THE NATION MONDAY, SEPTEMBER 30, 2013
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P ENSION
Programme withdrawal threatens Life Annuity Life insurers authorised to sell annuity products may need to buckle up, going by a recent report by the National Pension Commission (PenCom) that 94.2 per cent of retirees has opted for programme withdrawal as against 5.77per cent retirees that enrolled for life annuity. OMOBOLA TOLUKUSIMO reports.
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ROGRAMME withdrawal seems to be gaining more acceptability than life annuity. According to the Natioanl Pension Commission (PenCom), 71, 518 workers retired under the Contributory Pension Scheme (CPS) by last May. Out of this figure, 67, 388 of the retirees, representing 94.23 per cent, opted for programme withdrawal, collecting periodic pensions, while 4, 130 representing 5.77 per cent went for annuity. This is coming as operators are getting agitated over fears that Pension Fund Operators (PFOs) are scheming to hijack another major chunk of their business – the life annuity business. To avert this, it was learnt that they have begun lobbying members of the the National Assembly on the proposed Pension Reform Act of 2013, a replacement for the Pension Reform Act (PRA) 2004, which they believe, will determine their fate on the issue of having to leave life annuity funds with Pension Fund Administrators (PFAs). At a forum in Lagos, insurers expressed fears as they deliberated on how to tackle the problem. They said another major cut is rearing its head in their business going by previous businesses that have been taken from them by other sectors. In 1999, they lost health insurance; in 2004, they lost pension and lost the control of Workmen’s Compensation in 2010. Based on this, the industry has lost three critical classes of insurance business in 10 years and the PFAs have now become another major threat to them. They alleged that some PFAs in their desperation to continue to manage Retirement Savings Account (RSA) holders, run down life annuity products and their providers, an allegation the PFOs have debunked. This has further led to cold war and allegations of de-marketing between the duo. Life insurers, who are statutorily empowered to provide life annuity for retirees, are upset that PFAs, use all possible means to shield them from retiring workers and by extension deny-
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• Pension Operators Chairman, David Uduanu
• Thomas
ing the them opportunities to exercise their rights to choose between the two competing products. It is noteworthy that whereas the PFOs have started programme withdrawal since 2005, the insurance companies only started annuity programme in 2010. Section 4 of the PRA provides that upon retirement, an employee is entitled to two options, you either take the programme withdrawal, which allows your PFA to continue to manage your fund until you exit the system or you take an annuity. Life annuity, as prescribed by the pension law, is a contract between the annuitant and a life insurer for the payment of agreed amounts of money at agreed intervals to the annuitant.The annuitant transfers part or all of the balance in his RSA to the life insurer as consideration for him to receive given amounts over a given period of time at agreed intervals. Programme Withdrawal on its part, pays pension over an expected life span and is sold by PFOs. The PFA selling programme withdrawal to the retiring worker is expected to spread the accumulated balance in his Retirement Savings Account (RSA) after making the lump sum payment, over a given number of months. In essence, the retiree agrees with the PFA in advance on how much he will get as monthly pension and for how long this will last. What he does not know is how long he lives to determine whether he will have some balance at the point of death or outlive his pension. The PFA now makes such monthly payment to the retiree until the last amount is exhausted. Should the retiree die before this, the balance would be paid to his estate. But if he lives beyond the period agreed, he will be on his own as no pension will be paid to him for the rest of his life. Annuity on the other hand pays pension for life and can be purchased from a life insurance company licensed by the National Insurance Commission (NAICOM), with monthly or quarterly payments making it a regular income. Also, where a retiree chooses life annuity, he negotiates with the life insurer based on his RSA balance projected to the date of retirement and
gets an Annuity Provisional Agreement from the insurer, which he submits to his Pension Fund Administration (PFA). Within seven days of receiving retiree’s application, the PFA seeks approval from PenCom to transfer the agreed premium to the insurer, attaching a copy of the provisional agreement. PenCom is required to forward copies of approval to PFA/PFC and NAICOM and within seven days of receiving approval, PFA must instruct PFC to issue a cheque for the premium in favour of the insurance company. Upon receiving the cheque from PFC, the insurer must within seven days notify the proposed annuitant of such cheque and the latter and his insurer jointly must execute an annuity contract within 21 days from the date of receiving payment. The insurer then forwards schedule of policies written to NAICOM not later than 30 days of the execution. The balance in his RSA having been transferred to the life assurer, the retirees gets monthly annuity/pension from the insurance company. In 2006, NAICOM and the PenCom collaborated on regulation of annuity under Section 4.1 (B) of the PRA 2004 for giving effect to the provisions of the Pension Reform Act (PRA) 2004 as it relates to Life Annuity It states: “A holder of retirement savings upon retirement shall utilise the balance standing to the credit of his retirement savings account for annuity for life, purchased from a life insurance company licensed by NAICOM with monthly or quarterly payments.” Former President of the Chartered Insurance Institute of Nigeria (CIIN), Mr Sunny Adeda, out of fear of losing out on the PRA, appealed to insurance practitioners to take marketing of annuity to the people very seriously. He said insurance companies are not marketing annuity as they ought to and the pension operators are taking advantage of the fact that they know when the retirees are retiring and offer them better terms before insurers even know they have retired. “There are few companies that are taking the annuity business seriously and there is the need for an intervention. A lot of people do not
know the difference between programme withdrawal and annuity products. Adeda noted that a few companies are making money from the annuity scheme, but there’s the need for others to also take a advantage of it. “What we need to do is to intensively mull a lot of campaigns. As it is, we are not doing anything. And this is why PFAs can say there’s no need for the money to go to the insurance company. They want the money to remain with them. We need to rise as an industry and address this problem. “Today, they are processing the pension reform act for amendment and we need to put ourselves together to lobby because if we don’t make a concerted deliberate effort, we will lose the business. And when we lose it, we start crying. That was how we lost the Workmen Compensation. It left us before we started crying,” he said. We must have people who are looking at this issue daily so that as the process is going, its being monitored to ensure that our interest is not jeopardised. Director-General, Nigeria Insurers Association (NIA), Mr Thomas Olorunda, assured his colleagues that the Pension Reform Act 2004 is being amended. He said: “We got wind of it and we have made our submission and we are following up on it. “One of the things we address in our submission is the issue of having to leave life annuity funds with custodians. “In our submission, we made it very clear that life annuity is different from programme withdrawal because how you deal with them, how you manage the funds relating to them, are practically different,” he said. He noted that insurers must have influence and flexibility to manage life annuity funds without necessarily having to warehouse it with the pension custodians. “I enjoin the Nigeria Council of Registered Insurers Brokers (NCRIB), who is buoyant to do something in publicity because we need to pump it into the mind of the people.”
and effective delivery of pension services, he added. Similarly, a member of House of Representatives, Hon Samson, spoke in encouraging terms about the support they are willing to give the legislation. There has been uproar by stakeholders in the industry following a draft bill that seeks to relax the qualification requirements for the PenCom director-general, which is believed to pave the way for the
incumbent, Mrs ChineloAnohu-Amazu, who started her career 15 years ago to be confirmed. The new pension bill, submitted to the National Assembly by President Goodluck Jonathan in April, this year, showed that the years of experience required for a person to occupy the post are being reduced from 20 to 15. Section 16 of the Pension Act says a director-eneral of the Commission must “pos-
sess professional skill and with not less than 20 years cognate experience relating to pension matters and or insurance, actuarial science or other related field”. But the new bill under Section 26 Subsection 2d, seeks to replace this provision stating that: “The director-general shall possess relevant and adequate professional qualification in pension matters with 15 years cognate experience.”
Pension Reform Bill in Nigerians’ interest, says Senator
HE draft Pension Reform Bill, which seeks to relax the qualification requirements of the Director-General of the National Pension Commission (PenCom), will not jeopardise the aim of amending other necessary sections of the Pension Reform Act 2004 before the National Assembly. Chairman, Senate Committee on Establishment and Public Services, Senator Aloysius Etok, told The Nation that the Senate is set to provide Nigerians with a bill that will ensure stability and effectiveness in the interest of Nigerians. “We want Nigerians to know that the bill is going to be in their interest. The pension industry is not about one person. If anybody has anything in mind, it is personal to that person,” he said, adding that the Senate will make sure that “we reform, amend and pass the bill in such a way that it will bring about stability and effective continuity in the pension industry’’. He continued: “Why should we make laws because one person is involved. What is uppermost in our mind at the Senate is to pass a bill that takes care of every Nigerian,” stated that even if the aspect of the law that seeks to reduce the qualification requirement does not change, we will make sure that we put it in proper perspective to make sure it helps continuity
‘CPS compliance among small-sized firms a challenge’ •Coverage of self-employed, informal sector difficult
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HE National Pension Commission (PenCom) has said compliance among the small-sized private sector employers remains a critical challenge in the implementation of the Contributory Pension Scheme (CPS). Acting Director-General of the commission, Mrs ChineloAnohu-Amazu made this known in Lagos. She said the organisations sees the CPS as additional cost to their operation and are not willing to implement the scheme. AnohuAmazu further said extending
coverage to the informal sector and selfemployed has also become a difficult task. “The informal sector and self-employed persons lack a coherent structure and have an unwidely composition, which renders their integration into the new scheme a difficult task. “Policy issues such as contribution rate, mode of collection and enforcement have been addressed by the framework on informal sector participation put in place by the commission,” she added.
• Mrs Anohu-Amazu