Beyond Retirement: Integrating Pension Funds Into Your Estate Plan In Nigeria

Introduction

Pension funds represent one of the most valuable assets individuals accumulate over their working lives, yet they are frequently overlooked in estate planning discussions. Beyond serving as a steady income during retirement, pensions can be structured to secure a family's financial future, preserve wealth, and support long-term goals across generations. This article explains the legal framework for pension fund administration in Nigeria and highlights how pensions can be integrated into estate planning to help ensure that savings are transferred effectively and used to support loved ones.

Understanding the Major Classifications of Pension Funds in Nigeria

Pension funds are savings set aside to provide income in retirement or after formal employment ends. In Nigeria, their administration is governed by the Pension Reform Act (PRA) 2014, which recognizes two main types of contributions:

1. Contributory Pension Scheme (CPS): The CPS, created under Section 3 of the PRA 2014, is mandatory for employees in both the public and private sectors. Employers contribute 10% of an employee's monthly salary, while employees contribute 8%. These contributions go into a Retirement Savings Account (RSA) opened in the employee's name.¹
2. Voluntary Contributions: Beyond mandatory contributions, the PRA 2014 allows individuals—including employees and self-employed persons—to make additional deposits into their RSA.² These savings, often with potential tax advantages, are designed to increase retirement income and provide more flexibility in planning.

Every RSA is individually owned and managed by a licensed Pension Fund Administrator (PFA), while the funds are safely kept by Pension Fund Custodians (PFCs). PFAs invest the savings in line with guidelines issued by the National Pension Commission (PenCom) to ensure growth and long-term security.

The Specific Roles of PenCom and PFAs in Administering Pension Funds

Two main entities are central to the management of pension funds, especially when dealing with benefits after the death of an account holder:

• National Pension Commission (PenCom): PenCom is the industry regulator. It supervises the Contributory Pension Scheme, issues rules for how pension funds (including death benefits) should be handled and ensures compliance by Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs).³ Under Section 8(2) of the Pension Reform Act 2014, a PFA cannot release the balance in a deceased person's RSA without PenCom's approval. PenCom also has the power to investigate complaints and resolve disputes within the industry.⁴ What PenCom does not do is decide who the rightful beneficiaries are. Where there is a valid Will, Letters of Administration, or nominee designation, PenCom cannot disregard those instruments. Where no such documents exist, PenCom also cannot step in to allocate benefits — only a competent court can determine who is entitled. In the same way, PenCom cannot override a valid court order on the distribution of a deceased person's estate.
• Pension Fund Administrators (PFAs): PFAs manage the Retirement Savings Account during a contributor's lifetime and process claims when the account holder passes away.⁵ Once notified of death and presented with the necessary legal documents, the PFA must forward the claim to PenCom and, after approval, release the funds to the beneficiaries or personal representatives identified in the Will or Letters of Administration. PFAs also keep records, including nominee information supplied by contributors during their lifetime. What PFAs cannot do is choose beneficiaries on their own or delay payments without justification. Once all documents are in order and PenCom has given approval, they are legally obligated to pay the benefits promptly.

The Legal Rules that Apply on the Contributor's Passing

Nigerian law sets out clear rules on what happens to pension funds when the contributor passes away. The key provisions are in the Pension Reform Act 2014 and the Insurance Act 2003:

• Life Insurance Benefits: Employers must maintain a life insurance policy for their employees. On the contributor's passing, the insurance payout is made directly to the named beneficiary, providing immediate financial support to the family.⁶
• RSA Balance: Pension savings in the Retirement Savings Account (RSA) can only be released once the proper legal documents—such as a probated Will or Letters of Administration—are presented. The Pension Fund Administrator (PFA) processes the claim, but only with PenCom's approval. (Section 8(2) of the PRA 2014)
• Missing Persons: If a contributor has been missing for at least one year, PenCom may conduct an inquiry and declare them presumed dead. Once this is done, the same rules for accessing pension funds apply.

Who Gets the Money? Clearing Up Common Confusions About "Beneficiaries"

When it comes to pension funds, three terms are often used to describe potential recipients. They sound similar but carry very different legal consequences:

• Beneficiary: A beneficiary is the person or entity legally entitled to inherit assets — including the balance in a Retirement Savings Account (RSA) — under a valid Will, Letters of Administration, or Trust arrangement.
• Next of Kin: This generally refers to a person's closest living relative, such as a spouse, child, or sibling.⁷ In practice, "next of kin" details are often requested for emergency contact purposes. However, being named as next of kin does not give an automatic right to pension funds. To access the funds, there must still be a valid Will, Trust, or Letters of Administration in place.
• Nominee: A nominee is someone the account holder designates (e.g., on pension or insurance forms) to receive the funds when they pass away. While the nomination guides the Pension Fund Administrator (PFA), payment is still subject to the estate process. In practice, the nominee must also be recognized under a Will or Letters of Administration before the funds are released with PenCom's approval.

Nominee Forms vs. Wills/Letters of Administration – What Happens When They Conflict?

In pension planning, two documents often come into play: the nominee form and either the Will or Letters of Administration. A nominee form allows an account holder to indicate who should receive the balance in their Retirement Savings Account (RSA). A Will, on the other hand, sets out how all assets — including pension funds — should be distributed when the contributor passes away.

Conflicts can arise when the nominee form names one person, but the Will names someone else. Under the Pension Reform Act 2014, a valid Will that has been legally confirmed by the court (probate) takes priority⁸. This means the Pension Fund Administrator (PFA) must follow the Will and release the RSA funds to the personal representative it identifies.

If no Will exists, or if the Will does not mention the pension funds, the PFA is expected to rely on Letters of Administration, issued by the court, to determine who is entitled to receive the funds.

The Role of Estate Planning in Pension Fund Administration and Wealth Preservation

When included in an estate plan, pension funds can be one of the most effective ways to transfer wealth and provide lasting financial security for loved ones. Under the Pension Reform Act 2014, an RSA holder may designate beneficiaries to inherit the balance in their Retirement Savings Account (RSA)⁹. Doing this properly can ease the transfer of funds, reduce legal delays, and help prevent family disputes.

But planning should not stop there. The real benefit comes from how the RSA is managed during the holder's lifetime. For example:

• During retirement: part of the RSA balance can be invested to create steady income or to grow the estate, strengthening the financial position of the family.
• Before retirement: if the contributor passes away, the RSA balance is released under their estate plan. Without one, it is shared according to the law (via Letters of Administration or nominee details, subject to PenCom's approval). With proper planning, however, the funds can be directed into a trust through a Will or trust deed, allowing gradual distribution for family needs like education, healthcare, and ongoing support instead of a single lump sum.

Key Considerations for Integrating Pension Funds into Estate Planning

The following steps help ensure pension funds are properly aligned with an estate plan for maximum benefit and security:

1. Incorporating Pension Funds into Trusts: Pension funds can be directed into a trust, allowing flexible distribution and long-term support for dependants.
2. Tax Implications: The tax consequences of investing pension funds or placing them in a trust should be carefully assessed, as proper structuring can reduce liabilities for beneficiaries.
3. Multiple Beneficiaries: Where several beneficiaries are involved, clearly define how the pension funds will be shared—whether directly or through a trust—to minimize disputes.
4. Addressing Life Changes: Beneficiary designations should be updated following major life events such as marriage,¹⁰ divorce, the birth of a child, or the death of a nominee.
5. Monitoring Pension Plan Changes: Pension plans and the wider regulatory framework should be reviewed regularly, with estate planning documents amended to reflect any updates or shifts in performance.

Conclusion

Understanding who legally qualifies as a beneficiary of pension funds and other assets is essential for effective estate planning. The interaction between nominee forms, Wills, Letters of Administration and pension regulations can be complex, but careful planning ensures that benefits are passed on smoothly to the right individuals or entities. With proper guidance and preparation, pension funds can do more than provide retirement income — they can secure long-term financial stability for loved ones. For further clarification on pension fund administration and beneficiary rights, please contact us at info@scp-law.com or oluwaseyi.adebayo@scp-law.com.

Footnotes

1 Section 4 of the PRA 2014

2 Ibid.

3 Section 23 of the PRA 2014

4 Section 106 of the PRA 2014.

5 Section 55 of the PRA 2014.

6 Section 4 (5) of the PRA 2014.

7 For instance, Part 6 of the Administration of Estate Law of Lagos State, 2003.

8 Section 8(2) of the Pension Reform Act 2014

9 Section 8 of the Pension Reform Act 2014

10 Under Section 11 of the Wills Law of Lagos State, a Will is typically revoked by a subsequent marriage, unless it is made in contemplation of that marriage and names the parties involved. If the Will is revoked and not replaced, the estate, including the handling of the RSA balance, will be governed by intestacy rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.