By Victor AhiumaYoung

The issue of lump sum payment to pensioners at retirement under the Contributory Pension Scheme, CPS, has been an issue since the inception of CPS following the Pension Reform Act, PRA, of 2014 (as amended).

Many have complained about what they described as too little the percentage lump sum payment to start a life of retirement.

But an expert in the industry, Ibrahim Duroorike, has given insight into what determines the lump sum a retiree can get at retirement.

Mr Duroorike who is an Annuity and Investment Executive, Custodian Alliance Insurance PLC, spoke in Ibadan, Oyo State, at the just concluded 6th Quadrennial (but 13th) National Delegates’ Conference of the National Union of Shop and Distributive Employees, NUSDE.

According to him, it is important to “Note that the percent a retiree can withdraw as lump sum is not automatic, but dependant on Retirement Saving Account, RSA, balance and variables supplied.

“These variables involve the RSA Balance, Final Salary(Basic + Housing+ Transport) x 12, Age at Retirement, Sex of Retiree. This is the withdrawal of a percentage of the RSA balance which is between 25 percent and 50 percent . And it will be paid directly into the bank account of the retiree, thereafter, the balance will be used to procure a Programmed withdrawal or Annuity for Life.

“In a layman term, the RSA balance will be divided into four equal parts, therefore, a part will be paid directly to the retiree bank account, while the remaining balance will be used to process the monthly pension

Mostly, the variables supplied will determine the level of either higher or lower lump-sum. In most cases, Retiree are given 25 percent of their RSA. 

“However, in some rare cases we have some retiree who receives 50 percent of their RSA as Lump-sum and that will be due to consideration of what is in their variables supplied.

Speaking on “Annuity or Programmed withdrawal”,  he explained that according to “Section 7 of the Pension Reform Act 2014; 7. (1) 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 funds withdrawal or annuity for life in accordance with extant guidelines issued by the National Pension Commission, 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 the National Insurance Commission with monthly or quarterly payments in line with guidelines jointly issued by the commission (PenCom and the National Insurance Commission, NAICOM.   “While a retiring employee is allowed to purchase Life Annuity or Programmed or a combination of both, he or she shall not be compelled by any person or entity to choose between Life Annuity and Programmed Withdrawal. Where a retiree has purchased Life annuity, he/she shall not be allowed to change to programmed withdrawal.

“The Pension Reform Act 2014 (formerly 2004) states that ‘A holder of Retirement Savings Account(RSA) upon retirement or attainment of age 50, which ever is later, shall use the balance standing to the credit of his RSA to purchase an annuity from a Life Insurance Company licensed by NAICOM with monthly or quarterly payment. 

Retiree Life Annuity

“The annuity policy purchased under the Pension Reform Act, 2014 is called a Retiree Life Annuity. Custodian Retiree Life Annuity Plan is a series of regular monthly or quarterly payments made to a retiree (called an Annuitant) for the rest of his life upon payment of the purchase amount which is usually paid once. 

“The Purchase Money is the premium paid for an annuity and in the case of the Retiree Life Annuity, the balance in the retiree’s RSA is used for this payment.”

On processing lump sum and programmed withdrawal or annuity, Duroorike explained that “A holder of retirement savings account upon retirement or attainment of age 50 whichever is later shall utilise the balance standing to the credit of his retirement savings account for either of the following mode of payments; 

Lump sum and Programmed withdrawal: 

“This is the withdrawal of a percentage of the RSA balance which is between 25 percent and 50 percent with specified monthly withdrawals from the Pension Fund Administrator, PFA. 

“Lump sum and Annuity: This is the withdrawal of a percentage of the RSA balance which is between 25 percent and 50 percent. The balance of the RSA is transferred to an Insurance company of the retirees choice to purchase life annuity which would be paid to the retiree on monthly or quarterly basis by the insurance company.

For enbloc payment, he said “This category of payment is for employee who retires at the age of 50 years and the balance in his /her RSA account is not sufficient to fund lump sum and programmed withdrawal / Annuity of up to 1/3 of the minimum wage. 

“The documents required for processing this category are; Duly signed letter requesting for En bloc with current mailing address and telephone number(s), Retirement/ Termination letter, Birth Certificate/Evidence of Age, Two Recent Passport Photographs, Employers confirmation of Accrued Right, Means of Identification which could be; National Identity Card, Drivers License or International Passport and Bank confirmation of Account details with passport attached and stamped by the bank.

  On processing lump sum for programmed withdrawal or annuity,  he requirements include “Duly signed letter requesting for Lump sum payment with current mailing address and telephone number(s), Retirement letter, Last pay slip before month of retirement, PenCom Verification slip (Federal Sector Retirees), Clearance Letter & Bond Certificate (Lagos State Retirees), Employers confirmation of Accrued Right (Private Sector Retirees), Birth Certificate, Two Recent Passport Photographs, Means of Identification which could be; National Identity Card, Driver’s License or International Passport, Indemnity form. (Obtained from the PFA),  Programmed withdrawal agreement for programmed withdrawal (Obtained from PFA), Annuity agreement (Obtained from Insurance Company) 

and Bank confirmation of Account details with affixed passport photograph duly stamped and signed by bank.”