Lump sum pension withdrawals hit N1.01trn

Lump sum withdrawals under the Contributory Pension Scheme (CPS) has hit N1.01 trillion as of the end of second quarter 2022, underscoring success of the scheme in terms of social impact, though has left some retirees struggling.

According to figures released by the National Pension Commission (PenCom) and compiled by Pension Fund Operators Association of Nigeria (PenOp), of the total figure, those under programmed withdrawal received N835 billion, while those in life annuity received N175.2 billion.

Lump sum here represents the initial withdrawal by a retiree from his or her Retirement Savings Account (RSA) balance at the point of leaving employment, in either the public service or the private sector.

As stipulated in Section 7(1) of the PRA 2014, a holder of RSA shall, upon retirement or attain the age of 50 years, whichever is later, shall utilise the amount credited to his retirement savings account to procure a programmed withdrawal or annuity for life in accordance with guidelines issued by the commission.

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While the programmed monthly or quarterly withdrawals managed by the Pension Fund Administrators (PFAs) are calculated based on expected life span, annuity for life, on the other hand, is purchased from a life insurance company with monthly or quarterly payments in line with the jointly issued guidelines by PenCom and the National Insurance Commission (NAICOM).

Oguche Agudah, chief executive officer, PenOp reacting to the growing size of lump sum withdrawal by retirees, said the consistent lump sum payments over the years shows the sustainability of the CPS.

He said the lump sum and regular payments made to retirees helps to spur consumption, which leads to growth. In another vein, it gives the retirees secured and stable cash flows, he said.

“On the flip side, many must realise that because the scheme we run is contributory in nature, meaning that it’s what you put in that you get out. Therefore, retirees can elect not to receive the lump sum in order to increase their monthly pay-outs.”

“I think overall, what we advocate is increased financial planning and goals when individuals are in active work, so they can, to a large extent, determine the level of lump sum and regular pay-outs they would receive at retirement, Oguche said.

Joshua Obadia, a retiree with an annuity with one of the life insurance companies, said “I took the lump sum when I retired from employment eight years ago because I thought it was my right, so I happily collected it.

But honestly, it was a mistake. It would have been better to leave it and use it as part of money to buy annuity or programmed withdrawal because the more money you have in your RSA the more money you are paid in retirement.

“I have retired eight years ago and what I collect in retirement is hardly enough to take care of me because inflation has eaten so deep in the cost of living.”

He said rising inflation has made nonsense of the purchasing value of our paltry pension.

“Costs of staples like bread have become unbearably high. From N200 per loaf of bread when I retired, it is now between N800 and N1000 a loaf. To make matters worse, the bakers have been reducing the quality and quantity of all of these, ostensibly to maximise their profit. This to me is like double jeopardy – higher prices and reduced quality and quantity, he said.

Many pensioners like me now resort to borrowing just one week after receipt of the monthly pension with mounting debts.

“Some of us have resorted to selling our valuable assets to keep afloat, but I thank God I was able to build a house where my wife and I currently live. Otherwise, the thought of paying the prevailing high rentals is enough to cause a heart attack,” Obadia lamented.

Further breakdown of the lump sum withdrawals show in the second quarter of 2022 reveals that retirees under the programmed withdrawal have withdrawn 26.3 billion, while those in life annuity have withdrawn N10.3 billion.

One of the main objectives of the pension scheme is to ensure that every person that worked in either the public or private sector in Nigeria receives his or her retirement as and when due.