For the first time since it was established, the Contributory Pension Scheme (CPS) appears to have run into a legal hitch over lump sum payment to retirees. Sunday Ojeme reports
Having been created to take care of the defunct government funded pension scheme, the Contributory Pension Scheme (CPS) has turned out the best option in this regard with Nigerian workers registered under it seeing a brighter retirement future.
With contributions now exceeding N10 trillion, each contributor readily knows how much he is entitled to as pension if he chooses to retire or losing his job at after attaining the age of 50.
For reasons of financial security, the law setting up the scheme made it mandatory for any worker, who loses his job to receive 25 per cent of his contributions if he is unable to secure another after four months from his Pension Fund Administrator or a lump sum on retirement calculated based on what would be left in the beneficiary’s Retirement Savings Account for further pension payment.
While this has been the norm since inception, a legal tangle between a 60-year-old retiree and a PFA, ARM Pension Managers, appears to be throwing spanners in the wheel as the National Industrial Court last week compelled the latter to pay the retiree at least 50 per cent lump sum.
Although the National Pension Commission (PenCom) was reported to have secured a stay of execution and appealed the judgment given by Justice Oyebiola Oyewumi of the court, Abuja Judicial Division, the legal angle will definitely define a number of things, especially considering the age factor introduced in the case.
According to the Pension Reform Act (PRA) 2014, Pension managers at the moment use four perimeters to determine lump sum. They include: Retirement Saving Account balance as at the time of retirement; last salary; age and sex. These variable often amount to what is taken to be 25 per cent, which may not be so.
However, the NIC ordered ARM Pension Managers to pay the retiree, Maroof Giwa, at least 50 per cent lump sum of his pension.
Justice Oyewumi, in his submission, said the norm be broken for Giwa, considering his age, and the life expectancy of male Nigerians as projected by World Health Organisation.
The Court held that 25 per cent lump sum calculated by the Arm Pension Managers as claimant’s pension was unlawful, stressing that the 25 per cent withdrawal as clearly stated in the Pension Reform Act was in respect of a retiree who voluntarily retired at age 50.
Maroof Giwa had approached Arm Pension Managers to apply for pension and withdrawal benefits but the PFA offered to pay 25 per cent of his total retirement savings which he rejected. He demanded 50 per cent of the total sum.
The claimant claimed that the computation of the lump sum/benefits by the defendant done on the basis of 25 per cent was unknown to the law.
He argued that he could not be treated like a retiree who retired voluntarily and that he’s 60 years and above and would want to withdraw 50 per cent or 75 per cent of his total pension.
Arm Pension Managers, the defendant in this case, submitted that the claimant has no right and his statement of fact discloses no reasonable cause of action against it.
Its counsel, M. Abdulraheem Esq, submitted that the template as provided by the 2nd defendant-National Pensions Commission only guarantees a minimum 25 per cent lump sum payable, affirming that paying a higher percentage lump sum (to the maximum of 50%) was dependent on several variables.
He submitted that to allow the claimant argument as per his claims would amount to tinkering with an Act of the National Assembly and would allow not only the claimant but any other RSA holder determine what should be paid to him or her.
He said doing so would amount to usurping the powers of the 2nd defendant as stipulated by law that the withdrawal of lump sum is an option predicated on the condition that the residue in the RSA would be sufficient to procure funds withdrawals or annuity.
In the vein, National Pensions Commission Counsel, E.O Awa, argued that the Act did not make provision for a lump sum of 50 per cent, 65 per cent, 75 per cent or 25 per cent but except 25 per cent lump sum on request to any employee that retires before the age of 50 years or disengages from employment.
But Justice Oyewumi held that the age category of the claimant 60 years and above was not in the contemplation of Section 7(2) of the Act that specifically made provision for a 50-year-old retiree to withdraw 25 per cent lump sum.
She said: “This in view of the unambiguous provision of Section 7(1) of the Act, which entitles the claimant to utilise the amount credited to his RSA account by the withdrawal of a lump sum from the total amount credited to his account. The only proviso here is that the balance after the withdrawal of the lump sum shall be enough to procure annuity for life for the retiree.
“A community reading of Section 173 of the Constitution, Section 7(1) of the Act as well as clauses 4.0 and 5.1.1 of the regulation, clearly evinces that there is no specific amount or percentage stipulated as a lump sum that a retiree of claimant’s age(60 years and above) can withdraw.
Secondly, the amount to be withdrawn by a retiree of claimant’s age is to be calculated in view of his life expectancy.
“His right to his pension shall not be altered or withheld to his disadvantage and finally the quarterly withdrawal has to be at his discretion, i.e. he has to opt for it and not at the whims and caprices of the 1st defendant to determine what and how he could withdraw same.
“The WHO, in 2018, put the life expectancy of a male Nigerian at 54.7 years, which is approximate to 55 years. This said, the claimant, in this case, has lived beyond the projection of W.H.O. of a life expectancy of a male Nigerian. This in my view displays the inadequacy of man and human frailty, in other words, no one can actually determine when a man will die, except his maker,” she noted.
As it is, the current development is likely to throw up so many issues around the CPS as some contributors had agitated in the past that all their monies be paid to them without recourse to the legal stipulations.
PRA 2014’s stance
According to Section 7(1) of the Pension Reform Act 2014, holder of 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; Withdrawal of 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 withdrawal or annuity for life in accordance with extant guidelines issued by the National Pension Commission, from time to time; Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span; or Annuity for life purchased from a life insurance Company licensed by the National Insurance Commission (NAICOM) with monthly or quarterly payments in line with guidelines jointly issued by the PenCom and NAICOM.
According to the scheme, the balance in the RSA after the lump sum payment will be applied towards the payment of monthly pension to the retiree on programmed withdrawal. In the case of annuity, it is applied to procure a monthly annuity for life from a Life Insurance company.
In making a lump sum withdrawal of more than 25 per cent, the law states that it can be allowed provided the amount left in the RSA shall be sufficient to fund a Programmed Withdrawal or annuity of not less than 50 per cent of the retiree’s annual remuneration as at the date of retirement.
Speaking on the need to be cautious with lump sum demand, Head, Research & Strategy Management Department, Pencom, Umaru Farouk Aminu, said retires should desist from withdrawing huge sums of money from their Retirement Savings Account if they want to enjoy a robust monthly pension.
He observed that many retirees had burnt their fingers with such decisions, adding that the quest to withdraw fabulous amounts as lump sum, leaving little in their RSA is responsible for the little monthly pension some retirees receive.
He called on retirees to take less lump-sum payout if they don’t have need for much financial needs, stressing that less lump-sum will help them keep more money in their accounts.
“People should take less lump sum unless they need it. If they do not need it, they should not take it.
It is important people really understand this. The more lump sum you take the less money you leave in your RSA and the lower your pension.
“People take much of their money and blow it and expect the little they left to perform wonders, which cannot happen. People should leave a lot of money behind so that they can have huge pensions,” he said.
From the current scenario, the beauty of the Contributory Pension Scheme must have run into a hitch, considering the fact that the age factor is largely going to determine the final decision on what percentage should be paid to retirees.