PFAs third pay rise puts insurers on edge

Retirees under programmed withdrawal (PW) managed by Pension Fund Administrators (PFAs) will be getting a third pay rise, called pension enhancement this February 2023, and this has set the stage for competition with the insurers who manage life annuity (LA).

Already, retirees under life annuity are complaining that their peers in programmed withdrawal have received pension enhancement twice and about to get the third tranche this February, while they have not been considered for any increment.

They lamented that as retirees who buy from the same market and given the rising level of inflation in the country, it would be good to also consider enhancing their own monthly pay like their counterparts in PW.

There are two types of pension products being used in the de-accumulation phase in Contributory Pension Scheme (CPS) to provide benefits for retirement saving account (RSA) holders according section 7(1) of PRA 2014. There are programmed withdrawal and life annuity products. These two products are offered and administered separately by Pension fund Administrators (PFAs) and Life Insurance Companies (Life Annuity Insurers) respectively. The PFAs and Life Annuity Insurers are regulated by PenCom and NAICOM respectively. However, the regulations on LA product are jointly issued by the two regulatory bodies, as specified in section 7(1) (c) of PRA 2014.

Jerome Obadimu, an annuitant with one of the life insurance companies, said “I have heard from the news that retirees in programmed withdrawal and being paid enhanced pension from time to time, and we have not been told anything by our own insurance companies”.

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Obadimu said “this is not good since all of us are buying from the same market and under the same level of inflation.”

According to him, NAICOM should look into it because what gets to them at the end of the month is barely enough to take care of basic needs, let alone now that inflation has pushed up prices of almost everything.

He added that “this sided attention” could discourage people from opting for annuity from the insurance companies.

Bukola Akinukawe, another retiree who chose retirement plan with one of the insurance companies, said she was not aware of any enhancement of pensions for others retirees, but said it would be unfair if retiree annuitants were not considered for the same level of enhancement.

“I think NAICOM and PenCom should look into it, so that more people will be encouraged to take up annuity option in retirement.

Pius Apere, chairman/CEO, Achor Actuarial Services Limited, commenting on the development, said enhanced pension for PW retirees only leaves LA retirees in a state of limbo.

Apere, who is also an actuarial scientist and chartered insurer said, “This is because the regulation of LA product and insurers has not resulted in enhancement of pension for LA retirees probably due to the current product design approved for that segment of the pension industry.”

Apere said it has become expedient and imperative for the LA regulator, operating under the current enhanced pension regime in the pension industry, to also consider ways of redesigning the LA product to allow for distribution of profits from the LA pools of a particular insurer.

“This will help the insurers to remain competitive in the pension business over a long term, which is currently being controlled by the PFAs and at the same time, to an extent, cushion the effect of inflation on LA retirees’ pensions.”

In other words, the LA product may not be appealing to many new retirees in the future if no action is taken, Apere said.

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The regular enhancement of pension for only PW retirees would no doubt cushion the effect of inflation on their pensions over time, thereby creating unique selling proposition (USP) for PFAs that could be used to de-market the LA insurers.

“Thus, there would be a natural tendency for more new retirees to choose PW product in the future rather than the LA product with no provision for enhanced pension.”

For instance, out of 45,107 new retirees in 2017, 70 percent (32, 444 new retirees) chose PW product while 30 percent (13,663 new retirees) opted for LA product. Similarly, out of 37,063 new retirees in 2021, about 75 percent (27,843 new retirees) chose PW product while 25 percent, that is (9,220 new retirees) opted for LA product.

Apere further stated that the current pensioners in Nigeria are in dare need to have a sustainable standard of living in retirement in this period of serious economic hardship facing the country. Therefore, the provision of regular enhanced pension by PenCom for the PW retirees is a step in the right direction, pending the implementation of Guaranteed Minimum Pension.

However, the provision of enhanced pension for LA retirees which is under the control of NAICOM would not be achieved without revisiting the current LA product design, Apere said.

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