CONTRIBUTORY PENSION SCHEME CPS; ANNUITY AND PROGRAMMED WITHDRAWAL OPTIONS

BY: EPHRAIM C.G. IGBOKWE.

LIFE after retirement has remained a major concern to the average worker especially in a country like Nigeria where there appears to be no functional provision for social security for the aged. Concerned about this social lapses, the Federal Government in 2004 put in place a pension system that would address the issue of pension administration seen paragon swift and velvet pension system from private sector driven companies, thereby decides to borrow lift. However, government pension which hitherto was treasury funded and rather than address the problem, was causing more damages and embarrassment to the nation occasioned by quantum loot and mismanagement, misappropriation of pension funds by the then pension managers. The Pension Reform Act 2004 as amended gave birth to what is now known as Contributory Pension Scheme (CPS) invented by President Obasanjo (Fmr) led administration, away from the then Defined Benefits Scheme (DBS). The scheme provides for retirement saving options geared at putting a retiree on monthly income even after he or she must have retired from active service. The options are the Annuity for Life and Programmed Withdrawal (PW). While Life Annuity is provided by Life Insurance Companies licensed in Nigeria, PW service is provided by the Pension Fund Administrators (PFAs).

According to experts, annuity is a retirement plan that guarantees income for life. This implies that when a person takes an annuity plan he or she is paid an actuarially determined amount paid an actuarially determined amount of money monthly or quarterly, depending on an agreed terms with the annuity service provider, until death do him or her apart and the contract agreement terminates at the demise of the pensioner/annuitant. On the other hand, Programmed Withdrawal provides a retiree with guaranteed income for a period between 10 and 15 years and within this period if death occurs; the balance in the PW is paid to dependant of the deceased which is usually peanut and takes time, sometimes years before collection.

Terms and conditions of both transactions are clearly stated in part 3, Section 7(1) of the Pension Reform Act 2014 as amended; QUOTE- “that a holder of retirement savings account (RSA) shall upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited his retirement savings account for the following benefits; “Withdrawal of a lump sum from the total amount credited to his retirement savings account provided that the amount left after the lump sum withdrawal shall be sufficient to procure/purchase a Programmed Fund Withdrawals or Annuity for Life in accordance with extant guidelines issued by the commission, from time to time”. “Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span” “Annuity for life purchased from a Life Insurance Company licensed by the National Insurance Commission with monthly or quarterly payments in line with guidelines jointly issued by the Commission (PenCom) and National Insurance Commission (NAICOM).” According to joint guidelines issued by the NAICOM and National Pension Commission (PenCom), see Regulation on Annuity by PenCom, a retiree has the liberty to choose from either of the options without any form of intimidation or interference from any person (s). At the point of making his or her choice, it is also expected that he/she is adequately advised and be left to take an independent decision. But this has not been the case as retirees who are not quite knowledgeable with the statutory provisions are most times misguided or coerced to pick either options without given a chance to make his/her choice. Cases of coercion by pension fund administrators have been reported even by retirees themselves, while on the other hand, de-marketing war has been raging between marketers of Life Annuity and Programmed Withdrawal. In view of the unhealthy competition between the two sectors.

The Contributory Pension Scheme, CPS, seeks amongst others to ensure that every worker receives his retirement benefits as at when due.

FEATURES OF PROGRAMMED WITHDRAWAL

It is a product of Pension Fund Administrators (PFA) which pays pension over an expected life span (10-15yrs).

Longevity risk- RSA balance may be exhausted at any time.

With this arrangement, retiree is subjected to untold hardship as well as truncated stipends to the detriment of the retiree.

FEATURES OF ANNUITY

Annuity is a product of insurance company which pays pension for life.

Longevity risk: in view of reforms on financial institutions in Nigeria, annuity pension for life.

Retiree monthly or quarterly pension is guaranteed for life time.

Retiree can collect lump sum, provided annuity is 50 percent of last pay while in active service. If retiree dies within 10 years of retirement (from the date annuity is purchased), the balance left in the annuity will be paid in lump sum to the named beneficiaries.

A retiree on annuity with an insurance company can move to another insurance company after two years.

A retiree on annuity with insurance company cannot change to Programmed Withdrawal with PFA.

Annuity increases retiree’s monthly pension up to 20 percent upon, whereas PW does not. 

Annuity is far better to compare to PW. See newspapers publication by Nation Pension Commission;

1.     THISDAY Page 26. Wednesday, March 21, 2012 with the rider, PenCom Advises Retirees on Annuity options.

2.     SUNDAY PUNCH 30th October, 2011 with the rider 33,168 retirees not entitled to pensions for life. 

One does not need a prophet or Imam to interpret the above headlines!

Please note; all pension funds are under the custodian, ie Pension Fund Custodians PFS and they include PFC and they include First Bank Custodian, UBA Custodian, Diamond Bank Custodian and Zenith Bank Custodian. They are four (4) custodians. No withdrawal is made on such account without due approval from PenCom (National Pension Commission) and NAICOM (National Insurance Commission).

Brief history of my company (CUSTODIAN);

Custodian and Allied Plc. (CA Plc) is a holding company with leading specialist companies and brands including Custodian and Allied Insurance Ltd, Custodian Life Assurance Limited, Custodian Trustee Limited and Crusader Sterling Pensions Limited; all rendering best in class services in its versatile fold. CA Plc. is managed by a Board comprising thorough bred professionals with proven track records in their various fields of Endeavour, who bring broad and deep insights derived from several years of fruitful and eventful years of experience to bear. Currently, with the Custodian Group assets in excess of N48billion, and a gross written premium of over N11.5billion, the group sits comfortably within the top bracket of eminent players in Nigeria’s other financial services sector. Since 1956… exceeding expectations.

www.custodianinsurance.com For more details.

Thanks for your time,

Ephraim C.G Igbokwe. Branch Manager, CUSTODIAN LIFE ASSURANCE LTD.

Tell: 08033649567, 08055418126.

Blogger's Comment:
There have been series of information dissemination on this issue, from the PFAs and the life insurance companies. Many of which border on deliberate misinformation and disinformation as an instrument to capture more clients. Many have fallen victims and are regretting such decisions till date. Therefore, I call on PenCom to have a dedicated number, email address or communication instrument to welcome enquiries, in order to enlighten pensioners for a well informed decision making.