Introduction

LAST week we started discussing the Revised Regulation on Retiree Life Annuity Pursuant to the Pension Reform Act (PRA) 2014, jointly issued by the National Insurance Commission (NAICOM) and the Nation Pension Commission (PenCom) for the purpose of giving effect to the provisions of Section 7(1) (c) of PRA 2014. We specifically looked at Section 4 of the Revised Regulations, which deals with Rules of General Application.

My discussion of some sections of the Revised Regulation is aimed at drawing the attention of employees, their unions, labour centres and especially Pension Desk Officers to the Revised Regulation with a view to acquainting themselves with the provisions of the regulation. The Revised Regulation is on the websites of both agencies.

Today, we are going to look at Section 14, Safeguards for RLA Funds; Section 17, Fees Structure and Processes; Section 18, Marketing and Market Practice and Section 20, Infractions and Sanctions.

Section 14: Safeguards for RLA Funds

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The Contributory Pension Scheme (CPS) rests on two pillars, security of the fund and adequate returns on investment. Imbedded in PRA 2014 are various provisions aimed at securing pension funds and assets. One of such provisions seeks to guarantee pension funds and assets. The provision is the Statutory Reserve Fund provided for in Section 81(1) of PRA 2014.

The section provides that every Pension Fund Administrator (PFA) shall maintain a Statutory Reserve Fund as contingency fund to meet any claim for which the PFA may be liable as may be determined by PenCom. Section 82(1) also makes provision for Pension Protection Fund. The section provides that PenCom shall establish and maintain a fund to be known as the Pension Protection Fund for the benefits of eligible pensioners covered by any pension scheme established, approved or recognised under the Act.

Subsection 3 provides that PenCom shall utilise the Pension Protection Fund for: (a) the funding of minimum guaranteed pension pursuant to section 84 of the Act; (b) the payment of compensation to eligible pensioners for shortfall or financial losses arising from investment activities; and (c) any other purpose deserving protection with the Pension Protection Fund.

In line with the above, Section 14 of the Revised Regulations provides that the security of Retiree Life Annuity (RLA) assets shall be guaranteed in line with the provisions of the Act as it relates to pension assets. In the event of deficits in the guarantee provided, a further guarantee shall be provided in line with the provisions of Insurance Act 2003 and National Insurance Commission Act 1997.

It further provides that NAICOM may require an RLA Provider to take such actions as appropriate for the purpose of protecting Annuitants against the risk that the RLA Provider may be unable to meet its liability to the Annuitant. In case of actual or threatened insolvency, NAICOM may by order, prohibit an RLA Provider from transacting new RLA business for such period as may be set out in the order.

Where an RLA Provider cannot honour its obligations or is in liquidation, receivership or is in other similar situations, NAICOM shall ensure the transfer all assets representing RLA fund to another RLA Provider. Any shortfall in the RLA fund which remains unsatisfied from the assets of a failed RLA Provider shall be offset from the guarantee provided.

The RLA Custodian shall bear the full replacement cost, including any incidental costs in the event of loss of RLA fund resulting directly or indirectly from fraud, negligence, wilful default, misconduct or error by the RLA Custodian or its employee or Agents. The RLA Provider shall bear the full replacement cost, including any incidental costs in the misconduct or error by the RLA Provider or its employee or agents.

Section 17: Fees Structure and Processes.

Services of RLA Providers, Insurance Brokers/Agents are not gratuitous. They attract fees and charges in the same way as services provided by other operators in the pension industry.

Section 8(2) of PRA 2014 provides that all fees, charges cost expenses on transactions made and properly delineated by the PFAs shall be debited from pension fund, in line with regulations issued by PenCom from time to time.

Section 17 of the Revised Regulation therefore flows from the above provision of the Act. The section provides that agency commission payable on RLA business to insurance brokers or agents shall be as determined by NAICOM from time to time.

The section further provides that custodial fees to be charged shall be agreed between the RLA custodian and RLA provider within the limit jointly set by PenCom and NAICOM from time to time. The essence of this provision is to protect the Annuitant from arbitrary fees by operators.

Section 18: Marketing and Market Practice.

Misinformation and de-marketing of program withdrawal and annuity, the two options of drawing retirement benefits by employees and agents of providers of the two products, have been the hallmark of the challenge of the implementation of Section 7(1)(b) and (c) of PRA 2014.

These actions have left retirees confused on what to do after the withdrawal of the initial lump sum. This section of the guideline is therefore a very welcome development.

Section 18 of the Revised Regulation provides that marketing of RLA shall be done by direct contact of employees of RLA provider or insurance brokers/agents who have undergone retirement planning competency training certified by NAICOM. The list of approved Insurance Brokers eligible to transact RLA business are to be published yearly on the website of NAICOM and PenCom.

All PFAs and RLA Custodians are required to abide by the Code of Ethics and Business Practice of Licensed Pension Operators. All RLA providers are required to adhere to Market Conducts and Business Practice Guidelines for Insurance Institutions in Nigeria.

Reported and investigated cases of unfair and unethical practices such as misinformation and de-marketing and mis-selling are to attract sever sanction by PenCom and NAICOM. All basic features are to be disclosed in all marketing materials.

This is in tandem with Section 83(3) of PRA 2014, which provides that: “The Commission shall ensure that all information in brochures, advertisements, promotional materials and claims of PFAas are truthful in every way without omission of any fact which may make the information contained therein misleading, false or deceptive.”

RLA provider shall be responsible for the actions of its appointed insurance agents. All licensed insurance agents shall carry identification cards bearing their registration number and name of their principals (Life Insurance Company) while marketing the RLA products of their principals.

Section 20: Infraction and Sanctions

The provision and announcement of sanctions for infractions is an exceptionally clean signal to the market about the extent to which the pension industry and in this context, the insurance industry also will abide by legal obligations. In my view, sanctions motivate individuals and organisations to comply with rules and regulations. The announcement of a fine for wrongdoing that harms third parties has, if anything a positive effect on the business as it builds confidence of customers in this case, annuitants.

This section provides that an RLA provider who violates any provision of the regulation shall be subject to such penalty as may be prescribed by NAICOM from time to time. Consistent violation of the regulation shall constitute a ground for suspension of the RLA provider from underwriting new businesses until the infractions are addressed.

Where a violation adversely affects payment of monthly or quarterly annuity to a retiree(s), NAICOM shall impose appropriate regulatory sanctions on the RLA provider. Any insurance agent who violates any provision of the regulation shall be sanctioned appropriately by NAICOM.

All infractions and violations by PFAs and RLA custodians shall be determined and enforced in line with the regimes of sanctions made pursuant to the PRA 2014 as prescribed by PenCom from time to time. All infractions and violations by the RLA providers and insurance brokers/agents shall be subject to such penalties as may be prescribed by NAICOM from time to time.

Conclusion

PenCom and NAICOM have done well to address the challenges of the implementation of Section 7(1) (c) of PRA 2014. Once more, the two regulatory agencies need to be praised on their collaborative efforts aimed at strengthening the annuity option of retirement benefits with the issuance of the Revised Regulation.

My discussion of some sections of the Revised Regulation is aimed at drawing the attention of employees, their unions, labour centres and especially Pension Desk Officers to the Revised Regulation with a view to acquainting themselves with the provisions of the regulation. The Revised Regulation is on the websites of both agencies.

Ivor Takor mni, can be reached directly for comments and reactions via Email: takorivor@gmail.com; WhatsApp: 234 803 786 1900. Comments and observations can also be made through the interactive platform at the bottom of this page.

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