MPG: Strengthening pension capacity for enhanced contributor benefit

The Contributory Pension Scheme (CPS) is targeting at increasing funding backup that guarantees greater benefit for contributors, through implementation of the minimum pension guarantee (MPG) programme.

The MPG, which stakeholders say offer a buffer to support small pension contributors, would further boost confidence in CPS and pension administration.

Section 71-(1) of the PRA, 2004 provides that all RSA holders who have contributed for a number of years to a licensed PFA shall be entitled to a guaranteed minimum pension, as may be determined by PenCom.

While sections 82 and 84 of the PRA 2014 provided for the establishment of a statutory Pension Protection Fund (PPF) as a means of actualization of the MPG.

Analysts who spoke at a recent pension forum said it would excite interest and participation in the country’s flourishing CPS, which currently swells with N4.7 trillion in assets.

Misbahu Yola, chairman, Pension Fund Operators Association of Nigeria (PenOp) speaking on the topic “Establishment & Funding of the Pension Protection Fund & Minimum Pension Guarantee under the PRA 2014: An Operator’s Perspective” said MPG would ensure support for eligible retirees by augmenting their balance through such support for a reasonable monthly pension payment.

The benefits of the MPG he said includes greater confidence in pension administration and the CPS; encourage participation by other groups as well as encourage informal sector participation.

Yola said the PRA mandates PenCom to set up a Pension Protection Fund(PPF) to be utilized for payment of compensation to eligible pensioners who have insufficient funds to enjoy the payment of pension upon retirement.

“It is also to provide a back-up in case of financial losses arising from investment activities or any other purpose deserving protection with the PPF as the Commission may determine from time to time”

Describing the present operational model, the PenOp boss observed that there are two major types of payments- lump sum and programmed withdrawal or annuity

In situations where retirees balances falls below N550, 000.00 we pay the entire balance en bloc, and while retirees with balances slightly above N550, 000.00 are placed on a monthly PW, which fall as low as N3, 200.00. The scenarios he said, underscores why funding like MPG would help support these level of retirees.

Looking at the funding option, he said the fund shall compose of an annual subvention of 1 percent of the total monthly wage bill payable to employees in the Public Service of the Federation; annual pension protection levy paid by the Commission and all licensed pension operators at a rate to be determined by the Commission from time to time, as well as income from investment of the Pension Protection Fund.

He however said the creation of the PPF and MPG is a welcome development for all stakeholders in the pension industry and beyond, but pointed that funding the scheme would require will and commitment.

Definitions:

What is a Pension Protection Fund (PPF):

This is a (usually statutory) fund established by governments to offer additional support for pension payment to eligible pensioners (UK – Pension Protection Fund/US – Pension Benefit Guarantee Corporation)

What is a Minimum Pension Guarantee (MPG):

This refers to the minimum pension which an occupational pension system has to provide for employees/contributors irrespective of contributions

Objectives of the PRA 2014

Establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the public service of the Federation, the Public Service of the Federal Capital Territory, the Public Service of the State Government, the Public Service of the Local Government Councils and the private Sector;

Make provision for the smooth operations of the contributory pension scheme;

Ensure that every person who worked in either the public Service of the Federation, Federal Capital Territory, States and Local government or the Private Sector receives his retirement benefits as and when due; and assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The provisions of this Act shall apply to any employment in the public service of the Federation, the public Service of the Federal Capital Territory, the Public Service of the state, the public service of the local governments and the private sector.

In the case of the Private Sector, the Scheme shall apply to employees who are in the employment of an organization in which there are 3 or more employees.