As the National Pension Commission (PenCom) considers the reintroduction of gratuity payments for civil servants under the Contributory Pension Scheme (CPS), a stakeholder has highlighted the need for robust legal backing to ensure the success and sustainability of this initiative.
The chairman/CEO, Achor Actuarial Services Limited, Dr. Pius Apere, while lauding the PenCom for the planned introduction of gratuity benefits for the federal government public servants under the CPS, noted that this decision must be backed by law.
PenCom is considering the reintroduction of gratuity benefits for federal government public servants under the Contributory Pension Scheme (CPS). Gratuity refers to a one-time lump sum payment made by an employer to an employee upon retirement or after serving a minimum period. Under current rules, gratuity was discontinued for many public servants with the introduction of the CPS via the Pensions Reform Act of 2004.
The director-general of PenCom, Ms. Omolola Oloworaran, had earlier proposed to introduce gratuity benefits for the federal government public servants under the CPS during a meeting held on 13th of June 2025 between the DG and head of the Civil Service of the Federation (HCSF).
According to Dr. Apere, “Any decision to reinstate the gratuity scheme into the CPS must be backed by law, which will require an amendment to the PRA 2014, particularly Section 7(1) (a) of the Act to avoid duplication of payment of lump sum benefits.”
The framers of the law, Pension Reforms Act(PRA) 2004 (as amended in 2014), he said, did not consider the importance of pension increases when designing the two pension products in the CPS, namely Programmed Withdrawal (PW) and Retiree Life Annuity (RLA), to provide retirement benefits for the Retirement Savings Account (RSA) holders at retirement.
Alternatively, he added that the framers made provision for Guaranteed Minimum Pension (GMP) in section 84(1) of PRA 2014 to protect the Retirement Savings Account (RSA) holders against some of the risks of low investment returns and the erosion of pensioners’ incomes by inflation.
However, the economic hardships facing the retirees have called for review of some aspects of retirement benefits design in CPS, hence, he applauded the pension industry regulator to have initiated this move.
In the same vein, he said state governments are likely to introduce similar gratuity schemes for the state public servants, even though he was concerned with the ability of both government tiers to fund it.
“The only possible constraint will be the federal and state governments’ ability to fund their gratuity liabilities including the cost of actuarial valuation whether as standalone scheme or embedded in CPS.
“The latter scenario will result in a hybrid ‘middle-way’ scheme in operation – a scheme which offers both defined benefit (GS) and defined contribution (CPS) sections,” he stated.
The review of retirement benefits for CPS under PRA 2014 as highlighted above is a welcome and commendable initiative to improve the retirees’ welfare, he pointed out.
Gratuity is a defined benefit, a one-time lump sum payment, made by an employer to an employee upon retirement or when the employee leaves the organisation after completing a minimum number of years of continuous service.
Gratuity scheme (GS) is usually non-contributory as only the employer contributes to the scheme, which varies depending on the annual actuarial valuation of the gratuity liabilities in accordance with International Accounting Standard (IAS) 19 Employee Benefits
Regulatory Axe Dangles On PFAs Over Induced RSA Transfer
Any Pension Fund Administrators (PFA) who convinces or induces Retirement Savings Account (RSA) holders or employees to transfer his or her account from one PFA to another will have such erring entities barred from the pension industry transfer window, says the National Pension Commission (PenCom).
In a circular titled: PenCom/INSP/SURV/Aut/2025/1013; dated 16 June 2025 and entitled; ‘Illegal and Unethical Practices Regarding Opening of Retirement Savings Account (RSA) and Retirement Savings Account Transfer,’ sent to all Licensed Pension Fund Operators And Employers, said, defaulting PFAs can only participate as a transferring PFA and not a receiver as there would also be criminal prosecution for any employer or individual infringing on employees’ statutory rights to choose their PFA or transfer their RSA, contrary to the provisions of the PRA 2014 and relevant extant subsidiary legislations issued by the Commission.
The regulator said it has observed with concern, the illegal and unethical practices by certain financial institutions and employers, where their employees and that of their vendors are being coerced or unduly influenced to open or transfer their Retirement Savings Accounts (RSAs) with specific Pension Fund Administrators (PFAs), particularly, those directly affiliated with the employer or indirectly through custody of their pension assets with Pension Fund Custodians (PFCs).
This practice, PenCom said, is unacceptable and constitutes a clear violation of the following provisions of the Pension Reform Act (PRA) 2014 and relevant Regulation/Circular issued by the Commission.
“Section 11(1) of the PRA 2014 provides that every employee to whom the Act applies shall maintain a RSA in his/her name with any PFA of his/her choice. Section 13 of the PRA 2014 also provides that subject to the Guidelines issued by the Commission, a holder of RSA maintained under the Act may, not more than once in a year, transfer his/her account from one PFA to another,” it stressed.
Section 2.3 of the Commission’s Circular ref: PENCOM/INSP/CIR/SURV/20/131, dated 14th of August 2020 on RSA Transfers, explicitly prohibits employers from influencing the choice of PFA by employees.
“The choice of PFA and RSA Transfer are the statutory rights of the RSA holders and must not, under any circumstance, be influenced by their employers or their affiliates. Any act of inducement or compulsion whether direct or indirect undermines the integrity of the Contributory Pension Scheme and the credibility of the RSA Transfer Process,” it warned.
Employers, particularly financial institutions, PenCom warned, are strictly prohibited from interfering with the statutory rights of their employees or that of their vendors regarding the choice of PFA and RSA transfer.
