Pensions page 13
Retirement benefits: States make ‘progress’ on CPS implementation
By Francis Arinze Iloani
Unlike in the past when state governments were reluctant in adopting the Contributory Pension Scheme (CPS), there are indications that states are making progress in the implementation of the scheme.
Document seen by the Daily Trust showed that as at the end of the first quarter of this year, 673,116 contributors under the employment of states were registered with Pension Fund Administrators (PFAs).
However, out of the total number of registered Retirement Savings Accounts (RSAs), only 62.07 percent, being 417,834 of the RSAs, were currently funded.
The document showed that over the period, 26 states governments had enacted their pension laws while 10 states were at the Bill stage.
Apart from enacting laws on the CPS, data analysed by this reporter revealed that 10 out of the 36 states had started remitting contributions into the RSAs of their employees as at first quarter of 2016.
The Daily Trust had reported that as at the end of 2014, only eight states had started remitting pension contributions and those states were Lagos, Osun, Ogun, Kaduna, Zamfara, Niger, Delta and Rivers.
Latest data obtained from the PenCom showed that Anambra State had joined the league of states remitting pension contributions into RSAs of ifs workers while the Imo State University is also doing same even as the Imo State government has not started.
Current data showed that eight states have started the funding of their Retirement Benefit Bond Redemption Fund Accounts (RBBRFAs) with the Central Bank of Nigeria (CBN).
PenCom has developed a 12 to 18 months roadmap for the engagement of Labour Unions, state employees, state government officials and other stakeholders no influencing state compliance with the contributory scheme.
“In order to ensure smooth implementation of the action plans in the roadmap, technical support and guidance would continue to be given to all States in the areas of actuarial valuation, employment verification (i.e. payroll clean-up); evolving viable funding plans for implementation of the CPS; registration of employees; and IT integration,” the Commission started in its first quarter 2016 report.
Investigation has revealed that most of these states are still operating the old defined benefits pension scheme hinged on Pay As You Go (PAYG) which has resulted to huge deficits owed to pensioners.
It could be recalled that at the Federal level, N2 trillion accumulated as deficit before the introduction of the CPS.
Experts are of the opinion that inadequate awareness of the operation of the scheme, lethargy in compliance by states, associated costs of migration to the CPS, low wages resulting in so low accumulation of benefits in the RSA, resistance by labour and fears by top level civil servants are among the reasons some states have not keyed in fully into the scheme.
While it is imperative to note that there has been a considerable buy-in by states, more efforts are required by states and independent agencies of states to fully key in. For instance, while Imo State has not yet commenced remittance of pension contributions, the Imo State University is currently implementing the CPS under Pension Reform Act 2014.
The PenCom also maintains that employees with RSAs could benefit from initiatives on investing pension fund assets in affordable housing development.
More retirees prefer programmed withdrawal to annuity for pensions
By Francis Arinze Iloani
After accessing 25 per cent lump sum from thier pension savings, data have shown that more retirees in Nigeria prefer programmed withdrawal to annuity.
The Pension Reform Act (PRA, 2014) allows retirees in the country the right to choose between programmed withdrawal and annuity as ways of getting their pensions over in retirement.
Data obtained from the National Pension Commission (PenCom) showed that since inception of the Contributory Pension Scheme (CPS) to the first quarter of this year, 132,405 retirees opted for programmed withdrawal for thier monthly pension payouts as against 29,620 retirees who chose annuity for thier pension payouts.
While programmed withdrawal is a product of Pension Fund Administrator (PFA) in which retirees are paid pension over an expected life span, annuity is a product of insurance company in which retirees are paid pension for life.
In both pension payment options, a retiree can collect lump sum provided monthly pension is 50 per cent of last salary.
The total number of retirees on programmed withdrawahad leaped from 126,775 as at the end of last year to 132,405 in the first quarter, 2016.
A sectoral breakdown of those that retired under the PW shows that the public sector accounted for 71.74 percent (4,039) of total retirees on PW during the quarter while the private sector recorded 28.26 percent totaling 1,591 retirees.
PenCom approved a total of 3,288 applications for annuity retirement plan during the first quarter of this year, bringing the total number of retirees receiving their retirement benefits through the annuity plan to 29,620, which is far less than the number of those on programmed withdrawal.
The data analysed by the Daily Trust revealed that since inception to the first quarter of this year, a total of N4.37 billion had been paid as monthly pension to the retirees on programmed withdrawals by the PFAs.
The retirees on programmed withdrawal also got N329.38 billion as lump sum before thier monthly pensions started.
However, over the same period, N1.51 billion had been paid to retirees on annuities by thier insurance companies.
The retirees had paid N145.04 billion to the insurance companies to purchase their annuities, thereby transferring thier longevity risks to the company for their guaranteed monthly pay in retirement.
The retirees on annuity had also taken N41.85 billion over the same period as 25 per cent lump sum from thier pension savings.
Quote of the week
‘Chase your passion, not your pension.’ -Denis Waitley
Retirement planning mistakes to avoid
By Francis Arinze Iloani
Retirement planning entails plannining for the future to hedge longevity risks, which could come in the forms of financial problems and psychological challenges. In Nigeria, retirees seem to be entering their retirement years during an economic downturn. This has upped the need for better planning for life after employment.
It is never too late to start the retirement planning process but retirees need to avoid many of the common mistakes. Here are common mistakes made by people planning for retirement:
Plan with outdated and false assumption: While most people who are near retirement age have a sense of how much assets they have accumulated, how much they will need to spend in retirement, and how long their money might last, most of people fail to have those numbers checked against different market conditions. Rising inflation rate in Nigeria pose high risk to pension contributions. Do not assume that your accumulated pension assets will guarantee life-long financial freedom for you. Draw a plan B on how to keep growing the assets even after retirement.
Retiring Too Soon: Working even a few years beyond what you’ve planned can pay a surprisingly large bonus in retirement security. In Nigeria, official retirement age is 65 years or upon completion of 35 years in service. However, you can get a contract employment to increase your retirement benefits.
Underestimating healthcare cost: Even for those on the National Healthcare Insurance Scheme in active employment, health care costs in retirement can erode spending power and economic security for most retirees. People face higher health-related problems as they age. Plan ahead for the cost implications of managing your health after retirement.
Not diversifying your portfolio: It is not uncommon for a retiree who has worked at the same company for many years to accumulate a large amount of that company’s stock in his or her portfolio. This may be risky. It is wise to invest else where.
Assuming it is too late to plan: It is never too late to start planning for your retirement. If you find the task of mapping out your financial life for the next thirty years overwhelming, it might be time to lean on professionals to get a second opinion.
Readers’ Inquiry
Question: Pensioners under PTAD have been undergoing series of verifications over the years. I am concerned that PTAD seem not concerned about the plight these old pensioners go through queueing up in the sun to get verified. When will PTAD end these excruciating verifications? – Udoji, Abuja
Answer: PTAD inherited nonexistent data base of retirees and this necessitated verifications to identify the authentic retirees and eliminate the ghosts. Pensioners are being verified once and for all to build a permanent data base and they will not be required to do another verification for life. PTAD has always put in place measures to ensure that the verifications are done in secure locations and the pensioners do not go through stress during the exercises.- PTAD
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