ONE of the objectives of the Pension Reform Act 2014 is to ensure that every person who worked in either the public service of the federation, the public service of the Federal Capital Territory, states and local governments or the private sector receives his retirement benefits as and when due.
Retirement benefits under CPS
Section 7(1) of the Act, provides that a holder of a Retirement Savings Account (RSA) shall, upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited to his RSA for the following benefits: (a) withdrawal of a lump sum from the total amount credited to his RSA provided that the amount left after the lump sum withdrawal shall be sufficient to procure a programmed fund withdrawals or annuity for life in accordance with extant guidelines issued by the National Pension Commission (PenCom), from time to time; (b) programmed monthly or quarterly withdrawals calculated on the basis of an expected life span; (c) annuity for life purchased from a life insurance company licensed by the National Insurance Commission (NAICOM) with monthly or quarterly payments in line with guidelines jointly issued by PenCom and NAICOM; (d) professors covered by the Universities (Miscellaneous Provisions (Amendment) Act, 2012) shall be according to the Universities Act; or (e) other categories of employees entitled, by virtue of their terms and conditions of employment, to retire with full retirement benefits shall apply.
“There is a need for me to talk about a misinformation that has been disseminated and continue to be disseminated to misinform the public; to the effect that pension under programmed withdrawal terminates after fifteen years in retirement. Marketers of annuity working for life insurance companies are behind this misinformation. I have answered this question many times from workers and pensioners. One annuity marketer had once approached me to market annuity but rather than limit herself on the benefits of choosing annuity, she confidently told me that pension under programmed withdrawal terminates after fifteen years in retirement. I had to take time to discuss annuity and programmed withdrawal with her. If this misinformation is deliberate or due to lack of understanding, I don’t know.”
Does pension under programmed withdrawal end after 15 years?
There is a need for me to talk about a misinformation that has been disseminated and continue to be disseminated to misinform the public; to the effect that pension under programmed withdrawal terminates after fifteen years in retirement. Marketers of annuity working for life insurance companies are behind this misinformation.
I have answered this question many times from workers and pensioners. One annuity marketer had once approached me to market annuity but rather than limit herself on the benefits of choosing annuity, she confidently told me that pension under programmed withdrawal terminates after fifteen years in retirement. I had to take time to discuss annuity and programmed withdrawal with her. If this misinformation is deliberate or due to lack of understanding, I don’t know.
Section 7 of the Act makes provision for programmed withdrawal and annuity after the initial lump sum withdrawal in order to give retiring workers options. I am not here to market any or the choices but to correct the misinformation being spread.
Those who opt for annuity buy a product from the life insurance company. The retiree and the company agree on the amount he or she will be given periodically, which in most cases is monthly. The employee will receive the amount agreed upon during his or her life time and what happens after he or she dies is incorporated in the agreement. The investment risk and market volatility lies with the company. Insurance in the first place is all about pooling of risk.
On the other hand, those who decide to go with programmed withdrawal don’t negotiate with the PFA what they collect monthly or quarterly. The programmed monthly or quarterly withdrawals are calculated on the basis of an expected life span. The calculations are made by the PFA and sent to PenCom for approval. This is to ensure that the retiree is not short paid. The balance in the RSA of the retiree is being invested and continues to yield returns on investment. The fund remains the fund of the RSA holder. It is for this reason that the holder of the RSA continues to receive periodic statements of account from the PFA. If the RSA holder dies, the balance in the RSA will be paid to the estate of the deceased retiree.
I know retirees who have been on retirement for 8 to 9 years. The balance in their RSAs today is slightly higher than it was after they collected the initial lump sum. What that means is that for 8 and 9 years, the pensions they have been collecting have been coming from the return on investment. It is therefore not possible for the pension of these retirees to terminate after fifteen years when there is fund in the RSA to continue to pay monthly pension. Since the commencement of the CPS in 2004, retirees under programmed withdrawal have had their monthly pension enhanced twice. The quantum is a discussion for another day.
Guaranteed minimum pension
The Act makes provision for a situation where the fund in the RSA of a retiree gets exhausted. Section 84(1) of the Act provides that all RSA holders who have contributed to a licensed PFA for a number of years to be specified by PenCom shall be entitled to a guaranteed minimum pension as may be specified from time to time by PenCom.
The source of funding for the guaranteed minimum pension is the Pension Protection Fund provided for in section 82 of the Act. The fund is meant to provide support to retirees in case of any catastrophe experienced by the fund of an RSA holder. The government, PenCom and pension fund operators contribute towards the the Pension Protection Fund.
Benefit during frictional unemployment
Section (7)(2) provides that where an employee voluntarily retires, disengages or is disengaged from employment as provided for under section 16(2) and (5) of the Act, the employee may, with the approval of PenCom, withdraw an amount of money not exceeding 25% of the total amount credited to his RSA, provided that such withdrawals shall only be made after four months of such retirement or cessation of employment and the employee does not secure another employment.
Sub-section 3 provides that where an employee has accessed the amount standing in his RSA pursuant to sub-section (2) of section 7, such employee shall subsequently access the balance in his RSA in accordance with sub-section (1) of section 7.
This provision is to assist contributors during the period of frictional unemployment, the period between employments, when a contributor has lost a job and is waiting to get another.
Section 8 of the Act provides that where an employee dies, his entitlements under the Life Insurance Policy maintained under section 4(5) of the Act shall be paid by an underwriter to the named beneficiary in line with Section 57 of the Insurance Act. Upon receipt of a valid will admitted to probate or a letter of administration confirming the beneficiaries under the estate of the deceased employee, the PFA shall, with the approval of PenCom, release the amount standing in the RSA of the deceased to the personal representative of the deceased or to any other person as may be directed by a court of competent jurisdiction in accordance with the terms of the will or personal law of the deceased employee, as the case may be.
Principal documents for the payment of death benefits
There are two principal documents that must be presented for the payment of death benefits to beneficiaries of a deceased worker or retiree. They are a will admitted to probate or a letter of administration issued by the Probate Registry of a State High Court. For this purpose, it is important to note that next-of-kin as recorded by the deceased in his or her life time cannot replace the two documents. At best, a next-of-kin is only someone to be contacted in case of emergency. It doesn’t confer entitlement to death benefits to anyone.
It is therefore advisable for every employee and retirees to get a lawyer to prepare a will for him or her. Getting a will prepared for you doesn’t mean you are going to die, just the same way as getting a vehicle insurance doesn’t mean you intend to go out and get yourself involved in and accident. The implication of a worker dying intestate; that is without a will, is that the next-of-kins/beneficiaries must approach the Probate Registry of a High Court to obtain a letter of administration. Sometimes it takes about a year in some states to get a letter of administration. Some states may charge up to 10% of the value of what is in the letter of administration. Some lawyers may collect another ten percent of the value especially if the lawyer has to bear all the cost of obtaining the letter of administration.
Criminal procurement of fake wills or letters of administrations
Some next-of-kins/beneficiaries have gone to the extent of procuring fake wills or letters of administration. Those who have followed this criminal route, rather than enjoy the death benefits, end up enjoying prison terms. PFAs are verifying all wills and letters of administration with Probate Registries as well as death certificates or police reports where death is by accident. Those found to have submitted fake documents are handed over to the police for further investigation and prosecution.
Benefits of a missing person
Section 9 provides that where an employee is missing and is not found within a period of one year from the date he was declared missing, and a board of inquiry set up by the PenCom makes a determination that having regards to available information and all relevant circumstances, it is reasonable to presume that the employee is dead, the provisions of section 8 shall apply.
Section 4(4)(a) provides that notwithstanding any of the provisions of this Act, an employer may agree on the payment of additional benefits to the employee upon retirement.
Prior to the pension reforms in 2004, most employers in the organised private sector, in addition to their contributions to the Nigerian Social Insurance Trust Fund, which was mandatory, also had in-house pension funds. These in-house pension funds were used by these organisations to pay severance benefits in whatever name so called to their retiring employees. These arrangements were products of collective bargaining.
The pension reforms carried out in 2004, which introduced the CPS, was carried out to enhance and secure retirement benefits. The reform wasn’t meant to take away what had already been gained by unions and their members through collective bargaining.
That is the spirit behind section 4(4)(a) of the Act. It is therefore not correct to say that the CPS has abolished gratuity or golden hand shake or whatever name those in-house severance benefits were called in the private sector. Rather, this section leaves the issue for employees as represented by their unions and their employers to agree on.