Avoid pension lump sum for guaranteed future, experts tell retirees
Pension experts have advised retirees and workers about to retire to avoid taking pension lump sum from their retirement savings for a guaranteed future.
The experts, who spoke exclusively to Daily Trust, said many Nigerians are treating lump sum as gratuity, adding that the two are not the same.
In an exclusive interview, a pension expert, Sani Mustapha, said holders of retirement savings accounts (RSAs) should note that their savings in the accounts belong to them and they do not necessarily need to withdraw lump sums unless they have pressing needs.
Section 7, subsection 1, Paragraph A to C of the Pension Reform Act, 2014, provides that a holder of a retirement savings account (RSA) shall, upon retirement or attaining 50 years, utilise the savings for retirement benefits through lump sum withdrawal, programmed withdrawal and annuity for life.
Paragraph A provides that an RSA holder is entitled to “withdrawal of a 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 programmed fund withdrawals or annuity for life in accordance with extant guidelines issued by the commission, from time to time.”
The guideline from the National Pension Commission (PenCom) limits lump sum withdrawal at 25 per cent to 50 per cent of total savings in RSAs, but there is clamour for the lump sum allowable at retirement to be raised from the current maximum 50 per cent to 75 per cent.
Senator Aliyu Wamakko sponsored a Bill at the National Assembly for An Act to Amend the Pension Reform Act (2014) to increase the percentage of pension savings that retirees can take up to 75 per cent of their savings in their RSA as lump sum at retirement.
Mustapha, a former Head of Regulatory and Public Sector (North) of AIICO Pension Managers Limited, who now works at Pension Transitional Arrangement Directorate, said “while retirees should note that if you don’t take your gratuity when it is ready, you may not get it again, the balance in your RSA belongs to you and you should not be in a haste to take.
“You should allow all balance of your RSA to be programmed, which will ensure that you get a higher monthly pension,” he said.
The expert said some retirees rushed to take their lump sums because people are not prepared for retirement.
“Lump sum is not something advantageous because you will take it and spend it and within a short period when the lump sum is finished, you start taking very small monthly pension. Pension is the part you should worry about. It is like a salary replacement,” he said.
Another pension expert, Mr. Peter Nwachukwa, said many retirees take lump sum with the intension of investment in business but will end up doing bad since they were not good investors.
Mr Nwachukwu, who is an investment banker, said “not taking the lump sum and allowing it to be programmed, leaves you with the advantage of your savings still being invested by the PFA.”
Data from PenCom showed that pension fund assets rose by N219.05 billion in just two months from N7.52 trillion recorded as at the end of 2017 to N7.79 trillion as at February 28, 2018.
“From time to time, they will enhance your pension as done not long ago. Not everybody is good in investments and business. Let PFAs invest the pension on your behalf,” Mr. Nwachukwu said.
Speaking recently in an interview with Daily Trust, the Managing Director and Chief Executive officer (CEO) of Premium Pension Limited, Mr. Umar Sanda Mairami, said some retirees take lump sum and within a short period of time, exhaust it and become stranded.
Mr. Mairami said the clamour for increase in lump sum is misplaced as it will totally defeat the aim of the contributory pension fund which is to provide financial security at retirement.
Retirement Quote
“It is not fair for retirees to die during verification and then you pay their next of kin who will use it to pay for funerals.”
- Sharon Ikeazor