To contain the unhealthy competition between pension fund managers and life insurance providers as regards management of retirees’ benefits, the National Pension Commission (PenCom) and the National Insurance Commission (NAICOM) recently took the bold step to address issues therein that are propelling friction in that regard.
Long before now, there existed a silent motor park type struggle for passengers between the pension fund managers as represented by Pension Fund Administrators (PFAs) and life insurance providers in the way they prospect clients for pension management.
The clamour was all about who should manage the benefit of individual retiree under the Contributory Pension Scheme (CPS) as they (retirees) have the options of either giving it to a PFA or a life insurer.
The situation led to operators on both sides, rather than speak to the unique benefits in their individual packages, resorting to pulling down their competitors, thereby getting the elderly prospects more confused.
To end the ugly trend, both the insurance and pension regulators, last week, signed off the Revised Regulation on Retiree Life Annuity, the Guidelines on Group Life Insurance Policy for Employees and Contributory Pension Scheme (CPS) retiree pack.
The exercise also included the signing of a Memorandum of Understanding between the regulators in order to inject sanity into the retirees’ choice of benefit management.
According to the agreement, the revised regulations and guidelines provide clarity on the provisions of the PRA 2014 in areas relating to Retiree Life Annuity with focus on guiding stakeholders to make informed decision, ensure safety of Retiree Life Annuity funds and assets, address concerns of mis-selling and de-marketing by pension and insurance operators as well as bringing stability into the financial sector of the economy.
It is of utmost importance that as retirees move into the phase of getting their pension they understand the workings of the system, as ignorance in this respect has cast doubt on the efficacy of the scheme in the past.
Although the level of complaints surrounding the scheme with regard to withdrawal and benefit management has gradually waned over time, it is pertinent to restate the place of legality in the operations of the pension scheme.
As a result of the initial mix up between the Defined Benefit Scheme (old and non-contributory) and the CPS, it was difficult for some of the retirees to understand the new process of managing their benefits.
Thus, the PFAs and life insurance providers capitalised on the ignorance to cajole retirees to their side, even if the latter would have preferred otherwise.
As a matter of fairness, the contribution is supposed to be managed for the retiree under the Programmed Withdrawal by the PFAs or under the Life Annuity Programme by life insurance companies.
The PFAs reportedly had an upper hand since the management of the contributions was entirely in their control in the first place.
Taking it more seriously, both regulators said reported and investigated cases of unfair and unethical practices, such as misinformation, de-marketing and mis-selling by Pension Fund Administrators (PFAs) and Retirement Life Annuity (RLA) Providers (Life insurance Operators) shall henceforth attract severe sanctions.
They insisted that consistent violation of the regulation shall constitute a ground for suspension of the retirement life annuity provider from underwriting new businesses until the infractions are addressed.
According to them, where a violation adversely affects payment of monthly or quarterly annuity to a retiree(s), NAICOM shall impose appropriate regulatory sanctions on the retirement life annuity provider.
Any insurance agent who violates provisions of the regulation shall be sanctioned appropriately by NAICOM, both parties agreed.
They also posited that all infractions and violations by pension fund administrators and retirement life annuity custodians shall be determined and enforced in line with the regime of sanctions made pursuant to the PRA 2014 as prescribed by PenCom from time to time.
The regulators said all infractions and violations by RLA providers and insurance brokers/agents shall be subject to such penalties as may be prescribed by NAICOM from time to time.
The failure of most retirees to fully comprehend the workings despite aggressive education by the regulator, Pencom, had also compounded the situation for them.
The objective of Pension Reform Act (Section 1, PRA 2014) shows, “the CPS seeks to, among others, ensure that every worker receives his retirement benefits as and when due.
However, retirement benefits administration is the last phase of the process/activities put in place to achieve the above objectives of the pension reform.
The two modes of benefit administration under CPS are Programmed Withdrawal and the purchase of Retiree Life Annuity. Besides, there are also benefits for the beneficiaries of a deceased contributor/retiree.
According to the arrangement, there are two windows available in the management of benefits in this regard.
They are Programmed Withdrawal, managed by the PFAs or Life Annuity, which is handled by Life insurance providers. The retiree is also entitled to a lump sum payment before PW or Annuity just as an en-bloc payment of benefits could also be effected in cases of deceased or missing persons.
A section of the Act also permits the retiree to retain in his RSA, an amount that will procure at least a monthly pension or annuity of (not less than 50 per cent of his last pay) (– with extant guidelines). The balance may be taken as lump-sum.
For a retiree to access his account (RSA) easily, he must have presented documents including one notifying his PFA six months ahead of retirement. Other documents include official notice/acceptance of retirement from the employer, last pay slip as evidence of annual total emolument and last grade level, recent passport photograph, any other evidence of ATE, quotation from an insurance company for the purpose of annuity product, if desired, bank account details and contact address after retirement.
It also includes Standard Notice of Retirement, which is a form where the important information of the RSA holder who wants to access his benefits are listed by his PFA. This form contains the name of the retiree, age, gender, date of birth, date of retirement, ATE, RSA balance, detail of benefits to be paid, employer’s detail, retiree’s contact etc.
The Programmed Withdrawal Agreement is also necessary. It is a document issued by the PFA for a retiree who wants to access his retirement benefits through a programmed withdrawal option to reflect his details. The amount to be reflected includes RSA balance, lumpsum, monthly pension and the form must be properly signed by the retiree.
The Provisional Annuity Agreement is a provisional agreement document issued by an insurance company to reflect the details of the retiree who wants to access his retirement benefits through an annuity option. The agreed terms and amounts are to be stated in the document such as the amount to be transferred to the insurance company as premium, annuity amount, lump sum and guarantee term. It should be signed by the insurance company and the retiree.
To ensure proper training for operators, NAICOM and PenCom maintained that RLA providers shall not later than December 31, every year, submit a staff training plan in respect to successive years.
The training programme shall cover all relevant aspects of RLA business operations, including marketing and sales, underwriting, solvency, investment, record keeping, filing of returns and customer service.
NAICOM was given the privilege to organise annuity training for RLA providers and brokers from time to time, while staff and agents of RLA business shall receive a minimum of one training on administration of RLA products every year.
Both parties also maintained that going forward, the list of approved insurance brokers eligible to transact RLA business shall be published yearly on their websites.
They mandated all PFAs and RLA Custodians to abide by the code of ethics and business practices for licensed pension operators and that all RLA providers are required to adhere to the market conducts and business practice guidelines for insurance institutions in Nigeria.
Operators were urged to ensure all basic features are disclosed in their marketing materials.
According to the new rule, all licensed RLA providers shall be responsible for the actions of their appointed insurance agents and all licensed insurance agents shall now carry identification cards bearing their registration number and name of their principal while marketing the RLA product of their principal.
The decision by both regulators to end the conflict of interest is long overdue since the struggle to win retirees to each side has over time led to friction in the industry.
The latest decision will further consolidate the transparency the scheme is already known for as more workers key into the process.