RIGHTS OF PENSION CONTRIBUTORS

Employees put money in pension schemes in order for their savings to grow and provide meaningful income during their retirement or relief for their dependants in the event of earlier death. They do this with the understanding that their money will be handled and invested properly by the personnel entrusted with this responsibility. The contributors are the owners of the pension schemes and therefore, have every right like any other shareholder of the company. The rights and obligations of the contributors are provided for in The Pension Scheme Regulation Act of 1996 and the rules of each pension scheme. The law clearly stipulates that a pension scheme shall make adequate arrangements for the preservation of pension rights so as to protect the interest of its members and, to lay down the rights and obligations of the members in writing in the pension plan rules, a copy which shall be given to each member. For the purposes of this article, we are going to look at the general rights of the contributors. 

Right to Investments

Contributors have the right of ownership over the assets of the scheme. In the arrangement of the pension schemes, trustees are the ones who have been given the responsibility of safeguarding the assets. They have to see to it that funds are invested properly and are producing good returns.  However, in many cases, trustees cannot effectively use their own skill set and they have to hire additional skills to help with managing the investments. Therefore, to achieve secure and profitable investments and maintain at any time the real value of its members’ accrued portable benefits, each pension scheme should have an investment policy as provided which has to be lodged in with the Registrar of Pensions and Insurance for scrutiny as provided for in the Act. 

The regulator has a mandate as per the existing law to ensure that the pension fund managers maintain assets of such value as the actuary and the auditor may determine so as to ensure that the manager meets his obligation towards the members.  To further ensure that the growth and safety of funds is guaranteed the law requires the pension scheme should have a fund established in a separate multi-employer or single –employer trust into which all contributions, investment earnings, surpluses from insurance and other moneys, as may be required under the relevant pension plan rules or under the law shall be paid.  This is so to ensure that there is a complete separation between the assets of the scheme, the sponsoring employer and the pension fund manager.  This is a safeguard measure and ensures that the rights of members, in so far as assets of the scheme are concerned, are protected. 

Right to Information 

Other than the booklet containing the rules of the scheme, each member is entitled to receive a benefit statement showing the member’s actual benefits and the member’s accrued portable benefits every year.  Members also have a right to view financial statements in which ever way they are presented i.e. be they quarterly returns or audited financial statements.  This will enable members to be well informed of the operations of and performance of fund that will form the basis of their old age salary.  If the scheme is about to be wound up or simply deregistered due to problems from the sponsoring employer or by whatsoever reason, the scheme members have a right to be notified of such a measure as a requirement of the law that regulates the pension industry.

Right to Benefits 

Every contributor has a right to benefits that have accrued to him or her under the pension scheme.  Although, the main intention of joining the pension scheme is to get full benefits upon retirement, proportional benefits can be obtained due to different exit modes.  The following options are available to a member of a scheme upon exit: 

Upon retirement, where pension entitlement does not exceed K5 million per annum i.e. currently, a member can opt for up to 100% commutation lump sum in lieu of the pension.  Where the pension exceeds K5 million per annum, a member can opt for up to 50% or K5 million (whichever is higher) as commutation lump sum and then receive periodically the balance until death. 

The law requires that a pension scheme should grant to members leaving the scheme before a benefit has become payable full portability of the accrued retirement benefits at the time the member leaves the scheme.  Portability is thus defined as the total of the retirement contributions paid by the member and the sponsoring employer on the leaving member’s account, plus interest during his participation under the plan in the case of defined contribution scheme.  In a defined benefit scheme, the portable benefits are a mathematical value known as the present value of the accrued retirement benefits. 

You will note that the government announced changes through the budget in 2004 on the payments to members of schemes leaving employment as a result of restructuring, retrenchments or just any sort of abrupt loss of employment, that they can be refunded both the employee and employer’s contributions together with reasonable interest so as to avoid destitution in these members’ lives. 

In the event of death before normal retirement date, contributions towards retirement benefits together with interest can be refunded to the surviving spouse and children or to the administrator as maybe specified by the will.  Other schemes provide for a pension amount calculated using certain arithmetical and statistical factors by pension experts known as actuaries.  This can be paid to the surviving spouse and the children until the last one reaches age 21 or is at a recognized education institute. 

A contributor discharged from employment due to ill-health is also entitled a similar benefit as the one above. 

When leaving the company’s service before normal retirement date, the contributor has options on what to do with his or her entitlement depending on each scheme plan rules.

The contributor can either take deferred pension commencing on normal retirement date for the amount secured by the contributions during the membership period of the scheme, transfer an amount in substitution to the pension benefits to any other scheme which is approved by all the applicable authorities and provided that employer agrees, or take a lump sum of both the accrued member’s and employer’s contributions together with interest as an immediate benefit. 

In case of deregistration of the pension scheme by the Registrar, the contributor has rights in full of the claim against the scheme like any other creditor. The pension law provides for how the assets should be distributed when they are found not to be sufficient for the full discharge of the scheme’s obligation to its members.

Right to Sue and Right against Attachment of the Accrued Benefits 

A contributor has a right to institute legal proceedings if a manager or trustees or anyone entrusted with the custody of the funds is contravening with law, pension plan rules or regulations so as to protect their contributions under a pension scheme as provided for under the laws. 

The accrued pension benefits of a contributor are protected against any attachment with regard to both the employee or employer contributions despite any court order or judgment or any thing contained in any other law other than the scheme rules and law governing pensions.  Furthermore, the said contributions do not form part of a scheme member’s assets or the sponsoring employer’s assets in the event of bankruptcy.

Finally, it is important that scheme members understand their pension rights.  This will be achieved by insisting on pension schemes to disclose as much information as possible.

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