The Nation

Life Annuity gets double protection under Pension, NAICOM Act

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By Omobola Tolu-Kusimo

Life annuitant’s investment have been given double protection under the Pension Reform Act (PRA) 2014 and the Insurance Act 2003 and National Insurance Commission Act 1997.

The life annuitants, who are retirees, are those who choose to receive their pension benefits through life annuity payment mode.

A Life Annuity is an annuity, or series of payments at fixed intervals, paid while the purchaser (or annuitant) is alive. It is an insurance product sold or issued by life insurance firms.

Basically, the provision of Statutory Reserve Fund in Section 81(1) of PRA 2014 and Section 82(1) for Pension Protection Fund ensures security of pension fund and adequate returns on investment, in this case for life annuity.

Besides, Retiree Life Annuity (RLA) providers have been charged to invest annuitants’ funds in only public limited companies that made taxable profits, paid dividends and issued bonus shares for three years as part of efforts to secure the fund.

The directive was given in the Revised Regulation on Retirement Life Annuity Pursuant to the Pension Reform Act (PRA) 2014 by National Insurance Commission (NAICOM) and National Pension Commission (PenCom).

A pension expert and stakeholder, Ivor Takor said the Contributory Pension Scheme (CPS) rests on two pillars, security of the fund and adequate returns on investment.

He stated that imbedded in PRA 2014 are various provisions aimed at securing pension funds and assets, adding that one of such provisions seeks to guarantee pension funds and assets.

He said: “The section provides that every Pension Fund Administrator (PFA) shall maintain a Statutory Reserve Fund as contingency fund to meet any claim for which the PFA may be liable as may be determined by PenCom.

‘’Section 82(1) also makes provision for Pension Protection Fund. It provides that PenCom shall establish and maintain a fund to be known as the Pension Protection Fund for the benefits of eligible pensioners covered by any pension scheme established, approved or recognised under the Act.

“Subsection 3 provides that PenCom shall utilise the Pension Protection Fund for: (a) the funding of minimum guaranteed pension pursuant to section 84 of the Act; (b) the payment of compensation to eligible pensioners for shortfall or financial losses arising from investment activities; and (c) any other purpose deserving protection with the Pension Protection Fund. In line with the above, Section 14 of the Revised Regulations provides that the security of Retiree Life Annuity (RLA) assets shall be guaranteed in line with the provisions of the Act as it relates to pension assets. In the event of deficits in the guarantee provided, a further guarantee shall be provided in line with the provisions of Insurance Act 2003 and National Insurance Commission Act 1997.

“It further provides that NAICOM may require an RLA Provider to take such actions as appropriate for the purpose of protecting Annuitants against the risk that the RLA Provider may be unable to meet its liability to the Annuitant. In case of actual or threatened insolvency, NAICOM may by order, prohibit an RLA provider from transacting new RLA business for such period as may be set out in the order. Where an RLA provider cannot honour its obligations or is in liquidation, receivership or is in other similar situations, NAICOM shall ensure the transfer all assets representing RLA fund to another RLA provider. Any shortfall in the RLA fund which remains unsatisfied from the assets of a failed RLA provider shall be offset from the guarantee provided.’’

He said there was the need for employees, unions, labour centres, especially Pension Desk Officers  to acquaint themselves with the regulation.

He maintained that the National Pension Commission (PenCom) and NAICOM had done well in addressing the challenges.

In the same vein, the RLA providers were urged to ensure that any bank where RLA funds were invested  would have a minimum corporate rating of ‘A’ and that any debt instrument proposed for listing on  the security exchange through an initial public offer to enjoy RLA funds investment should have a minimum acceptable rating of ‘A’.

The Acting Director-General of PenCom, Mrs Aisha Dahir-Umar and the Commissioner for Insurance, Mr. Sunday Thomas, urged the providers to ensure that investments of  funds on RLA were subject to limits.

The regulators insisted that violation of the regulation would be punished with suspension frombusiness until the infractions were addressed.

According to them, where a violation adversely affects payment of monthly or quarterly annuity to a retiree(s), NAICOM shall impose appropriate regulatory sanctions on the retirement life annuity provider.

Any insurance agent who violates provisions of the regulation would be sanctioned by NAICOM, both parties agreed.

They also said infractions by pension fund administrators and retirement life annuity custodians would be enforced in line wiith the PRA 2014 of PenCom.

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