The National Pension Commission (PenCom) says the payment of “at least 75 per cent” lump sum to retiring workers under the Contributory Pension Scheme (CPS) is not enough.
The Pension Reform Amendment Bill before the national assembly suggested the new arrangement.
A lump-sum payment is an often large sum that is paid in one single payment instead of broken up into instalments.
Aisha Dahir-Umar, director-general of PENCOM, said this in a presentation obtained by NAN on Monday.
Dahir-Umar gave her presentation at a public hearing focused on a Bill for an Act to amend Section 1(c) and Section 7(2) of the Pension Reform Act 2014.
She also said the suggestion implies that a retiring worker can decide to take 100 per cent of the money in the retirement savings account (RSA).
She added that the suggestion was based on a misunderstanding of the concept of pension payment under the CPS.
“It is inaccurate to suggest that there is a fixed lump sum for all retirees; rather the lump sum is determined after securing a minimum replacement ratio of 50 per cent of last pay as monthly pensions,” she said.
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“That suggestion also converts the CPS into a Provident Fund and leaves such a retiree with no periodic pensions, contrary to the requirement of Section 173 of the 1999 Constitution.
“It is doubtful if the 25 per cent balance in a retiree’s RSA, after deduction of 75 per cent lump sum would be adequate to reasonably cater for his livelihood in old age.
“It is important to note that the payment of 75 per cent of RSA balance as a lump sum upon retirement is not obtainable in other jurisdictions operating the CPS.
“This is due to its resultant effect of rolling back the principal objectives of the CPS.
“The objective seeks to provide a pool of pension funds that are invested for the benefit of retirees throughout their retirement life and not just immediately upon retirement.”
Dahir-Umar, however, said the commission supports the improvement of living conditions of retirees as evidenced by the periodic pension enhancement for retirees under the programmed withdrawal mode.
She added that the remedy for the agitation for the payment of “at least 75 per cent lump sum’’ lies in the implementation of the provision of Section 4(4) (a) of the PRA, 2014 dealing with payment of additional benefits upon retirement.
“It provides that “notwithstanding any of the provisions of this Act, an employer may agree on payment of additional benefits to the employee upon retirement,” she added.
“Through this provision, employers may establish Gratuity or End of Service Benefit Schemes that are to be managed by licensed Pension Funds Administrators for the exclusive benefit of employees at retirement.
“These funds are usually separate from the RSA balances of employees and are paid directly to them at retirement.
“Ultimately, this would considerably enhance the amount available to employees as retirement benefits.”