A cheering news came to pensioners who are on Programmed Withdrawal under the Contributory Pension Scheme managed by Pension Fund Administrators (PFAs) as the year 2017 came to an end. The National Pension Commission (PenCom) announced a maiden pension enhancement for this category of pensioners with effect from December 2017, with subsequent reviews to be advise by PenCom from time to time.
The announcement was contained in a framework on the issue, released by PenCom to Pension Fund Administrators and Pension Fund Custodians. The objective of the framework, is to provide uniform modalities for the implementation of periodic pension enhancement for the affected category of pensioners, using the surpluses generated from the return on investment, and the Retirement Savings Account (RSA) balance as at 31 December, 2016 as the basis of the enhancement. Section 115 of the Pension Reform Act 2014 (PRA 2014) confers on PenCom, powers to make regulations, rules or guidelines as it deems necessary or expedient for giving full effect to the provisions of the Act.
The current enhancement, from the information gathered by the Centre for Pension Right Advocacy appears to be a token, which may not meet the yearnings and expectations of these pensioners. However, it resolves issues around Programmed Withdrawal, arising from misinformation from certain quarters.
Section 7 subsection 1 of the PRA 2014, provides that a contributor on retirement, is expected to withdraw a lump sum from the total amount in his/her RSA, and will use the balance for either a programmed monthly or quarterly withdrawals calculated on the basis of an expected life span or purchase a life annuity from a life insurance company licensed by the National Insurance Commission.
Since the commencement of the Contributory Pension Scheme in 2004, the public, especially contributors who are about to retire or retirees who had chosen Programmed Withdrawal were and continue to be misinformed that benefits under Programmed Withdrawal terminates after fifteen years. We differ from this position, as there is no legal or administrative foundation for this assertion. The fact is that the balance in the RSA for those who chose Programmed Withdrawal after the initial lump sum withdrawal, remains the money of the account holder. PFAs’ continue to render quarterly statements of accounts to the holders, which corroborate our position. Since the PFAs continue to invest the balances in the RSAs, thereby growing the balances in the RSAs, the balances are expected to meet the quarterly or monthly payment of pensions to the holders beyond fifteen years. The information the Centre gleaned from statements of account of one of such retiree, substantiate our position. As at March 31, 2014, the balance in the retiree’s RSA was N11,725, 319.49. The opening balance as at the beginning of the fourth quarter of 2017, October 1, 2017 was N12,606,526.76 while at the close of the quarter, December 31, 2017, the RSA balance stood at N12,957,725.24. Pension payments within the quarter was N283,193.49. On the demise of the retiree, the balance in the RSA will be paid to the estate of the retiree.
One other issue addressed by PenCom in the framework is the issue of Minimum Guarantee Pension as provided for in Section 84 subsection 1 of PRA 2014. The section provides that all RSA holders who have contributed to a licensed PFA for a number of years to be specified by the Commission shall be entitled to a guaranteed minimum pension as may be specified from time to time by the Commission. The framework directs PFAs to continue paying pensions to retirees that have fully exhausted their RSAs from their statutory reserve, pending implementation of Minimum Pension Guarantee.
Section 81 of PRA 2014 creates a Statutory Reserve Fund to be maintained by every PFA as contingency fund to meet any claim for which the PFA may be liable as may be determined by the Commission. The Fund shall be credited annually with 12.5 percent of the net profit after tax or such percentage of the net profit as the Commission may, from time to time stipulate.
Section 82 of PRA 2014 on the other hand, creates a Pension Protection Fund, from where the minimum guarantee pension will be paid. The Pension Protection Fund shall consist of an annual subvention of 1 percent of the total monthly wage bill payable to employees of Public Service of the Federation towards the funding of the minimum guarantee pension; annual pension protection levy paid by the Commission and all licensed pension operators at a rate to be determined by the Commission from time to time; and income from investment of the Pension Protection Fund.
It is now incumbent upon PenCom, to immediately put in place modalities for the full implementation of Minimum Pension Guarantee because in our opinion, what has been introduced through the Pension Enhancement Framework is just a palliative measure. Consequently, we want to believe that the Pension Protection Fund from where the Minimum Guarantee Pension is to be funded, is being adequately funded in line with the provisions of Section 82 subsection 2 of the Act. We opine that the liability of PFAs with regards to Minimum Pension Guarantee is limited to the levy prescribed in Section 82 subsection 2 paragraph b. The above notwithstanding, we have faith in the ability of the PFAs to implement the palliative measure, since PenCom’s regulations, guidelines and frameworks are always products of consultations between the Commission and operators in the industry.
The framework on pension enhancement for existing retirees on Programmed Withdrawal Under the Contributory Pension Scheme, has succeeded in addressing some critical questions on the lips of these categories of retirees and indeed other RSA holders as well as correcting the misinformation on Programmed Withdrawal.
The first issue being whether or not pensioners under the Contributory Pension Scheme can have increases in their pensions as provided for in the Constitution. The second issue being that Programmed Withdrawal has no legal or administrative terminal date, so long as the PFA continue to invest the balance in the RSA of the retiree to generate additional fund. Finally, in the event that the balance in the RSA of a retiree is exhausted, such a retiree will be paid minimum guarantee pension from the Pension Protection Fund.
We wish to submit that political will on the part of the federal and states governments, effective regulation and supervision of the industry by PenCom and compliance with the provisions of the PRA 2014 as well as regulations, rules and guidelines issued by PenCom from time to time by all stakeholders is what is required to sustain the reform of the pension industry.
Ivor Takor, mni
A Legal Practitioner is Executive Director, Centre For Pension Right Advocacy