AN OVERVIEW OF THE NAICOM AND PENCOM GUIDELINES ON EMPLOYEE GROUP LIFE INSURANCE POLICY; RETIREE PACK; AND RETIREE LIFE ANNUITY. By OMOBOLAJI O. OYENIRAN Esq.

The Regulators of the Pension and Insurance sectors -National Pencom Commission (PenCom) and the National Insurance Commission (NAICOM)- on 1^st September, 2020 issued some guidelines and regulations to govern the stakeholders in the sectors. The guidelines include: (i) the Revised Guidelines on Group Life Insurance Policy for Employees; (ii) the Retiree Pack for retirees under the Contributory Pension Scheme (CPS); and (iii) ) the Revised Regulation on Retiree Life Annuity (RLA). The aim of the guidelines is to safeguard the retirees’ life annuity funds and assets and to guide them to make informed decisions about their retirement benefits. The guidelines also raise the issue of de-marketing by pension and insurance operators in the country and further provide more clarification on the provisions of the Pension Reform Act 2014 (the PRA), especially those relating to group life insurance policies for employees and retiree life annuities. This article gives an exposition of the guidelines as listed above seriatim.

THE REGULATORS

1. NATIONAL INSURANCE COMMISSION(NAICOM)

The National Insurance Commission (NAICOM) is established under Section 1 of the  National Insurance Commission Act 1997. By virtue of Section 6 of the Act, the principal object of the Commission is to ensure the effective administration, supervision, regulation and control of insurance business in Nigeria. Section 7 of the Act empowers the Commission, amongst other things, to approve standards, conditions and warranties applicable to all classes of insurance business and protect insurance policy holders, beneficiaries and third parties to insurance contracts.

2. NATIONAL PENSION COMMISSION (PENCOM)

The National Pension Commission(PenCom) is established under Section 17 of the Pension Reform Act 2014 with the objectives of regulating, supervising and ensuring  the effective administration of pension matters in Nigeria. Section 23 of the Act outlines the functions of the Commission which include issuance of guidelines for the investment of pension funds; approving, licensing, regulating and supervising pension fund administrators, custodians and other institutions relating to pension matters as the Commission may, from time to time, determining, and establishing standards, rules and guidelines for the management of the pension funds under the Act.

REVISED GUIDELINES ON GROUP LIFE INSURANCE POLICY FOR EMPLOYEES 

Under the Pension Reform Act(PRA) 2014, every employer is expected to maintain a Group Life Insurance Policy for each of its employees. Section 4(5) of the Act provides:

“…every employer shall maintain a Group Life Insurance Policy (GLIP) in favour of each employee, for a minimum of three times the annual total emolument of the employee and premium shall be paid not later than the commencement of the cover”. 

Based  on the above provision, the PenCom and Naicom  issued the Revised Guidelines on Group Life Insurance Policy for Employees the GLIP Guidelines) which mandate employers to provide minimum necessary information of its employees and beneficiaries, as required in the Know Your Customer (KYC) guideline issued by NAICOM. Under the guideline, where an employer fails to notify the insurance company of an employee’s death, it shall be liable to pay the death claim from its resources. The prescription of this sanction is not applicable in the old guidelines which doesn’t prescribe any sanction. Furthermore, where an employer fails to take out a GLIP on behalf of its employees, and death occurs in active service, the employer will be liable to pay 300% of the gross emolument for the Group Life Insurance Policy to the beneficiaries of the deceased employee, and to pay the difference where the employer fails to insure its employees up to 300% of their gross emoluments as stipulated. The GLIP guidelines further empower PenCom and NAICOM to impose administrative sanction against employers and sanctions on insurance companies, for noncompliance with the GLIP Guidelines respectively. 

Under paragraph of the guideline on missing employee, where an employee is missing, the employer is mandated to report to the employee’s Pension Fund Administrator (PFA), and the latter, after due diligence and confirmation, must notify and request PenCom to set up a Board of Inquiry into the missing employee. Where the Board presumes such employee dead, the provision of Section 8 of the PRA 2014, which mandates that the entitlement of such deceased employee be paid to his/her beneficiary, shall apply.

These provisions seek to hold insurance companies to a higher standard of operation and accountability and ensure that employers uphold the requirement of the PRA in respect of Group Life Insurance Policy for their employees.

 RETIREE PACK FOR RETIREES UNDER THE CONTRIBUTORY PENSION SCHEME 

Section 7(1) of the Pension Reform Act provides two (2) modes of withdrawal for retirees from their RSA: (i) Programmed Withdrawal (PW) and (ii) Retiree Life Annuity (RLA). In a bid to guide prospective retirees make informed decisions in selecting their preferred mode of withdrawal under the Contributory Pension Scheme (CPS), the new Retiree Pack for Retirees under the CPS was released. The Retiree Pack confirms that a retiree who is subscribed to PW may change to an RLA; but may do so after at least one (1) year of its PW subscription. This is to address the practice of Pension Fund Administrators (PFAs) from rejecting RLA Provisional Agreements presented by retirees who are already prescribed to PW but wish to transfer to RLA as their preferred mode of retirement. However, under the Retiree pack, if a retiree transfers from PW to RLA, they may not transfer from RLA to PW, as “RLA is for life”. It is good to note that the retiree pack shall be displayed on the websites of all Retiree Life Annuity Providers, Insurance Agents and Insurance Brokers.

REVISED REGULATION ON RETIREE LIFE ANNUITY 

The Revised Regulation on Retiree Life Annuity is issued by the Regulators for the purpose of giving effect to the provisions of Section 7(1)(c) of the PRA which provides that:

 “7(1) A holder of a Retirement Savings Account (RSA) shall,  upon retirement or attaining the age of 50 years, whichever is later, utilize the amount credited to their Retirement Savings Account for the following benefits:

(c)annuity for life purchased from a life insurance company licensed by the National Insurance Commission with monthly or quarterly payments in line with guidelines jointly issued by the Commission and National Insurance Commission.”

By virtue of the provision above, a retiree can purchase a life annuity from a licensed life insurance company, in line with guidelines to be jointly issued by the Regulators.

The Revised Regulation on Retiree Life Annuity provides modalities for the operation and administration of RLAs. These include:

1. New Eligibility Requirements for Insurance Institutions: The new Regulation requires the insurance companies and insurance brokers to obtain the approval of NAICOM before marketing or selling their RLA products, and NAICOM shall notify PenCom of such approval. They must also comply with all statutory filings required by NAICOM. In addition, the new regulation requires NAICOM to provide to PenCom, details of RLA Providers and RLA products that have been suspended; been recalled from suspension; that have had their license withdrawn; that are under liquidation; and companies that takeover RLA portfolios of RLA providers in consequence of the foregoing events. 
2. Waiver of Lump Sum and Pension Arrears by Retirees – Under Paragraphs 5.1.17 of the Revised Regulation, a retiree can waive his lump sum and pension arrears, if any, such that he is able to receive a higher monthly or quarterly annuity. However, where a retiree waives his rights, and subsequently has his total RSA balance transferred as premium to an RLA Provider of his choice, the retiree is prevented from reversing such waiver. 

Conversely, where a PFA transfers the lump sum and pension arrears of a retiree who has not waived his right to same, the PFA shall be liable to repay the retiree’s lump sum and pension arrears from its Statutory Reserve Fund. 

3. Change of Retiree Life Annuity Providers: The new Regulation permits retirees to change their RLA Provider after two (2) years of commencement of their RLA contract and further stipulates that such changes “shall be permissible where the monthly or quarterly annuity payment is not less than the amount being received from the previous RLA Provider” The aim is to guide retirees to make informed decision.
4.  Duty of Care to Annuitants: Consistent with the collaborative efforts of the Regulators to ensure the safety of RLA funds and assets, the Revised Regulation has introduced provisions on the duty of care owed to annuitants by PFAs and RLA Providers. These include, inter alia, the duty to: (i) act competently and diligently in regard to all transactions; (ii) provide professional advice or exercise discretion in the interest of the customer; (iii) avoid sale products which are inappropriate to customers’ needs; and (iv) deal with customers’ complaints in a fair and timely manner.8 The Revised Regulation in essence, provides an additional layer of protection to annuitants, by codifying the duty of care owed by PFAs and RLA Providers, thereby holding them to a higher standard of care than under the Old Regulation. 
5. Detailed Complaints Handling and Dispute Management Procedure: The revised regulation requires each Retiree Life Annuity Provider to have complaint desk, a specified timeframe for RLA Providers to send a final response in writing to the complainant, and inclusion of the complaints procedure in the RLA Provisional Agreement 
6. Investment of Retiree Life Annuity Funds: The new regulation expands the scope of investments that can be made using RLA Funds to include infrastructure projects through eligible bonds or debt securities, as long as the project is not less than Five Billion Naira in value; is awarded to a concessionaire with a good track record through an open and transparent bidding process which is in accordance with the Infrastructure Concession and Regulatory Commission Act (ICRC Act), and it is a core infrastructure project with business plans and financial projects which indicate that the investment is economically and financially rewarding for pension funds.

The revised regulation further stipulates new criteria that must be fulfilled before the RLA funds can be used for particular investments. In the event that the Funds is to be invested in financial instruments issued by State Government, such instrument shall be backed by irrevocable standing payment orders (ISPOs), external guarantees by eligible banks or Development Finance Institutions (DFIs), or Multilateral Financial Development Organisations (MFDOs) with a minimum credit rating of ‘A’ by a recognised rating agency. 

       7) Prohibition of Loans and Advances to a Retiree:  Paragraphs 11.1 and 113 of the Revised Regulation prohibits granting of loans and advances to retirees as well as pledging RLA related funds and assets as collateral for any loan by a life insurance company or their officers, related party or any person.

       8) Provisions on conducts of Retiree Life Annuity Providers on Marketing: Paragraph 18.1 of the revised regulation mandates RLA providers, Insurance Brokers and Insurance Agents to ensure that their products are marketed by their employees who have undergone a ‘retirement planning competency training’ certified by NAICOM 

In a bid to curb unfair and unethical practices such as misinformation, de-marketing and mis-selling by PFAs and RLA Custodians, Paragraph 18.3 of the regulation provides for Code of Ethics and Business Practices. A breach of the code attracts sanction.

CONCLUSION 

The issuance of the guidelines is a commendable attempt from the regulators of the Pension and insurance sectors. From the above, it is clear that the guidelines will aid in safeguarding the retirees’ life annuity funds and guide them to make informed decisions about their retirement benefits. It will resolve the issue of de-marketing by pension and insurance operators in the country and further provide more clarification on the provisions of the Pension Reform Act 2014 (the PRA), especially those relating to group life insurance policies for employees and retiree life annuities.