A tussle between the National Insurance Commission (NAICOM) and the National Pension Commission (PenCom) over which agency should regulate the country’s N145bn annuity fund business is denying potential retirees the opportunity to make a choice of retirement pay-out option.
Before the suspension of annuity business from insurers by PenCom, retirees had the privilege of choosing between two retirement pay out options; a Programmed Withdrawal, managed by Pension Fund Administrators (PFAs) and Life Annuity, managed by life insurance companies.
A programmed withdrawal is a periodic payment from the pension contribution of a retiree, based on his or her expected life span, while a an annuity is an option offered to retirees from insurance companies, which offers them monthly or quarterly payments for the rest of their lives.
But the tussle between the pension commission and the insurance commission on the management of annuity has led to the suspension of annuity payment as an option to retirees, leaving them with just programmed withdrawals.
The total annuity fund under management by life insurance companies, stood at N145 billion, as at the end of first quarter 2016 with 29,629 retirees receiving payment. Programmed withdrawal has however accumulated N329 billion within the same period, with 132,405 retirees receiving payment.
Sources in the industry say both regulators are yet to come to an agreement as to whether PenCom should regulate annuity business of insurers, which was previously supervised by NAICOM, under a joint regulation issued by both authorities.
Some insurance operators who spoke to BusinessDay last night, ahead of the February 3 deadline given by PenCom, that life insurers should transfer annuity funds under their management to Pension Fund Custodians, said insurers have lost huge incomes, following the suspension order.
They said it would be in the interest of the industry and potential retirees that both regulators sit down and agree on workable modalities for the management of the fund, so that the business can continue.
“For me, where the fund resides does not matter, but operational modalities should be streamlined. “Since we have a regulator (NAICOM), we do not need to write to PenCom for approvals on monthly basis before we pay our retirees. That would not be fair for our regulator, (NAICOM),”said the CEO of one of the affected companies, who spoke on condition of anonymity.
He further urged that both regulators should address operational challenges as quickly as possible, so that the business can go on.
On whether insurers were complying with the PenCom directive on annuity transfer, the CEO of another insurance company said, “Comply with what? Our regulator will direct us on what to do, so we are waiting on NAICOM for a direction on what next to do”.
The director-general, Nigerian Insurers Association (NIA) Sunday Thomas, who has been at the forefront, engaging PenCom to revise the directive, said he was not aware that any company had complied. “I am not aware that any company has complied, except if any voluntarily did that before the PenCom circular,” he said.
A source in the National Insurance Commission (NAICOM) said it was engaging PenCom to have an understanding on the development in the interest of all stakeholders.
Recall that PenCom had on November 3, last year, issued a circular entitled: Strengthening the Administration of Retirement Benefits under the Pension Reform Act (PRA) 2014, with reference number PENCOM/INSP/CIR/TECH/16/17, to pension fund administrators and custodians, and signed by Muhammad Umar, who heads its Surveillance Department.
The pension regulator noted that in line with the PRA 2014, the custody of retiree life annuity, shall henceforth, be domiciled with PFCs as provided for in Section 56 of the Pension Act.
PenCom mandated all life insurance companies currently providing life annuity for retirees under the Contributory Pension Scheme (CPS) to open an operational account jointly with a PFC of their choice and advice the commission.
It maintained that all life insurance companies currently providing retiree life annuity under the CPS should transfer the corresponding assets in their possession or custody to the PFC of their choice.
PenCom also noted that the approval of new request for annuity should be put on hold with immediate effect, until life insurance companies meet the custody and transfer conditions.
PenCom says life insurance companies are required to open an account with the custodian of their choice and also execute custodial service agreements that shall state the terms and conditions of the contract between the parties.
S. 7 (1a) Pension Reform Act 2014 states that an employee on retirement, shall procure Annuity for Life Policy or Programmed Withdrawal.
The lump sum for the procurement of Annuity for Life Policy or Programmed Withdrawal, must have been accumulated through a series of employer and employee contributions into the Retirement Savings Account of the retiring employee, throughout his or her working career.
Programmed Withdrawal is a product offered by Pension Fund Administrators (PFAs). It
pays pensions over an expected lifespan and for as long as the retirement savings account has fund and whenever the retiree dies, the beneficiary under a will or letter of administration is paid enbloc, the balance in the retirement saving accounts.
While annuity is a product offered by life insurance companies regulated by the National Insurance Commission (NAICOM) and if the retiree dies within the guaranteed payment period of 10 years, the surrender value of the remaining amount within the period shall be paid as l um sum to the estate of the retiree or named beneficiary. However, if the retiree dies after 10 years, the named beneficiary will not receive any payment.
Modestus Anaesoronye
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