ESTABLISHMENT & FUNDING OF THE PENSION PROTECTION FUND & MINIMUM PENSION GUARANTEE UNDER THE PRA 2014 AN OPERATOR’S PERSPECTIVE BY MISBAHU YOLA CHAIRMAN PENOP

ESTABLISHMENT & FUNDING OF THE PENSION PROTECTION FUND & MINIMUM PENSION GUARANTEE UNDER THE PRA 2014

AN OPERATOR’S PERSPECTIVE

BY MISBAHU YOLA  

CHAIRMAN PENOP

ABUJA 

20TH MAY, 2015

●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 

●Pension Reform Act, 2004:-  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. However, the modality for funding of the MPG was not provided for in the Act

●The Pension Reform Act, 2014: - Sections 82 and 84 of the Act provided for the establishment of a statutory PPF as a means of actualization of the MPG. It mandates PenCom to set up a Pension Protection Fund to be utilized for payment of compensation to eligible pensioners who have insufficient funds to enjoy the payment of pension upon retirement. 

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BACKGROUND

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●Minimum Pension Guarantee (MPG) - All RSA holders who have contributed to a licensed PFA for a number of years to be specified by PenCom shall be entitled to a minimum guaranteed pension as may be determined from time to time by the Commission

●Provide a back up in case of financial losses arising from investment activities 

●Any other purpose deserving protection with the PPF as the Commission may determine from time to time

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         OBJECTIVES OF THE PPF

Two major types of payment: 

●Lump sum and Programmed Withdrawal  or Annuity

●En bloc payment

●Retirees with balances below N550, 000.00 were paid the entire balance en bloc 

●Retirees with balances slightly above N550, 000.00 are placed on a monthly PW for as low as N3, 200.00

●The major recurrent complaint against the CPS is the lower amount of monthly pension compared to the DBS

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EXPERIENCES SINCE 2007

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The Fund shall consist of the following: 

●An annual subvention  of 1% 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

●Income from investment of the Pension Protection Fund

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FUNDING THE PPF

The Commission shall utilize the PPF for:

● Funding of the MPG pursuant to section 84 of this Act

●Augment pensions in case of financial losses arising from investment activities 

●Any other purpose deserving protection with the PPF as the Commission may from time to time determine

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UTILISATION OF THE PPF 

●Where will management and custody of the fund reside i.ewhether through an assigned operator, by the Commission or an appointed body with its own structure answerable to the Commission.  What is best practice

●How is it going to be invested/ investment regulation 

●Who is eligible to enjoy protection from the fund

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STRUCTURE / REGULATION OF THE FUND

●Social harmony and security - 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

●Greater confidence in pension administration and the CPS

●Encourage participation by other groups 

●Would encourage informal sector participation

●Accumulated funds can further deepen the financial market 

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BENEFITS OF THE PPF & MPG

●Funding - Adequacy and consistency of funding from monthly government subvention and the regular collection of instituted levies 

●Financial Markets -  Stability of the economy and  performance of the financial market will also be key to ensuring appreciable returns for greater support to eligible pensioners

● Distinguishing DBS & CPS - Eligibility and scope of coverage would have to be determined

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CHALLENGES

●The creation of the PPF and MPG is a welcome development for all stakeholders in the pension industry and beyond

●Would give more security to low level contributors

●Funding the scheme would require will and commitment 

●Will foster greater confidence in pension  administration and attract more participation

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CONCLUSION

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THANK YOU