PFA retirees win big as payout disparity deepens

Reforms in Nigeria’s pension industry aimed at boosting retirees’ income and expanding healthcare access are increasingly widening the gap between beneficiaries under programmed withdrawal (PW) and those on retiree life annuity (RLA).

At the centre of this shift is a deliberate recalibration of the Contributory Pension Scheme (CPS) to better respond to inflation, currency volatility, and rising life expectancy. This has driven key policy initiatives, including enhanced pension payouts, the Pension Protection Fund, and the proposed Pension Industry Health Care Initiative (PenCare).

The policy direction aligns with the broader objective of National Pension Commission (PenCom) to deepen “income adequacy”, a concept gaining traction across the industry. Beyond ensuring regular payments, the regulator is now focused on whether pensions are sufficient to sustain a reasonable standard of living over time. This has led to periodic adjustments to withdrawal templates, minimum pension thresholds, and additional safeguards to protect retirees from downside risks.

Healthcare has also emerged as a critical pillar of reform. With medical costs accounting for a significant share of retirees’ expenses, PenCom is exploring ways to integrate healthcare into pension planning. Proposals to allow a portion of retirement savings to be allocated to health insurance or medical contingencies are gaining traction, potentially enhancing the flexibility of PFA-managed funds compared to traditional annuity structures.

In Q3 2025, a total of 8,430 retirees were approved to access their retirement benefits through the PW option, while a total of 4,567 retirees opted for the RLA option, according to data from the PenCom.

Omolola Oloworaran, director general of PenCom, said the Commission rolled out its most comprehensive reforms since the Pension Reform Act of 2004.

“The essence of these reforms, collectively termed Pension Revolution 2.0, is to ensure that all Nigerian workers retire with dignity and that more money is placed in the hands of ordinary Nigerians,” she said.

Oloworaran noted that a key component of the reform is the planned rollout of health insurance. “We believe well-being is critical for every Nigerian worker, and there is no better way to guarantee this than through access to healthcare,” she said, adding that the Commission is also working towards providing free healthcare for low-income earners.

She further highlighted ongoing discussions around establishing a median wage benchmark to support pension adequacy. “If retirees cannot maintain a reasonable standard of living, then the system is failing,” she said.

As part of Pension Revolution 2.0, and with support from Bola Ahmed Tinubu, PenCom is also advancing the Pension Protection Fund to guarantee a minimum pension. While rollout will begin in the public sector, expansion to the private sector will depend on improved funding and sustainability.

Currently, contributions to the fund come from PenCom, Pension Fund Administrators (PFAs), and Pension Fund Custodians (PFCs), limiting its immediate reach.

Jude Oyemachi, a retiree annuitant and former civil servant, said the reforms designed to enhance income adequacy and healthcare access could significantly influence retirement choices over time. He questioned whether similar mechanisms could be introduced within the insurance space to allow annuity holders benefit from insurers’ excess profits.

He noted that PenCom’s revised investment guidelines, which increase exposure to alternative assets such as infrastructure and private equity, are supporting stronger fund performance. “For retirees under PFAs, this translates into periodic upward reviews of programmed withdrawals, allowing them to benefit directly from improved returns,” he said.

“In contrast, annuity payouts are typically fixed at inception, limiting their ability to capture upside gains. While annuities offer stability and longevity protection, their rigidity is becoming a disadvantage in Nigeria’s high-inflation environment, where preserving purchasing power is critical, Onyemachi said.

Pius Apere, chairman/CEO of Achor Actuarial Services Limited, said the enhancement of pensions for programmed withdrawal retirees leaves annuity holders at a disadvantage.

“The approval of regular pension enhancement for programmed withdrawal retirees leaves annuity retirees in a state of limbo,” he said, noting that current annuity product design does not allow for similar adjustments.

Apere argued that regulators should consider redesigning annuity products to enable the distribution of profits from annuity pools managed by life insurers. This, he said, would improve competitiveness and help cushion inflationary pressures on annuity payments.

Without such reforms, he warned, annuity products may become less attractive to new retirees. “There will be a natural tendency for retirees to choose programmed withdrawal over annuities if no provision is made for enhanced pensions,” he said.

He added that regular pension enhancements for programmed withdrawal retirees would continue to strengthen PFAs’ value proposition, potentially eroding the market position of life insurers.

Nigeria’s pension system currently offers two retirement options under the CPS, programmed withdrawal, managed by PFAs, and life annuities, provided by insurance companies in line with the Pension Reform Act 2014. While PFAs are regulated by PenCom, annuity providers fall under the oversight of the National Insurance Commission (NAICOM), with joint guidelines governing annuity products.