Omanghana
A series of decisions by Nigeria’s National Industrial Court has challenged the longstanding practice of limiting retirees to a 25% lump-sum withdrawal from their Retirement Savings Accounts.
Cases including Ladi Ogunlana v. Pension Alliance Limited and Maroof Giwa v. ARM Pension Managers and PenCom have reshaped the interpretation of the Pension Reform Act 2014 and strengthened retirees’ ability to question how Pension Fund Administrators calculate their benefits.
For years, several pension administrators treated the 25% withdrawal limit under Section 7(2) of the Act as a general ceiling applicable to virtually every Retirement Savings Account holder.
The courts, however, clarified that Sections 7(1) and 7(2) address different circumstances and should not be applied interchangeably.
Section 7(2) primarily covers workers who voluntarily disengage or lose their employment before reaching the age of 50 and remain unemployed for at least four months. Such individuals may withdraw up to 25% of their RSA balance as temporary financial relief.
Section 7(1), meanwhile, applies to people retiring normally at age 50 or above. It does not impose an automatic 25% ceiling on their lump-sum payments. Instead, it permits retirees to take an initial lump sum provided the amount remaining in their accounts can fund an annuity or programmed withdrawals for life.
The rulings mean pension administrators cannot automatically restrict every retiree to a standard percentage without demonstrating how the amount was calculated.
Where a request for a higher lump sum is rejected, the PFA may be required to provide actuarial calculations showing that granting the requested amount would leave insufficient funds to support the retiree’s projected periodic payments.
The courts also emphasized the need for individual assessments. Calculations should consider factors such as the retiree’s age, life expectancy, total RSA balance and expected programmed withdrawal requirements instead of relying solely on standard administrative templates.
In Ogunlana v. Pension Alliance Limited, the court permitted the retiree to terminate his Programmed Withdrawal Agreement and access the entire balance remaining in his RSA. The court found that the agreement did not contain an adequate termination remedy and that the restrictions imposed had not been properly justified.
The decisions have strengthened the ability of retirees aged 50 and above to request lump-sum payments exceeding 25%, including amounts of 50% or more, where the remaining balance can support the required periodic income.
Retirees may also demand a transparent explanation of the formulas, projections and assumptions used by their PFAs when calculating lump-sum offers and programmed withdrawals.
Updated guidelines from the National Pension Commission additionally provide circumstances under which retirees with low RSA balances may receive their entire savings as a lump sum, particularly where scheduled payments would produce negligible retirement income.
The rulings do not guarantee every retiree an automatic 100% withdrawal. However, they reinforce the principle that pension benefits must be determined by the retiree’s circumstances and the applicable statutory provision rather than through the blanket application of the 25% rule.
Source: Omanghana
