‘Retirees will become liabilities if allowed 75% of pension savings’

Retirees are likely to become liabilities to the society if they are allowed to take 75 per cent of their pension savings as lump sum withdrawal at retirement.

Reacting to moves in the National Assembly to allow retirees withdraw up to 75 per cent of the balance in their Retirement Savings Accounts (RSAs), an expert in one of the leading Pension Fund Administrators (PFAs) told Daily Trust that the development will hurt the Contributory Pension Scheme (CPS) as well as expose retirees to financial insecurity.

Senator Aliyu Wamakko has sponsored a Bill For An Act to Amend the Pension Reform Act (2014) to increase the percentage of pension savings that retirees can take lump sum at retirement.

The expert said many people, including retirees, do not have the financial discipline to manage money well.

“We know that one of the objectives for having the scheme is to ensure that when people retire, after they might have exhausted their adulthood in service, they should retire home and have something to live on until they die. If you allow that arrangement to pass, whereby retirees are allowed to take 75 per cent of the balance of their account as lump sum, one of the major objectives of the scheme will be defeated such that you have people that will retire and take this 75 per cent and in few months’ time, they don’t have this money again,” the expert said.

He said when they exhaust the money they become liabilities to their families and the society as a whole.

“When they retire and take huge amount of money, they squander it and they now become liabilities to others. The scheme wants to avoid that and that is why it is arranged that when you retire, you take a lump sum payment to adjust your life and the rest is spread as monthly pension,” he explained.

Currently, the pension law allows retirees to withdraw 25 to 50 per cent of their savings lump sum at retirement, but concerns have been raised that the fraction allowed is insufficient.

The bill, which has passed for second reading, seeks to amend Section 7(1) of the PRA 2014 by inserting the words “of up to 75 percent” immediately after the words “a lump sum.”

If the bill is passed into law, a lump sum payment would no longer be based on a computation that allows the balance in the RSA to be sufficient to procure a programmed withdrawal or annuity for life.