ONE question that I have been asked consistently is why retirees are not allowed to withdraw all the accumulated funds in their Retirement Savings Accounts (RSAs) upon retirement or at least 75% of the fund, since the money is theirs?
This question, no doubt, flows from an anonymous write-up in 2017, when there was an attempt in the Senate to amend the Pension Reform Act 2014 with a view to allowing a retiree to collect 75% of the funds accumulated in the contributor’s RSA. I should not have given the anonymous write-up a second thought. However, I felt I should discuss it because of some of the points raised in it and most importantly, because that write-up is still being reposted with the misinformation that it carries. There is a saying that when a lie is retold overtime without it being challenged, it will come to bear a semblance of truth.
“The Act established the Contributory Pension Scheme (CPS) and not a Provident Fund. Therefore permitting a contributor to withdraw either 75% of, or the total accumulated, fund in his/her Retirement Savings Account (RSA) is a violation of the provisions of the Act. Should the Act therefore not be amended to accommodate that school of thought? I make bold to say that it will not be in the interest of workers for that to be done.”
Some of the points raised by the faceless writer are as follows: (a) We will get old one day; (b) he was happy when the Senate made an attempt to amend the Pension Reform Act 2014 to allow contributors to collect 75% of their accumulated savings, if not all; (c) the law should allow contributors to give the Pension Fund Administrators the type of investments they want; and (d) Pension Fund Administrators are exploiters.
We Will All Get Old One Day
Old age is a period nearing or surpassing life expectancy of human beings, and it is thus the end of human life circle and every individual looks forward to getting to that life circle. It is also a period when one is tired and can no longer be fit for active economic activities in order to earn regular income through work. It is a period when one may no loner be useful to his/herself. It is a period of rest, for those who have planned for it; and a period of poverty and destitution, for those who failed to plan for it.
Should a Contributor be Allowed to Withdraw 75% or entire Accumulated Fund in His/Her Retirement Savings Account?
The Act established the Contributory Pension Scheme (CPS) and not a Provident Fund. Therefore permitting a contributor to withdraw either 75% of, or the total accumulated, fund in his/her Retirement Savings Account (RSA) is a violation of the provisions of the Act. Should the Act therefore not be amended to accommodate that school of thought? I make bold to say that it will not be in the interest of workers for that to be done.
The Contributory Pension Scheme and Old Age
In consideration of a better old age for workers, the Act established a CPS as a panacea to old age poverty and destitution, especially for those who had been on paid employment in their active age. The CPS guarantees pension, which is an amount of money paid regularly and periodically to a member of the scheme who is no longer capable of working as a result of either ill-health or old age.
It helps retirees to leave a life closer to what they lived during their working life. This is achieved either through the purchase of an annuity from a life insurance company or programmed withdrawal managed by a Pension Fund Administrator (PFA) within the provisions of the Act.
Provident Fund, as was then administered in Nigeria, payed a once-and-for-all lump sum to contributors on retirement. This is what the writer sold to the public. Provident Fund was established in Nigeria in 1961. As a result of its drawbacks, it was replaced with the National Social Insurance Trust Fund (NSITF) in 1993.
Investment Decisions Should Be Made By Contributors
Pension funds investment in Nigeria is carried out with two principal objectives. The first is adequate return on investment, and secondly, security of the invested funds.
Section 85 of the Act provides that all contributions made under the Act shall be invested by Pension Fund Administrators (PFA) with the objective of safety and maintenance of fair returns on amount invested and that pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the National Pension Commission (PenCom) from time to time.
Investment is a very risky business. The average worker, if allowed to take investment decisions on his/her pension fund, will go for investments that will bring quick and high returns. The higher the risk, the higher the return on investment and highly unsecured the invested fund will be.
Investment of funds is not as simple as the writer portrayed. Membership of the CPS cuts across all categories and cadres of workers from cleaners/security men/gardeners, clerks, technicians to the top echelon of Managing Directors/Professors, etc.
Not every university graduate can be a good investment manager. It is for this reason that the Act gave the responsibility of investment of pension funds to PFAs under the supervision and regulation of PenCom. PFAs have professionals cutting across different disciplines. PenCom also has professionals in various disciplines, including but not limited to investment managers, accountants, risk managers, lawyers, etc. Moreover, PenCom is a public sector institution whose principal objectives are to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria.
PenCom, as the regulator, has wide-ranging powers and gathers information about the pension industry and the investing market environment. The principal aim is to prevent investment problems from developing and where possible, provide support and advice to PFAs where potential problems are identified. PenCom regulates PFAs investment risk, in line with section 86, which aims to discourage concentration risk by providing several portfolios for adequate diversification of investment.
Individual contributors are not positioned to undertake all the investments risk profiling that PenCom is doing to secure invested funds. In the unlikely event that the law permits contributors to collect all the accumulated savings in their RSAs or a huge percentage of it on retirement, at best, what they may do is to take the funds to unregulated funds managers, with all the attendant risks inherent in such actions. Retirement period is not the time a person will want to gamble with his/her mandatory life savings.
Are Pension Fund Administrators Exploiters?
The Act provides in section 54 that from the commencement of the Act, pension funds shall only be managed by PFAs licence by PenCom under the Act. PFAs are business organisations and therefore should be paid for the services they render to their customers, who are the holders of RSAs.
The Act does not envisage that their services shall be gratuitous. Therefore, section 83(2) provides that all fees, charges, cost and expenses on transactions made and properly delineated by the PFAs shall be debited from the pension fund in line with regulations issued by PenCom from time to time. The income PFAs get for their services are derived from fees, charges, etc. and they are not arbitrarily charged by them. They are subject to regulatory control. I am aware that PFAs are not happy with PenCom in this regards.
The importance of a secured periodic income during old age is the reason why political officeholders with state governors as the arrowheads get State Houses of Assembly to enact pension laws for them on the eve of their leaving office. It is for this same reason that critical stakeholders in the pension industry, including the federal government, the Nigeria Labour Congress (NLC), Trade Union Congress (TUC) and NGOs, including the Centre for Pension Rights Advocacy; at a public hearing for a bill to amend the Act to allow contributors to collect 75% in their RSAs, organised by the Senate in 2017, kicked against that bill. This resistance eventually led to the withdrawal of that bill.