BUSINESS INSURANCE/PENSION How to protect low level pension contributors
he Pension Protection Fund (PPF) included in the recent reviewed pension law in Nigeria was a measure devised by the National Pension Commission (PenCom) to protect low level contributors under the Contributory Pension Scheme (CPS).
Since the introduction of the CPS, there have been complaints that low level contributors would not be able to have enough funds in their Retirement Savings Accounts (RSAs) to enjoy monthly pension payments and other trappings of the scheme.
The sections 82 and 84 of the Pension Reform Act 2014 (PRA 2014) provided for the establishment of a statutory pension protection fund by the PenCom to be used for payment of compensation to eligible pensioners who have insufficient funds to enjoy the payment of pension upon retirement.
The fund was statutorily established by governments to offer additional support for pension payment to eligible pensioners as obtained in other parts of the World.
Nigeria is not the first country to introduce such protection fund as the fund is the equivalent of United Kingdom’s Pension Protection Fund and the United States’ Pension Benefit Guarantee Corporation.
Speaking recently in Abuja, the Chairman of the Pension Fund Operators Association of Nigeria (PenOp), Misbahu Yola, said that the PRA 2014 provided that the protection fund would be pulled from “an annual subvention of 1 percent of the total monthly wage bill payable to employees in the Public Service of the Federation.” However, the annual subvention from the federal government may not be enough to sustain the PPF and PenCom factored it in the PRA 2014.
In addition to the financial backing from government, there is also an annual pension protection levy paid by the PenCom and all licensed Pension Fund Administrators (PFAs) at a rate to be determined by the commission from time to time. To keep increasing the fund, the Act provided that the protection fund should be invested and the returns from investments channelled to the protection of RSAs contributors.
Meanwhile, the PenOp chairman said the establishment of the PPF would now lead to the actualisation of Minimum Pension Guarantee (MPG) included in the Act.
Economics explain the MPG as the minimum pension which “an occupational pension system has to provide for contributors irrespective of contributions.”
MPG in this case would ensure support for eligible retirees by augmenting their balance through such support for a reasonable monthly pension payment to be determined by the Commission.
The Section 71 subsection 1 of the PRA, 2004 provided that all RSA holders who had contributed for a number of years to a licensed PFA shall be entitled to a guaranteed minimum pension, a provision which the modality for funding was not provided for in the 2004 Act (now amended).