Borrowing in retirement in Nigeria on a regular pension
In Nigeria, a retiree can borrow if the pension is paid regularly, whether it comes from a programmed withdrawal through a PFA, a life annuity from an insurer or the PTAD, but banks limit the term by age and require life cover.
The contributory scheme under the 2014 Act
Since the 2004 reform, strengthened by the Pension Reform Act of 2014, employees contribute to a Retirement Savings Account managed by a Pension Fund Administrator. PenCom supervises all of the fund administrators and the custodians that hold the assets.
Programmed withdrawal or life annuity
On retirement, the account holder receives a lump sum and then chooses between a programmed withdrawal paid by the PFA and a life annuity bought from an insurer. This monthly pension forms the basis of any loan application.
Old-scheme pensioners and the PTAD
Federal staff who retired before the reform fall under the defined benefit scheme, paid by the Pension Transitional Arrangement Directorate. Their pensions depend on the government budget and on the verification exercises the PTAD carries out.
Nigerian banks: age limit at the end of the loan
Banks set a maximum age at the end of the loan, often around seventy, which sharply reduces the term available. A sixty-five-year-old retiree usually obtains only short loans with high monthly instalments as a result.
Pension-backed loans from microfinance banks
Several microfinance banks and specialist lenders offer loans to retirees whose pension is paid into an account they control. The instalment is deducted when the pension arrives, just as it would be with a salary loan.
Pension arrears in the states
In several states, pensions for former local government staff are paid late or only in part. Lenders then become very cautious, because an irregular pension cannot guarantee reliable monthly instalments over the life of a loan.
Using retirement savings to buy a home
Before retirement, PenCom guidelines allow a home deposit to be drawn from the RSA, up to 25% of the balance. The conditions for buying are described on the mortgage in Nigeria page, including the FMBN scheme.
Life cover and health costs
Borrower insurance costs more after sixty, which makes credit dearer. Medical bills, often paid out of pocket for lack of broad health cover, remain one of the main reasons Nigerian retirees take out loans.
Retired teachers and civil servants
Since the 2022 harmonisation, teachers can serve until sixty-five, against sixty for most civil servants. This gap changes the date on which salary gives way to pension, and with it the capacity to borrow from a bank.
Small loans: caution with apps
A retiree who is not at ease with a smartphone can be targeted by aggressive loan apps. The general rules on short loans, including the FCCPC register of lenders, are set out on the personal loan in Nigeria page.
The role of family and retirees' cooperatives
Associations of retired civil servants sometimes run savings and credit cooperatives. Children living in Lagos or abroad also remain an important source of financial support for their ageing parents, especially when medical bills arrive.
Loans for retirees in Sierra Leone
In Sierra Leone, pensions are handled by NASSIT and credit for retirees is even more limited than in Nigeria. The loans for retirees in Sierra Leone page describes this smaller West African system.
Applying for a pension-backed loan in Nigeria
- Get a statement of your monthly pension from your PFA, your insurer or the PTAD.
- Have your pension paid into an account at the institution you are applying to.
- Compare the maximum term offered for your age and the cost of life cover.
- Check that the instalment leaves enough income for health and everyday living costs.
- Sign the contract with a trusted relative present and keep a copy for yourself.
What a retiree pays to borrow in Nigeria
| Item | What makes it vary | Observation |
|---|---|---|
| Interest rate | Lender, regularity of the pension | Usually in line with salary loans |
| Life cover | Age at signing | Higher after sixty |
| Management fee | Amount lent | Deducted at disbursement |
| Maximum term | Age limit set by the lender | Often short for older borrowers |
Pension proof Nigerian lenders require
- Pension statement from the PFA, insurer or PTAD
- Retirement letter
- Statements for the account receiving the pension
- BVN, NIN and ID document
- Proof of address
- Contact details of a relative or guarantor
Risks for older borrowers in Nigeria
- Giving your PFA login details to a fake agent who promises early access to your retirement savings.
- Borrowing against a state pension that is regularly paid late, at the risk of piling up penalties.
- Accepting a loan whose instalment swallows most of the pension and leaves nothing for medical care.
- Standing as guarantor for a child or neighbour without realising that the pension can then be debited.
Lenders to contact
- Jaiz Bank: Nigeria's first non-interest bank, publicly listed, offering Shariah-compliant accounts and financing to individuals and businesses.
- TAJBank: Second non-interest banking institution launched in Nigeria, providing Islamic banking services to both retail and business customers.
- Jaiz Bank: Nigerian Islamic bank offering Sharia-compliant home finance as well as personal financing for household appliances and equipment.
- Federal Mortgage Bank of Nigeria (FMBN): Federal mortgage bank of Nigeria granting National Housing Fund home loans to contributors for buying or building a house.
Retirement and credit in Nigeria: pensioners' common questions
Can a retiree over seventy borrow in Nigeria?
It is rare at banks, which set an age limit at the end of the loan. Some microfinance banks accept very short loans, sometimes with a younger guarantor. Retirees' cooperatives often remain more flexible about age.
Can the RSA balance be used as collateral?
The RSA is managed by the PFA under PenCom rules and is used to pay the pension. Retirees therefore borrow on the basis of the monthly pension paid into their account rather than on the capital still under management.
What should you do if the PTAD suspends a pension?
The PTAD runs verification exercises and can suspend pensioners who have not been verified. Attend the announced sessions with your documents. During a suspension, taking out a new loan is unwise, as the instalments could no longer be met.
Does a life annuity make borrowing easier?
An annuity paid by an insurer is paid for life and on a regular basis, which reassures lenders. A programmed withdrawal can run out, which some banks take into account when setting the loan term.