The Director -General, National Pension Commission (PenCom) Mrs Aisha Dahir-Umar has kicked against the payment of 75 per cent lump sum for retirees, as proposed in the Pension Reform Amendment Bill before the House of Assembly .
Dahir-Umar said this in a presentation at a recent public hearing organised by the House Committee on Pension on a Bill for an Act to amend Section 1(c) and Section 7(2) of the Pension Reform Act 2014 (PRA 2014).
A copy of the presentation on the commission’s website on Monday in Lagos said the proposed amendment seeks to provide that a retiree under the Contributory Pension Scheme (CPS) to receive at least 75 per cent of his or her Retirement Savings Account (RSA) balance as lump sum immediately upon retirement.
Section 7 (1) (a) of the Pension Reform Act (PRA) 2014 allows for 25 per cent of the total in the Retirement Savings Account (RSA) to be paid as lump sum to a retiree, provided that the amount left after the lump sum withdrawal , will be sufficient to fund a programmed withdrawal or annuity over the expected lifespan.
The director -general noted that the proposed amendment was not apt, considering that it was based on a misunderstanding of the concept of pension payment under the CPS.
She said that the proposed amendment would be contrary to the provision of Section 173 of the 1999 Constitution of the Federal Republic of Nigeria (as amended), which guarantees the right to pensions for all public officers.
“This is because payment of “at least 75 per cent of the balance of the RSA” as lump sum at retirement suggests that a retiree can decide to take 100 per cent of the RSA balance.
“That position converts the CPS into a provident fund and leaves such a retiree
with no periodic pensions, which is contrary to the requirement of Section 173 of the 1999 constitution,” she said.
According to her, the provision of monthly pensions is central to the objective of mitigating old age poverty under the CPS Dahir-Umar explained that PenCom retirement benefits payment template ensures that the RSA has enough balance and should be sufficient to provide at least 50 per cent of the retiree’s terminal pay as monthly pensions.
She noted that it is the residue after this provision is made, that can be taken as lump sum.
“Consequently, it is inaccurate to suggest that there is a fixed lump sum for all retirees, rather the lump sum is determined after securing a minimum replacement ratio of 50 per cent of last pay as monthly pensions,” she said.
The PenCom boss observed that the proposed amendment would mean, leaving only 25 per cent to be spread for pensions thus resulting in meagre monthly pensions.
She said: “It is doubtful if the 25 per cent balance in a retiree’s RSA, after deduction of 75 per cent lump sum would be adequate to reasonably cater for his livelihood during old age.
“It is important to note that the payment of 75 per cent of RSA balance as lump sum upon retirement is not obtainable in other jurisdictions operating the CPS.
“This is due to its resultant effect of rolling back the principal objectives of the CPS, which seeks to provide a pool of pension funds that are invested for the benefit of retirees throughout their retirement life and not just immediately upon retirement.
Dahiru-Umar stated that PenCom supports the improvement of living conditions of retirees as evidenced by the periodic pension enhancement for retirees under the programmed withdrawal mode.
She suggested that the remedy for the agitation for the payment of 75 per cent lump sum lies in the implementation of the provision of Section 4(4)(a) of the PRA, 2014 dealing with payment of additional benefits upon retirement.
” It provides that “notwithstanding any of the provisions of this Act, an employer may agree on payment of additional benefits to the employee upon retirement”.
“Through this provision, employers may establish Gratuity or End of Service Benefit Schemes that are to be managed by licensed PFAs for the exclusive benefit of employees at retirement.
“These funds are usually separate from the RSA balances of employees and are paid directly to them at retirement.
“Ultimately, this would considerably enhance the amount available to employees as retirement benefits,” she said .
