Retirees receiving their pension through Programmed Withdrawal will see another boost in the payout following a National Pension Commission (PenCom) directive Monday January 20, 2020, that Pension Fund Administrators (PFAs) should implement the second edition of pension enhancement exercise.
The pension enhancement is for Contributory Pension Scheme (CPS) retirees who have accumulated significant growth in their Retirement Savings Accounts (RSAs) and had retired between July 2007 and December 2017.
Accordingly to PenCom, the retirees referred to above are to contact their respective PFAs to confirm their eligibility and complete requisite documentations.
Making a second time of enhancement, PenCom had in December 2017 announced a maiden pension enhancement for this category of pensioners, with subsequent reviews that would be advised by PenCom from time to time.
That directive was contained in a framework on the issue, released by PenCom to PFAs and Pension Fund Custodians (PFCs). The objective of the framework them was 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.
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.
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, so PFAs’ continue to render quarterly statements of accounts to the holders. 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 on chosen life span as agreed by the managers.
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 1percent 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 what has been introduced through the Pension Enhancement Framework is just a palliative measure.
Consequently, it is expected 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. This is expected so that the PFAs with regards to Minimum Pension Guarantee is limited to the levy prescribed in Section 82 subsection 2 paragraph b.
The above notwithstanding the PFAs are expected 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 CPS will address key issues, including whether or not pensioners under the CPS 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.
The objectives of the Scheme are to ensure that every person who worked in either the Public Service or Private Sector receives his retirement benefits as at when due, assist improvident individuals by ensuring that they save in order to cater
for their livelihood during old age. The idea of depending on a company or government to take care of you at the end of your life or at retirement is an idea whose time has passed.
The Scheme is structured in such a way that from its commencement, no person shall be entitled to make any withdrawal from his retirement savings account before attaining the age of 50 years except where the employee retires on the advice of a suitably qualified physician or a properly constituted medical board certifying that the employee is no longer mentally or physically capable of carrying out the functions of his office or retires due to his total or permanent disability either of mind or body or retires before the age of 50 years in accordance with the terms and conditions of his employment.
