By Victor Ahiuma- Young

Last week, in opening discussion of how to access benefits under CPS with ease, programmed withdrawal and retiree life annuity payment were slightly mentioned.

In this concluding edition, among others, a more detailed explanation of how both operate is given below.

Programmed withdrawal, life annuity

Programmed Withdrawal, according to the National Pension Commission, PenCom, is a product offered/administered by Pension Fund Administrator, PFA, for periodic payments (monthly/quarterly) to a  retiree.

A cross section of pensioners

It is structured based on the Retirement Savings Account, RSA, balance at retirement and peculiarities of retirees. The RSA balance is spread over expected life span of a retiree (Expected Life Span determined by Actuarial/mortality table).

Programmed withdrawal is on monthly  pension of at least 50% of terminal monthly emolument subject to lumpsum taken and RSA balance. It may  be enhanced at regular intervals subject to returns on investment. Balance in RSA is re-invested by PFA for maximum growth.

One important feature of programmed withdrawal is the balance of RSA is bequeathed to the beneficiary of the account holder if death occurs at any time.

On the other hand, PenCom, Retiree Life Annuity, is defined as  a financial product offered by Insurance companies for a regular income in consideration for payment of premium from a retiree. It is a regular pension payments for life so long as the retiree is alive.

According to the commission, there are other types of annuity but the one recognised by CPS is the retiree life annuity.

Retiree life annuity is guaranteed for 10 years in case of death. A retiree can access his benefits after the remittance of Accrued Rights into his RSA. That is, the RSA balance must be consolidated.

Under this programme, the fund is in the annuity pool under the management of  an Insurance company. If retiree dies within 10 years of retirement, monthly annuities will be paid for 10 years to beneficiaries because annuity is guaranteed for minimum of 10 years but if he dies after 10 years of retirement, no inheritance will be passed to beneficiaries.

Lumpsum payment

Lumpsum, is the bulk amount paid to the retiree at retirement after determining the monthly pension from the RSA balance.

According to PenCom, it is not automatic but subject to variables such as RSA balance, gender, last salary, age at retirement using Programmed Withdrawal Template. The Template determines the minimum monthly pension/maximum lumpsum and maximum monthly pension/minimum lumpsum from which a retiree can choose.  The monthly pension and Lumpsum works in inverse relationship.

It is important to note that Lumpsum, according to the commission, is applicable to Programmed withdrawal and Annuity options.

Benefits on health ground

Accessing CPS on health ground is applicable to those who retired on medical ground: It is meant for an employee who is not physically fit to continue in his/her employment in line with Section 16 (2a & b) of PRA 2014. The benefits is processed in the same procedure with Programmed Withdrawal except that the applicant may be less than 50 years old.

Before processing this type of request, there must be evidence of an advice of a suitably qualified physician or a properly constituted medical board certifying that the employee is no longer mentally or capable of carrying out the functions of his office due to total or permanent disability either of the mind or body.

Temporary access

Contributor, according to the commission, can also access 25 per cent of his or her RSA temporarily under Section 7(2) & 16(2)(5) of Pension Reform Act, PRA 2014. The commission explains that this is the benefit paid to employees who lost their jobs and have not been able to secure another job after the period of four months. The essence is to cushion the livelihood of the applicant. RSA holder must be less than 50 years of age and must have been out of job for four months or more to qualify for this programme. And this can only be done once before 50 years.

Deceased Benefits

Death benefits are benefits of a deceased person paid to the estate of the deceased or his legal beneficiaries.

According to PenCom, the benefits include: Accrued rights. That is, entitlement prior to June 2004, Contributions from July 2004 to month of death, Return on investment, Proceeds of Group Life Insurance Policy (300% of his annual total emoluments) and where all the components have been consolidated, benefits may be paid enbloc or where part of the Components is yet to be credited into the RSA, the portion remitted would be paid pending the balance.

There is also the deceased benefits (Group Life Insurance Benefits). According to PenCom, this should cover a minimum of three times  the Annual Total Emolument (ATE) of employees. ATE is defined as Basic salary and all allowances. That is, gross emolument. This is to be paid directly to the beneficiaries but does not preclude the employer’s choice to receive and pay the proceeds into the RSA.

Voluntary Contributions

Assessment of Voluntary Contribution, VC, can be before retirement or after retirement.  The commission explains that withdrawal can only be made after two years of contribution, subject to tax on both income and principal amount for retirees and exempted contributors while tax is made on income earned only for active contributors.

PenCom added that any VC withdrawal made after five years of contribution shall be tax-free.