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Why my former colleague on the same salary level gets higher pensions than me?

Two people, Josephine, female and Kayode, male, both worked in the Ministry of Works and Housing, a Federal Government institution and retired at the same time in 2014 on the same salary grade level.

When they started receiving their monthly pensions, having signed for a programmed withdrawal with the same Pension Fund Administrator (PFA), Kayode was surprised that Josephine was getting a higher pay than he was.

He had thought that having retired at the same salary grade level, they both would earn the same amount of money as pensions during retirement, but that was not the case.

What happened to Josephine and Kayode is also happening to many other retirees out there, who think that they have been short-changed by their PFAs or have been robbed of what is due them for pensions.

The issue is not unique to public sector retirees, it also happens with retirees in the private sector who continue to call their pension managers all sorts of names.

Experts in the pension industry, trying to provide insights into why there are differences in what retirees earn as monthly pension pay-outs, said these are based on some variables.

Kabiru Tijjani, an executive director at Premium Pensions Limited had said that difference in benefits payment to retirees, either as lump sum or monthly pension varies for individual retirees.

According to him, these are determined by some factors including age at retirement; Gender; RSA Balance; Size of Annual Total Emolument (ATE); and retirees’ choices.

Speaking on the theme “Benefits Administration – Processes, Lump sum Computation and Challenges with Payments, Tijjani listed the determining variables to include:

Age at Retirement:
Using two retirees with different ages and other variables being equal, the older retiree will get slightly higher monthly pension than the younger retiree because his expected life span is shorter.

Gender: The mortality table assumes that women live slightly longer than men: Therefore, a male and female retiree with the same age and other variables being equal at retirement will definitely have differences in their pensions as the template makes provision for the extra years that the female retiree is expected to live.

RSA Balance
: Two retirees with different RSA Balance with other variables remaining the same at retirement will result to higher monthly pension for the retiree with higher RSA balance, while the reverse is the case for the retiree with the lesser RSA balance. The difference RSA balance is determined by three factors -size or accrued rights portion paid into RSA due to grade level and step as at June, 2004; total monthly contribution is based on individual grade level/structure from July 2004 to date of retirement; and the growth of the investment income is based on the duration in which the contributions stayed in the RSA.

Size of Annual Total Emolument (ATE)
: Differences in ATE with other variables remaining constant will cause differences in monthly pensions and lump sum receivable.

Retiree’s choices: Based on individual peculiarities, one can choose between zero lump sum and/or maximum lump sum or any amount in between is equal to or lower than the recommended/maximum lump sum in the template in order to boost his monthly pension.

When all these factors have been taken into consideration, the Pension Fund Administrator who manages the fund computes the balance in the retirees RSA, using a standard template approved by the National Pension Commission (PenCom).

With this standard template, no PFA will pay higher pay-out than the other given the same balance in the RSA and all the determinant factors above taken into consideration.

Section 7 (1) (a) of the PRA 2014 allows for lump sum to be paid to a retiree provided that the amount left after the lump sum withdrawal will be enough to fund a programmed withdrawal over expected life span of not far from 50 percent of his/her annual remuneration as at date of retirement.

This therefore makes computed monthly pension drawdowns over an expected life span to be a first charge on the RSA balance while the residual will be paid as lump sum.

Tijjani stated that the computation of the lump sum payment and periodic (monthly/quarterly) pension withdrawal is based on a Standard Programmed Withdrawal Template/Model issued by the National Pension Commission (PenCom) to all Pension Fund Administrators (PFAs). The inputs/variables in the PWT for the computation are based on the new definition of Annual Emolument (ATE) using the most revised template for calculating lump sum benefit released by PenCom.

The objective of the Contributory Pension Scheme is to ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due; assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

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