How To Borrow From Your Pension Fund in Nigeria

This article will guide you on How To Borrow From Your Pension Fund in Nigeria.

All Nigerian employees are now required by law to open a pension account. They make a small monthly contribution to a Retirement Savings Account (RSA) through a Pension Fund Administrator (PFA).

One unspoken advantage of owning an RSA is the ability to borrow from your pension funds when needed. Are you wondering how that is possible? This article will explain how to borrow from your pension fund in Nigeria.

Owning a pension account with funds can be useful in times of need. Although there are some disadvantages to borrowing from this fund, it is still a better option than obtaining a loan from a financial institution.

Criteria for Borrowing from Your Pension Fund in Nigeria

To borrow from your pension fund before retiring, you must meet one of three conditions:

1. You must have made additional or voluntary lump sum contributions to your RSA. It is from that money that you can withdraw before retirement.
2. They also allow you to withdraw up to 25% of your retirement account fund if under the age of 50. This holds on to the event of losing your job and you cannot secure another within 4 months. The sum is also tax-free.
3. You intend to get a mortgage loan. RSA allows the withdrawal of up to 25% of retirement funds.

Please note that asides from these conditions, the Pension Reform Act of 2014 strictly prohibits withdrawal from your pension account.

How To Easily Borrow From Your Pension Fund in Nigeria

This is determined by your Pension Fund Administrator. The methods and requirements for releasing funds to you vary between pension fund administrations. However, the process requires you to present the following documents to your PFA::

1. Letter of termination of appointment issued by your former employer or letter of resignation.
2. PFA last three months’ payslip.
3. A letter from you requesting a desired percentage of payment from your RSA balance (25% maximum). This could also be a percentage of your voluntary lump sum contribution.
4. Evidence of accrued pension rights if applicable (mostly for public sector workers).
5. Letter of introduction from your bank or bank statement.
6. Proof of age through a birth certificate or sworn declaration of age
7. Letter from your employer which confirms full remittance of all contributions made to your RSA (for private sector workers).
8. PenCom retiree indemnity form if you work in the public sector.
9. A form your PFA would give, and four passport photographs.

However, if you intend to obtain a mortgage loan, then you must satisfy the following criteria:

• 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 the last 10 years.
• Your debt-to-income ratio shall not be more than 33.33% of your monthly income at the time of application.
• You must provide all the requested documentation.

The documentation required for a Mortgage loan are:

1. Application letter to access your RSA account
2. A mortgage loan offer letter issued by a licensed Primary Mortgage Bank (PMB) or Deposit Money Bank (DMB).
3. Valid copies of documents to the property on which the mortgage loan was granted
4. A letter of confirmation issued by the PMB or DMB to your PFA to attest to the authenticity of the mortgage transaction. They must sign this letter by at least two directors of the bank, along with an official stamp or seal.

Conclusion

RSA allows you to borrow money under certain conditions, although with restrictions. Borrowing under the right conditions allows you to obtain a property asset or meet other needs. Such funds can even be used to fund your retirement business or invested in something else.