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Finance | Pensions n Retirement

NICN Declares Limiting Retirees Above 50 Years to 25% Lump Payment Unlawful

Aug 25, 2020   •   by   •   Source: Proshare   •   eye-icon 2752 views

Tuesday, August 25, 2020 05:57 PM / byKPMG Nigeria/ Header Image Credit: NICN


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The National Industrial Court of Nigeria (NICN or "theCourt"), Abuja Judicial Division, recently delivered judgement in the casebetween Mr. Maroof Abdul Giwa ("the Claimant") and ARM Pension Managers (PFA)Ltd. (ARM Pensions) & National Pension Commission (PenCom) ("the Defendants")on the legality of the basis for computing the lump sum payable to the Claimantby ARM Pension in line with the guidelines issued by PenCom.

 

The crux of the matter was whether the 25% benchmarkfor lump sum withdrawal provided in the Pension Reform Act (PRA or "the Act")applies to a policyholder who retires mandatorily at an age above 50 years.

 

Facts of the case

The Claimant retired from public service on 24December 2017 at the age of 60 years and applied for the withdrawal of a lumpsum representing 50% or 75% from his retirement savings account (RSA) domiciledwith ARM Pensions, in line with the provisions of the PRA. However, ARMPensions computed the lump sum at 25% which the Claimant refused to accept.Consequently, the Claimant filed a lawsuit at the NICN seeking a declarationthat the offer of 25% of the RSA balance was contrary to the express provisionsof Section 7(1) of the Act and, therefore, unlawful, null and void.

 

Issues for determination

Based on the prayers of the parties, the Court formulatedthe following issues for determination:

 

a. whether or not the Claimant is entitled to a lumpsum of his accrued pension at the time of retirement at 60 years; and

b.whether or not the Defendants can prevent theClaimant from accessing his pension.

 

NICN's decision

After considering the arguments of both parties, theNICN ruled in favour of the Claimant on the following grounds:

 

  • Based on the provisions of Section 7(1) of the Act,the Claimant is entitled to a lump sum withdrawal, provided that the balanceafter the withdrawal will be sufficient to procure a life annuity for him;

 

  • Section 7(2) of the Act, which stipulates a 25% lumpsum payment, applies only to a person who voluntarily retires, disengages, oris disengaged from employment by age 50 or below;

 

  • The Act did not specify any percentage for the lumpsum withdrawal for any claimant who retires mandatorily at an age above 50years as is the case of the Claimant in the suit. Further, the only conditionprovided in the Act for retirees above 50 years is that the amount left afterthe withdrawal of the lump sum must be sufficient to procure life annuity forthe retiree;

 

  • The life expectancy of a retiree should beconsidered in determining the lump sum and annuity due to the retiree. However,there is no basis for the life expectancy of the Claimant used by ARM Pensionin its computation as it differs significantly from the World HealthOrganization estimate of 55 years for a Nigerian male, which has been surpassedby the Claimant.

 

Comments

The judgement of the Court aligns with the provisionsof the Constitution of the Federal Republic of Nigeria which states that anybenefit (pension or gratuity) due to a person should not be "altered orwithheld to his disadvantage except to such extent as is permissible under anylaw...". This provides the basis for the different entitlements for variouscategories of retirees contemplated in the PRA. One of the main objectives ofthe Act is to ensure that improvident individuals save in order to cater for theirlivelihood during old age. Ordinarily, a policyholder is not entitled to anywithdrawal from the RSA before retirement or attaining the age of 50 years,whichever is later. Further, where a lump sum is withdrawn upon retirement, theAct provides that the remainder should be sufficient to cover a life-longperiodic payment to the retiree.

 

While Section 7(2) provides that an employee whoretires voluntarily, or due to sickness/disability or loss of employment by age50 years or below, and is unable to secure another employment within fourmonths, can make a maximum 25% lump sum withdrawal from his RSA, Section 7(1)of the Act is silent on the lump sum percentage for mandatory retirement.Consequently, a retiree above 50 years of age can determine the lump sumpercentage provided that the amount remaining after the withdrawal issufficient to procure him a lifetime annuity.

 

Theexclusion of retirees above 50 years from the provisions of Section 7(2) is notan error and should not be construed as one. As noted in the judgement, onecardinal principle in the construction of a statute is that, "where the wordsof a statue are clear or unambiguous, those words shall be so construed as togive effect to their ordinary or literal meaning and enforced accordingly".Further, the expressio unius est exclusio alterius rule of interpretation ofstatute requires that "where a statute mentions specific things or persons, theintention is that those not mentioned are not intended to be included" Therefore, employees who retire mandatorily after 50 years of age should beable to determine the percentage of lump sum withdrawal from their RSAs,provided that the balance will be sufficient to procure them a life annuity orwithdrawals.

 

WhilePenCom has the statutory power to issue guidelines for the administration ofpension matters in Nigeria, such guidelines must be consistent with theprovisions of the PRA. Hence, guidelines and other administrative documents,such as the PenCom Computation Template, should not be used in such a manner asto amend, replace or vary an Act of the National Assembly


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