Benefits Administration under the Contributory Pension Scheme, a Publication by PenCom
Ever wondered what happens to the retirement savings of workers under the contributory pension scheme (CPS) when they retire or die in active service?
Wonder no more as the Pension Reform Act, 2014 (PRA, 2014) provides protection and procedures for administering such savings to ensure that the owners get their due benefits. The CPS under the PRA, 2014 clearly outlines how benefits are administered upon retirement of an employee of either the public or the private sector.
Also, administration of dead or missing employees’ benefits are also outlined in the Act. Section 7 (1) of the PRA 2014 states how a holder of a Retirement Savings Account (RSA) shall upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited to his RSA for retirement benefits.
There are two basic retirement benefits administration under the CPS, namely periodic (monthly or quarterly) pension and one-off lump sum payments, which can be accessed either through Programmed Withdrawal (PW) or Life Annuity.
Programmed Withdrawal is a method by which the retiree collects his retirement benefits in monthly and quarterly amounts throughout the length of an estimated lifespan, which is determined using mortality (actuarial) tables. This is a product offered by the Pension Fund Administrator (PFA).
During the first quarter of 2021, the National Pension Commission (PenCom) approved the payment of N25.16 billion to 8,947 retirees on Programmed Withdrawal. The Commission also approved N371.10 million as their monthly pension payment. Note that when a retiree dies any balance in the RSA will be paid to the duly nominated beneficiaries.
Meanwhile, Life annuity is a series of monthly or quarterly payments paid to a retiree for life. This is a product offered by Life Assurance companies. In the first quarter of 2021, PenCom approved N10.11 billion as premium in return for total monthly/quarterly annuities of N98.33 million for 1,601 retirees on Life Annuity. During the same period, the Commission also approved the payment of N5.44 billion as lump sum payment for the same 1,601 retirees on Life Annuity.
In case of death, the amount standing in an employee’s RSA shall be paid to the named beneficiary in line with the provisions of the Act. For instance, in the first quarter of 2021, PenCom approved the payment of N10.60 billion to the legally named beneficiaries/administrators of 2,229 deceased employees and retirees.
It is important to know that the employer is obligated to pay the Group Life Insurance of the deceased employee which must not be less than three times the Annual Total Emoluments of the deceased to the beneficiaries of the deceased. Where an employee is missing and not found within a period of one year from the date, he was declared missing based on information provided by a Board of Inquiry setup by PenCom, it is reasonable to presume that the person is dead. His benefits will be paid to his beneficiary as a deceased case.
It may interest you to note that there are instances where the accumulated contributions in a retiree’s RSA maybe insufficient to procure Programmed Withdrawal or Retiree Life Annuity of a reasonable amount for an expected life span. In such a situation, PenCom allows the retiree an Enbloc payment of all the contributions and returns in the RSA.
Accordingly, from October to December 2020, PenCom granted approval for Enbloc payment of retirement benefits to 3,398 retirees whose RSA balances were N550,000 or below and considered insufficient to procure Programmed Withdrawal or Retiree Life Annuity of a reasonable amount for an expected life span. In this regard, N803.03 million was paid to the 3,398 retirees.
Significantly, benefits administration under the CPS considers RSA holder under the age of 50 years who lose their jobs but are not entitled to monthly pension under Programmed Withdrawal or Life Annuity. Such persons are allowed 25% lump sum withdrawal from their RSA if they are unable to secure new jobs after 4 months. For instance, in the first quarter of 2021, PenCom granted approval for the payment of N5.02 billion to 10,619 RSA holders who lost their jobs.
Still wondering what happens to the retirement savings of workers under the CPS? We guess no.
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