A pension expert and actuarial scientist, Dr. Pius Apere, has said that the reinstatement of the gratuity scheme under Nigeria’s Contributory Pension Scheme (CPS) must be backed by a legal amendment to the Pension Reform Act (PRA) 2014. He stated this in a recent report titled “Rationale Behind Review of Retirement Benefits for CPS under PRA 2014”.
Dr. Apere, who is the Chairman/CEO of Achor Actuarial Services Limited, explained that any move to include gratuity under the CPS, as recently proposed by the National Pension Commission (PenCom) in collaboration with the Head of the Civil Service of the Federation, would require changes to Section 7(1)(a) of the PRA 2014 to prevent duplication of lump sum payments.
The proposal, announced by PenCom Director-General Omolola Oloworaran, is aimed at reviving gratuity payments for Federal Government workers under the CPS. Dr. Apere noted that this could lead to similar moves by state governments, though their ability to fund such schemes remains a major challenge.
According to him, gratuity represents a Defined Benefit Scheme (DBS) where employers pay a one-time lump sum to retirees based on years of service. He explained that this scheme is usually non-contributory, with only the employer funding it based on actuarial valuations following International Accounting Standard (IAS) 19.
However, he pointed out that Section 4(4)(a) of the PRA 2014 already allows employers to offer additional retirement benefits, such as gratuities and severance payments. Despite this provision, most public and private sector employers discontinued gratuity payments after the CPS came into effect in 2004.
Dr. Apere explained that some private companies have started implementing standalone gratuity schemes, in compliance with PenCom’s 2017 Guidelines on Gratuity Administration, to provide extra financial support to their retirees.
He further observed that the current retirement benefits design under the CPS does not fully protect retirees against inflation. Although the law provides for a Guaranteed Minimum Pension (GMP) under Section 84(1) of the PRA 2014, the delayed implementation of GMP has worsened pensioners’ financial struggles.
To address this, PenCom introduced the Enhanced Pension (EP) feature in December 2017 for Programmed Withdrawal (PW) retirees, allowing periodic pension increases similar to inflation adjustments. However, this enhancement excludes Retiree Life Annuity (RLA) beneficiaries, putting them at a disadvantage.
Dr. Apere stressed that the RLA product, which pays retirees a fixed income for life, is being eroded by inflation, leaving many retirees in poverty. He noted that the CPS-Pack-2020, jointly issued by PenCom and the National Insurance Commission (NAICOM), mentioned the possibility of increasing annuity options for RLA retirees. This was reaffirmed in Section 4.3 of the Revised Regulation on Retiree Life Annuity, which allows NAICOM to approve inflation-adjusted annuities.
Dr. Apere argued that such a redesign of RLA products would create a level playing field between PW and RLA retirees, making annuity options more competitive and sustainable.
He welcomed PenCom’s ongoing review of retirement benefits, describing it as a positive move to improve pensioners’ welfare amid rising inflation and economic hardship. He also endorsed PenCom’s push for inflation-proof investment returns, which would help grow retirees’ Retirement Savings Accounts (RSA) and protect their incomes.
PenCom had earlier called on pension fund administrators to diversify into alternative asset classes, such as infrastructure and private equity, to deliver better inflation-adjusted returns for retirees.
Apere concluded that while the reintroduction of gratuity into the CPS framework could help improve retirees’ living standards, it must be legally grounded and financially sustainable, especially for public sector employers. He also urged for a more inclusive and equitable design for all pension products under the CPS to cushion retirees against economic volatility.
