Introduction
THE Regulation is jointly issued by the National Insurance Commission (NAICOM) and the National Pension Commission (PenCom) for the purpose of giving effect to the provisions of Section 7(1)(c) of the Pension Reform Act (PRA) 2014.
Section 7(1) provides that a holder of a retirement savings account shall, upon retirement or attaining the age of 50 years, whichever is later, utilise the amount credited to his retirement savings account for the following benefits:
(a) 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 a programmed fund withdrawals or annuity for life in accordance with extant guidelines issued by PenCom, from time to time;
(b) Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span;
(C) Annuity for life purchased from a life insurance company licensed by NAICOM with monthly or quarterly payments in line with guidelines jointly issued by PenCom and NAICOM. The regulation specifies the modalities for the administration of retirement benefits in Retiree Life Annuity (RLA) under the Contributory Pension Scheme (CPS) as provided for by PRA 2014. RLA is a special type of annuity approved by NAICOM for sale to retirees under the CPS by insurance companies.
The challenge of the implementation of Section 7(1)(b)and(c).
The challenges of implementing the aforesaid section are twofold. The first challenge being that Retirement Savings Accounts (RSAs) are opened with Pension Fund Administrators (PFAs) licensed and regulated by PenCom. The PFAs are also responsible for the provision of the programmed monthly or quarterly withdrawals provided for under paragraph (b) of subsection (1). The balance fund in the RSA after the initial lump sum withdrawal for retirees who chose programmed withdrawals will continue to be invested and managed by the PFA. These services are not gratuitous.
Section 83(2) provides that all fees, charges, costs and expenses on transactions made and properly delineated by the PFAs shall be debited from the pension fund, in line with regulations issued by the PenCom from time to time. In the event that a retiree chooses annuity instead of programmed withdrawals, the PFA is under a legal obligation, to transfer all the balance in the retiree’s RSA to his chosen Life Insurance Company. That is a loss to the PFA and gain to the life insurance company. PFAs have been very reluctant in facilitating the transfer of the balance after the initial lump sum withdrawal to a life insurance company.
The second challenge has to do with the custody of the fund. Section 56 of the PRA 2014 states that from the commencement of the Act, pension funds and assets shall only be held by Pension Fund Custodians (PFC) licensed by PenCom under the Act. There is therefore a lacuna in PRA 2014 with regard to the custody of annuity fund. This gave rise to a challenge as to who should have custody of the fund. Should it be a PFC licensed by PenCom or a life insurance company licensed by NAICOM? Annuity under section 7(1)(c) is pension fund and assets. In the first place, the provision of section 56 is aimed at protecting pension funds and assets.
Disagreement between PenCom and NAICOM on the custody of annuity fund
The lacuna ignited a “cold war” between the two regulatory agencies, which commenced in 2007 or thereabout, when the first employees began retiring under the CPS. The two agencies later started collaborating, culminating in them jointly issuing a Regulation on Annuity in 2010. This collaboration and the joint regulation failed to address the underlining issue of custody of annuity fund. The “cold war” snowballed into a full scale crisis, when on November 3, 2010 PenCom issued a circular directing life insurance companies with Retiree Life Annuity to transfer the assets to PFCs of their choice in line with the provisions of the Act, giving them three months within which to comply. NAICOM was opposed to the transfer of fund to PFCs. This further strained the relationship between the two agencies.
The tide started changing when life insurance companies came on board and they came in very forcefully. I can say that with all authority because I was one of those who several agents of life insurance companies marketed Annuity to. Their attack on PW was vicious. I cannot for sure say whether the misinformation they were dishing out about PW was based on ignorance or deliberate. All I can say is that their styles are the same irrespective of the company they are marketing for. As a member of the Fola Adeola-led Pension Reform Committee, whose work ushered in the CPS through the Pension Reform Act 2004, I was quietly happy that Annuity was being sold to employees as it will give them an option, which was the spirit behind the provisions of Section 7(1) (b) and (c). However, I was very worried about the misinformation the marketers were dishing out with regards to the life span of PW. We were being told that PW ends after 15 years. How they arrived at that conclusion, I don’t know except that it was strategy to de-market PW. This discussion will not delve into the high and low points of either PW or RLA.
Prior to the enactment of PRA 2004, life insurance companies were more or less sleeping companies not known to many Nigerians. Section 4(1)(b) of PRA 2004 brought value chain of the CPS to the doorsteps of life insurance companies.The Position of Life Insurance Companies
The section later became 7(1)(c) of Pension Reform Act (PRA) 2014. What may have occupied the mind of life insurance companies was their business and not who had custody of the fund. If the fund remained with them, NAICOM will have a share of their profit; if the fund was with PFCs; PenCom will have a share of the fees, charges, etc. Therefore, it can be said that they cared less, more so as the custodian of the fund will not interfere with their administration of the fund.
Known or unknown to NAICOM, they were ready to go with PenCom; after all, it is the CPS that gave them a lease of life. This can be inferred by the fact that most of them complied with PenCom directives without the knowledge of NAICOM. As at February 1, 2017, some life insurance companies had transferred over N145.5.05 billion to PFCs while others were then at various stages of compliance. During this time, some senior officials of NAICOM were still claiming that life insurance companies will not comply with PenCom circular.
Marketing and De-marketing of Programmed Withdrawal and Annuity
The greatest challenge of implementing Section 7(1)(b) and (c) has to do with the marketing and de-marketing of the Programmed Withdrawal (PW) and Annuity (RLA) by operators and their agents. PFAs who provide PW are in vantage position over life insurance companies that provide (RLA). They are the only operators who regularly interface with contributors through interactive forums with employees in their places of work; RSAs are opened with them; employee data are with them and moreover, any retiring contributor’s first port of call is the office of the PFA. Some PFAs therefore took it for granted that a retiree will automatically chose PW since annuity was almost alien to contributors. That actually was the case during the first two years, when employees started retiring under the CPS.
The tide started changing when life insurance companies came on board and they came in very forcefully. I can say that with all authority because I was one of those who several agents of life insurance companies marketed Annuity to. Their attack on PW was vicious. I cannot for sure say whether the misinformation they were dishing out about PW was based on ignorance or deliberate. All I can say is that their styles are the same irrespective of the company they are marketing for.
As a member of the Fola Adeola-led Pension Reform Committee, whose work ushered in the CPS through the Pension Reform Act 2004, I was quietly happy that Annuity was being sold to employees as it will give them an option, which was the spirit behind the provisions of Section 7(1) (b) and (c). However, I was very worried about the misinformation the marketers were dishing out with regards to the life span of PW.
We were being told that PW ends after 15 years. How they arrived at that conclusion, I don’t know except that it was strategy to de-market PW. This discussion will not delve into the high and low points of either PW or RLA.
When it became glaring to PFAs that life insurance companies have arrived to share the market with them, and that PW, their own product, was being de-marketed in favour of RLA, some of them felt it was time to go after RLA.
Unfortunately for them, their intention to de-market RLA cannot go the way of annuity agents. They have to contend with the provisions of Section 83(3), which provides that PenCom shall ensure that all information in brochures, advertisements, promotional materials and claims of PFAs are truthful in every way without omission of any fact which may make the information contained therein misleading, false or deceptive.
They therefore resorted to delays in transmitting request for RLA to PenCom for approval. Unfortunately for PFAs, life insurance companies succeeded in putting some staff of PFAs in their pay rolls. These staff give the companies data of retiring staff including their phone numbers and discreetly market RLA to retirees on behalf of “their” life insurance companies.
At this point, let me say that if I have addressed any issue in this discuss, which either PenCom or NAICOM knows better, I plead for understanding since I discussed it from my own point of view. I never intended to misrepresent facts.
Rules of General Application
Section 4 of the Revised Regulation, captioned; “Rules of General Application,” states that these regulations shall apply to RLA contracts for retirees under the CPS. The rules provide that premium remitted to RLA providers for the purpose of RLA under the CPS shall be payment strictly for the purchase of annuity for life. Premium in the context of the Revised Regulation means the financial consideration transferred from the RSA of the retiree by the PFA to the account of the RLA provider as payment in return for a promise to receive an agreed monthly or quarterly pension for life.
The premium, like the balance in the RSA PW, is for pension and not for any other purpose; therefore the RLA provider is not in the position to negotiate any other thing contrary to payment of pension with the retiree as doing so will be a breach of the provisions of Section 7(1)(c) thereby attracting appropriate sanctions in line with the provisions of Section 99(1) of PRA 2014. Without prejudice to the already stated rule, a retiree shall be at liberty to have increasing annuity features as an option subject to the RLA product being approved by NAICOM.
All PFAs and RLA providers shall, at the minimum, display the CPS Retirement Pack jointly issued by NAICOM and PenCom on their websites. Section 7(1) of PRA 2014, gives retirees two retirement benefits mode, which are Programmed Withdrawal and Retiree Life Annuity. Consequently, a retiree is required to choose between the two modes by which his/her retirement benefits shall be paid. The Retirement Pack is a guide to help prospective retirees make informed decisions on the mode of receiving their retirement benefits under the CPS.
A retiree shall within a period of six (6) months prior to the date of retirement notify the PFA of his intention to retire from employment in line with the Regulation on the Administration of Retirement and Terminal Benefits issued by PenCom. The retiree may submit to the PFA, a copy of his/her Notice of Retirement issued by the employer or his/her Voluntary Retirement Letter duly acknowledge by the employer and Pay Slip for the last three months.
The PFA shall advise the retiree to study the CPS Retirement Pack on their website and avail the retiree, at retirement a copy of his/her data which shall include the following information: Name of retiree; RSA PIN; date of birth (DOB); current RSA balance; Recommended Lump sum (if applicable); re-computed minimum pension; one-month buffer (for processing time); and amount available for premium.
The PFA shall avail the retiree moving from PW to RLA with a copy of his/her data which shall include the following information: Name of retiree; RSA PIN; date of birth (DOB); current RSA balance; re-computed minimum pension; one-month buffer (for processing time); and amount available for premium.
The retiree shall avail the RLA provider the following information for the purpose of obtaining provisional annuity quote(s): Name of the retiree; date of birth; date of retirement; gender; RSA PIN; amount available for premium; re-computed minimum pension; contact and email addresses including phone number(s); copy of retiree’s last payslip; name, address and phone number(s) of next-of-Kin (NOK); and name address and phone number(s) of beneficiary(ies).
The retiree may approach an insurance broker for negotiation of a favourable RLA quote. The PFA shall not impose an insurance broker or insurance agent on a retiree. The retiree/insurance broker shall obtain a provisional annuity agreement from the chosen RLA provider, while representing a retiree; an insurance broker shall liaise with the RLA provider only. He is precluded from liaising with the PFA; the retiree shall personally submit the provisional annuity agreement to any office of the PFA. An RLA provider shall pay death benefits to the named beneficiary or beneficiaries in line with the provisions of the relevant sections of the Insurance Act.
Conclusion
Once more, NAICOM and PenCom should be congratulated for taking the bold step towards addressing the challenges of the implementation of the implementation of the provisions of Section 7(1) of PRA 2014. Next week, I will be discussing some other provisions of the Revised Regulation on Retiree Life Annuity, more specifically, Safeguards for RLA Funds; fees structure; marketing and market practice; as well as infractions and sanctions. I encourage employees, their unions and interested members of the public to visit the websites of the two agencies to download the Revised Regulation. The value added chain of the CPS is expanding. Insurance brokers have joined. The Pension Industry is creating more jobs than it is being credited.
