Experts and operators of the Contributory Pension Scheme have said that a bill currently at the National Assembly, which aims to increase the lump sum that retirees can withdraw at retirement, will do more harm than good to Nigerian retirees.
According to the experts, the move would only give the retirees a bigger chunk of the pension money they must have saved during their active years, but would prevent them from getting a regular and substantial income that should last them for the rest of their lives when retired.
Senator Aliyu Wamako, representing Sokoto North, had sponsored the bill, which sought to pass the bill “to further amend the Pension Reform Act 2014 to provide for definite percentage a retiree can withdraw from his RSA and for other matters related thereto.
It sought to permit retirees to withdraw a definite rate of 75 per cent of the value of their retirement savings upon retirement, leaving only 25 per cent to be spread over their expected years of retirement as periodic pension payment.
The arguments put forward by the sponsor of the bill include the fact that the current lump sum payouts are not sufficient; and that it is the contributors’ savings, so they should have the right to access the bulk of the funds at retirement.
According to the Pension Fund Administrators, the objective of the Contributory Pension Scheme is to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
The operators said, “The proposed amendment would mean leaving only 25 per cent to be spread over the lifespan of the retiree, which may be longer than 20 years, thus, giving meagre monthly pensions below the current replacement ratio of a minimum of 50 per cent of last pay.
“It is doubtful if the 25 per cent balance in retiree’s RSA after deduction of 75 per cent lump sum, would, if spread through the retiree’s expected lifespan, be adequate to reasonably cater for his livelihood during old age.”
While noting that the 75 per cent was not the rule in the CPS worldwide, the experts said retirees could become targets for unscrupulous business opportunities.
“In fact, retirees will be forced to return to active life rather than retirement, thereby reducing their life expectancy,” an official of one of the PFAs said.
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