Being able to borrow money from your pension fund is an advantage of having a Retirement Savings Account (RSA) that is often overlooked. You can borrow money from your pension fund when you need it. If you have been at a loss as to how this is possible, then worry no more. The information in this write-up will assist you in how to borrow from your pension fund in Nigeria.
Pension Fund As A Mandatory Requirement For An Employee In Nigeria
A pension fund is a specific kind of account that accumulates funds to be distributed as pension payments to employees after their retirement. Every Nigerian employee must open a pension fund account while still in active service. This Retirement Savings Account is set up by a Pension Fund Administrator (PFA), who must be licensed by the National Pension Commission (PENCOM) in Nigeria.
Doing this helps you to have something to rely on after you are retired. Having a pension fund account with money in it can be helpful in times of need or emergencies. Even though there are downsides associated with borrowing from your pension fund, borrowing it is still preferable to getting a loan of any kind from a bank.
What Are The Criteria To Fufill To Borrow From Your Pension Fund In Nigeria?
Below are the following criteria you must fulfil before you can borrow from your pension fund in Nigeria before you are retired. You must meet a minimum of at least one of the following requirements.
You must have made supplementary or a significant amount of money into your Retirement Savings Account — RSA. This is the money you can borrow from before retirement.
If you are under 50, you may also withdraw up to 25% of the money in your retirement savings account. This protects you in case you lose your job and are unable to find another one within four to five months. There is no tax levied on this money.
Another criterion is if you want to borrow money for a house; that is get a Mortgage loan. Retirement savings can be withdrawn up to 25% under RSA. Please be aware that the Pension Reform Act of 2014 is against withdrawals from your retirement savings account except under certain circumstances.
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How To Borrow From Your Pension Fund In Nigeria
Borrowing money from your pension fund can be an easy task. However, before you can borrow money from your pension funds, bear in mind that various pension fund administrations have various procedures and specifications.
Regardless, the procedure calls for you to present the following records to your PFA:
1. Letter Of Termination Of Appointment Or Resignation:
To borrow from your pension, you are mandated to tender the letter of termination of appointment or Resignation from your previous employer.
2. Last Three Months’ Pay Slip:
Before you borrow money from your pension fund, you must present a three months pay slip from your PFA that shows you have been consistent in contributing to your RSA.
3. Payment Request Letter:
This is a written letter from you requesting nothing more than a 25% payment of your Retirement Savings Account.
4. Proof of Accrued Pension Rights:
You’re required to submit proof of accrued pension rights (especially for employees of the public sector)
5. Bank Statement Or Letter Of Introduction:
This is gotten directly from the financial institution that you bank with. Your banking history for at least six months should be included in it.
6. Proof Of Age:
Your birth certificate or a sworn declaration of age will suffice when borrowing from a pension fund.
7. Employer’s Letter:
Before speaking to your Pension Fund Administrator about borrowing money from a pension fund, ensure that you have a letter from your employer attesting to the full remittance of contributions made to your Retirement Savings Account. Bear in mind that this is only applicable to workers of private organizations.
8. PenCom Retiree Indemnity Form:
As a public sector worker, if you wish to borrow from your pension fund in Nigeria, a PenCom Retiree indemnity form is essential.
9. Passport Photograph:
Your most recent passport photograph is needed for you to borrow money from your pension fund.
10. Pension Fund Administrator’s Form:
Finally, a form given to you by your Pension Fund Administrator is another mandatory document needed for you to borrow from your pension fund in Nigeria.
Requirements To Apply For A Mortgage Loan From Your Pension Fund
This is pertinent to instances where an individual who is still working wants to utilize a part of his or her pension to purchase a property, an asset, or a home. The following requirements must be met to access this fund. You must fulfil the requirements listed below to gain access to your Pension Fund.
- You must have a working Job
- For at least the past ten years, you must have regularly invested in your Retirement Savings Account.
- Your debt-to-income ratio should be below 33.3% of your monthly income.
What Documents Do I Require To Apply For a Mortgage Loan From My Pension Fund?
To apply for a mortgage loan from your pension fund, you require the following documents:
- A written application letter to access your Retirement Savings Account.
- A mortgage loan offer letter issued by a mortgage bank.
- Authentic copies of the documents of the property upon which the mortgage loan was made
- Letter of confirmation that your PFA receives from the mortgage bank confirming the legitimacy of the mortgage deal.
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Why Do People Borrow From A Pension Fund?
People borrow from their pension funds for various reasons. You can borrow from your pension fund if you want to buy a house or build a new one from scratch. You can also borrow money from your pension fund if you want to start up or grow your business. If you are faced with an emergency or financial situation that requires funds, you can also borrow from your pension fund. Borrowing money from your pension fund is much better and safer than borrowing from money lenders or financial institutions.
Can I Use My Pension Fund As Security In Nigeria?
No, you cannot use your pension fund as security. It is set up to help you when you are old or retired. Pension Funds cannot be transferred to another party or individual.
Conclusion
The RSA can only be withdrawn after retirement. However, you may take those funds before reaching retirement or turning 50 under certain conditions. Conditions like if you have contributed a large amount of additional or voluntarily generated cash to the RSA, if you have been unemployed for a minimum of four months, or if you want to apply for a mortgage loan. Whatever the case may be, you are encouraged to speak with your Pension Fund Administrator if you have any concerns.