TheCable

In 2020, the National Pension Commission (PenCom) and the National Insurance Commission (NAICOM) co-published a guide on contributory pension scheme (CPS) retirement pack for prospective retirees. 

The pack provides information on the two modes of accessing retirement benefits — Programmed Withdrawal (PW) and Retiree Life Annuity (RLA) — to enable would-be retirees to make informed decisions. 

In revised guidelines, PenCom said the pack mandated pension fund administrators (PFAs) to make available the document to potential retirees to guide them towards a smooth retirement process. PFAs are companies licensed by PenCom to manage and invest the pension funds in the employee’s retirement savings account (RSA).

According to PenCom, PFAs are expected to host the retirement pack on their websites for easy access to potential retirees.

TheCable looks at the two retirement benefit modes under the contributory pension scheme (CPS) for retirees:

PROGRAMMED WITHDRAWAL (PW) FOR RETIREES

Programmed Withdrawal (PW) is a stream of income paid by a PFA to a retiree on a monthly or quarterly basis determined using a programmed withdrawal template over an expected lifetime.

It is offered and administered by the PFAs under the regulation and supervision of PenCom. The PW offers a retiree the option of a lump sum and regular monthly or quarterly pension payments.

A lump sum is often a large sum of a single payment instead of those made in instalments.

The retiree under PW enjoys periodic pension enhancement resulting from increased investment returns.

Also, the balance of retirement benefits remains in the retiree’s RSA, and the statement of account is issued to retirees quarterly or on request.

Under PW, if a retiree dies, the balance in the RSA is paid to the legal beneficiary.

The pack also added that retirees under PW may move to retiree life annuity (RLA) after one year of being under programmed withdrawal.

Under this mode, complaints from retirees are directed to their PFAs.

Nevertheless, the pack added that where the retiree is not satisfied with the response of the PFA, the issue can be escalated to PenCom for intervention.

RETIREE LIFE ANNUITY (RLA)

The retiree life annuity (RLA) is a product administered by life insurance companies and regulated by NAICOM.

It is a stream of income purchased from a life insurance company with the available RSA balance under the CPS as a premium.

Like PW, monthly or quarterly payments are made to retirees who chose RLA and depending on the RLA product, there may also be periodic pension enhancements.

However, a retiree on RLA cannot move to PW; the retiree can only move to another RLA provider after at least two years with his existing provider.

In the case of the death of a retiree, RLA is guaranteed for at least 10 years. Upon the demise of the retiree within the guaranteed period, the RLA provider would pay the total balance for the remaining guaranteed years — at a present value — to the beneficiaries.

A retiree, under the mode, is expected to contact the RLA provider in any case. If not satisfied, the issue can be escalated to NAICOM for resolution.

HOW TO FACILITATE RETIREMENT BENEFITS — PROSPECTIVE RETIREES

The following actions are to be undertaken by a prospective retiree to facilitate the process of payment of retirement benefits.
1. Obtain and peruse the retiree pack
2. Within 6 months to retirement, the RSA holder shall submit the following documents to the PFA:
(a) The official notice/acceptance of retirement from his/her employer
(b)Current payslip or any other evidence of total annual remuneration/grade level and step
(c) The evidence of accrued pension rights (if any) or acknowledgement of indebtedness (for employees in the Treasury Funded organisations).

RETIREES

(a) Obtain a data confirmation letter from PFA
(b) Obtain and complete standard notification from PFA
(c) Seek financial advice from both PFA and RLA provider
(d) Choose a mode of pension payment (PW or RLA)
e) Complete and execute a programmed withdrawal agreement for PW mode of monthly or quarterly pension collection
(f) Obtain an RLA provisional agreement from the RLA provider of choice, complete, sign and submit to the pension fund administrator for RLA mode of monthly or quarterly collection.

PenCom said it has put in place administrative sanctions to penalise PFAs that fail, neglect, or refuse to enlighten would-be retirees on the features of PW and RLA.