic challenges Nigerians face, as inflation, unemployment, and underemployment create financial strain. Analysts and pension experts express concern that these frequent withdrawals could compromise the long-term sustainability of the pension system. While PenCom allows limited access to pension savings under certain circumstances, frequent withdrawals could result in significantly lower payouts for future retirees, who may find themselves financially unprepared for retirement.
To address this growing issue, BusinessNG notes that experts argue for stronger social safety nets and more robust job creation policies to provide alternatives to withdrawing from pension funds. If the trend of early withdrawals continues, it could not only strain individuals’ retirement savings but also impact the stability of the pension fund as a whole, with consequences for Nigeria’s aging workforce.
The recent PenCom report sheds light on the difficult financial choices many Nigerians are making as they navigate an uncertain economic environment. While accessing pension savings can provide immediate relief, it underscores the need for long-term policy solutions to enhance economic security and protect retirement savings
