Regulators of the Contributory Pension Scheme in Lagos State and federal level are working together to implement new guidelines that have been introduced since the amended of the Pension Reform Act in 2014, investigation has revealed.
After the amendment of the Pension Reform Act in 2014, the National Pension Commission introduced some draft and new guidelines to enforce sections in the country’ statutory pension laws.
The Lagos State Government, in an early lead in adopting the CPS compared to other states of the federation, is also amending its pension laws to align with the provisions of the PRA 2014.
Some of the drafts and guidelines released by PenCom in recent years are the multi-fund structure, pension enhancement for retirees on programmed withdrawal, harmonisation of pension entitlements, access to the RSA (the mortgage option), and minimum pension guarantee.
The Director-General, Lagos State Pension Commission, Mrs. Folashade Onanuga, said it was cogent to update officials of government in charge of pension matters on innovations in the PRA 2014.
During a seminar on update on the CPS in Lagos, she said the contributory pensions that Lagos State subscribed to was not an isolated scheme, but a programme that was introduced by the Federal Government, with PenCom as the regulator.
According to her, PenCom is the national regulator of the CPS while LASPEC is the Lagos state’s regulator.
Onanuga said, “We also need to have a feel of the innovations coming from PenCom to exchange ideas as state regulators. We understand that everything Lagos State tries to do is to benefit the workers and we need to do this within the confines of the CPS.”
The director-general said the state was also sensitising the parastatals and agents of government to the need to comply with the Group Life Insurance Policy.
While speaking on one of the guidelines, an official of PenCom, Mr. Babatunde Philips, said that in 2017, PenCom released the amended regulation on investment of pension fund assets.
He said the new investment guidelines introduced a multi-fund structure, which replaced the former structure that put all active contributors into one Retirement Savings Account fund without consideration for age or risk profiles of such contributors.
Under the new structure, he explained that all the PFAs would be offered the multi-fund structure for the RSA comprising four funds and differed based on overall exposure to variable income instruments, and that the different funds would be made to fit the ages and risk profiles of contributors.
“The fund types include Fund I, which is for young contributors based on choice; Fund II for young and middle-aged contributors (ages 49 years and below); Fund III: for pre-retirees (ages 50 years and above) and Fund IV for retirees,” he said.
After much clamouring for enhancement of pensions under the CPS, Philips said that PenCom addressed this following the appreciable growth in the RSAs of retirees.
He said the commission developed a framework to set out the modalities for enhancement of the pensions of retirees on the PW under the CPS based on surpluses generated from return on investment on retirees’ funds.
Harmonisation of pension entitlements
Section 173 (1) of the 1999 Constitution (as amended) provides that “the right of a pension in the public service of the federation to receive pension or gratuity shall be regulated by law” – the law in the case of the CPS is the PRA 2014.
Section 173 (3) of 1999 Constitution (as amended) provides that “pensions shall be reviewed every five years or together with any federal civil servants’ salary reviews, whichever is earlier” for the Defined Benefit (old) Pension scheme.
According to PenCom, the pension enhancement framework in line with one of the objectives of the PRA 2014 seeks to harmonise the pension rights of retirees in both the private sector as well as in the public sector of the federal, state and local governments in Nigeria.
Residential mortgage option
Section 89 (2) 0f the PRA 2014 provides that a PFA may, subject to guidelines issued by PenCom, apply a percentage of pension fund assets in the RSA towards payment of equity contribution for payment of residential mortgage by a holder of the RSA.
The main objective of section 89 (2) is to facilitate access by the RSA holders to residential mortgages as well as stimulate the housing/mortgage finance sector.
According to PenCom, the proposed establishment of a mortgage guarantee company by the Federal Government through the Central Bank of Nigeria will enable an RSA holder to obtain a mortgage loan based on a mortgage guarantee issued by the MGC and secured by a portion of the workers’ RSA balance.
Section 84 (1) of the PRA 2014 provides that all RSA holders who have contributed to a licenced PFA for a number of years to be specified by the commission shall be entitled to a guaranteed minimum pension as may be specified from time to time by the commission.
PenCom stated that the GMP is the lowest benchmark of pension which an eligible retiree under the CPS receives as minimum pension.
“It is an absolute amount which is equivalent to a certain percentage (to be determined by the commission from time to time) of the national minimum wage,” it stated.
According to the commission, the MPG will cover the RSA holders who contribute and retire under the CPS.
It stated that retirees solely on the PW whose RSA balances could only provide a stream of incomes lower than the GMP at the point of retirement and whose RSA balances at the point of retirement could provide a stream of incomes equal or higher than the GMP would benefit from it.