By Rosemary Onuoha

Pension Fund Administrators (PFAs) have stopped forwarding annuity requests to life insurance operators pending when the life insurers transfer all annuity assets under their custody to a Pension Fund Custodian, (PFC), Vanguard investigations has revealed.

It will be recalled that the National Pension Commission (PenCom) recently issued a circular mandating life insurance operators to transfer annuity funds in their kitty to Pension Fund Custodians (PFCs).

An annuity is a fixed sum of money paid to a retiree by an insurance company for the rest of their lives.

Pension savings

A retiree under the Contributory Pension Scheme (CPS) has the option to choose between buying an annuity with part of his pension savings from a life insurance company after retirement or take up programmed withdrawal of the pension savings with a PFA. Where annuity fund is domiciled with a life insurance company, the PFA is in-charge of disbursing programmed withdrawal.

Meanwhile, the National Pension Commission (PenCom) by the circular to all PFAs stated “The custody of retiree life annuity be domiciled with Pension Fund Custodian (PFC); all life insurance companies currently providing retiree life annuity for retiree are to open operational accounts jointly with a PFC and transfer the corresponding pension assets in their custody to the PFC of their choice within three months; and also that the approval of new annuity requests is hereby put on hold with immediate effect until life insurance companies meet custody and transfer conditions.”

However, Vanguard’s investigations show that the insurance industry is making efforts to see that the circular is withdrawn. This is even as the circular has set many life insurers jittery, as transferring the fund would seriously affect their financial position.

An insurance operator who spoke on the condition of anonymity condemned the step taken by PenCom, stressing that proper consultations were not made before the circular was issued.

He noted that PenCom as a regulator should have properly consulted stakeholders on the issue with the Commission before issuing the said circular.

However, PenCom said that the decision to move annuity assets from life insurance companies to Pension Fund Custodians (PFCs) is to ensure consistency with Pension Reform Act (PRA) 2014 and strengthen the processing of administration of retirement benefits. PenCom noted that in line with the PRA 2014, it resolved that the custody of retiree life annuity shall henceforth be domiciled with PFCs as provided for in Section 56 of the Pension Act.

As at the end of March 2016, retirees under Programmed Withdrawal stood at 132,405 while those on annuity was 29,620. PenCom said the total number of retirees on Programmed Withdrawal increased from 126,775 in the fourth quarter of 2015 to 132,405 in the first quarter 2016, adding that the 5630 increase represented 4.44 per cent from the figure recorded in the previous quarter.

It noted that sectoral breakdown of those retired under the Programmed Withdrawal showed that the public sector accounted for 71.74 per cent (4,039) of the total retirees on PW during the quarter, while the private sector recorded 28.28 per cent totalling 1,591 retirees.

PenCom noted that the lump sum withdrawals within the quarter stood at N12.63 billion, which cumulatively amounted to N329.38 billion from inception. It said an average of N4.36 billion was paid monthly to the retirees of the scheme as monthly PW as at the end of the reporting period.