PenCom launches bill calling for ‘at least 75%’ lump sum payment to retirees

The National Pensions Commission (PenCom) has frowned on the suggestion to pay “at least 75%” of a lump sum to workers retiring under the contributory pension scheme (CPS).

The suggestion was made in the pension reform amendment bill currently before the National Assembly.

PenCom chief executive Aisha Dahir-Umar said the suggestion implies that a retiring worker can decide to take 100% of the money from their retirement savings account (RSA).

Ms. Dahir-Umar noted that the suggestion was based on a misunderstanding of the concept of pension payment under the CPS.

She said the proposed amendment also violated the 1999 Constitution, which guaranteed the right to pensions for all civil servants.

“This suggestion also converts the CPS into a provident fund and leaves such a retiree without periodic pensions, contrary to the requirement of Section 173 of the 1999 Constitution,” she said.

Ms Dahir-Umar expressed her views in a presentation at a public hearing organized by the House Pensions Committee.

The hearing focused on a bill amending Section 1(c) and Section 7(2) of the Pensions Reform Act 2014.

A copy of his presentation was obtained by the News Agency of Nigeria (NAN) on Monday in Lagos.

Section 7(1)(a) of the Pensions Reform Act 2014 (PRA) only allows 25% of pension savings to be paid out as a lump sum to a pensioner.

This is provided that the amount remaining after the capital payment is sufficient to finance a scheduled payment or an annuity over 10 years or the expected life of the retiree.

According to Ms. Dahir-Umar, the provision of monthly pensions is essential to the objective of reducing old-age poverty under the CPS.

She explained that PenCom’s retirement benefit payment model ensured that the RSA had a sufficient balance and should be sufficient to provide at least 50% of the retiree’s end-of-career salary in the form of monthly pensions.

She noted that it was the residue after this provision was made that could be considered a lump sum.

“It is incorrect to suggest that there is a fixed lump sum for all retirees; rather, the lump sum is determined after achieving a minimum replacement rate of 50 percent of the last salary in the form of monthly pensions,” she said.

The PenCom boss observed that the proposed amendment would amount to leaving only 25% to be distributed for pensions, which would result in meager monthly pensions.

“It is doubtful that the balance of 25% of the RSA of a retiree, after deduction of a lump sum of 75%, is sufficient to provide reasonably for his needs in old age.

“It is important to note that the payment of 75% of the RSA balance as a lump sum on retirement is not available in other jurisdictions operating the CPS.

“This is due to its resultant effect of rolling back the main objectives of the CPS.

“The aim is to provide a pool of pension funds that are invested for the benefit of retirees throughout their retirement lives and not just immediately after retirement,” Ms. Dahiru-Umar stressed.

She added that PenCom supports improving the living conditions of pensioners, as evidenced by the periodic improvement of the pension of pensioners under the programmed withdrawal mode.

She suggested that the remedy for the fuss over payment of “at least 75% of the lump sum” lies in implementing the provision of Section 4(4)(a) of the PRA, 2014 dealing with the payment of supplementary retirement benefits.


READ ALSO: PenCom Launches Interest-Free Pension Fund


“It provides that ‘notwithstanding any provision of this Act, an employer may agree to the payment of additional benefits to an employee on retirement”

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“Through this provision, employers can establish gratuity or end-of-service benefit schemes to be administered by registered pension fund administrators for the exclusive benefit of retired employees.

“These funds are generally separate from employees’ RSA balances and are paid directly to them upon retirement.

“Ultimately, this would significantly increase the amount available to employees for retirement benefits,” Ms Dahiru-Umar added.

(NOPE)


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