Programmed Withdrawal or Annuity? A legal perspective on Section 7(1) of Pension Reform Act 2014

Report by Ivo Takor, mni
Vice Chairman/Chairman, Human Rights Committee, Nigerian Bar Association (NBA) Epe Branch.

Retirement under the Contributory Pension Scheme (CPS) is not merely an administrative transition; it is a legally regulated financial event governed by statute. One of the most consequential decisions a retiree must make under the Pension Reform Act 2014 is the mode of accessing retirement benefits.
I consider it professionally necessary to examine this issue strictly within the framework of Section 7(1) of the Pension Reform Act 2014, and to clarify the legal implications of the two statutory options available: Programmed Withdrawal and Annuity for Life.
1. The Statutory Framework
Section 7(1) of the Pension Reform Act 2014 provides that a holder of a Retirement Savings Account (RSA), upon retirement or attainment of the age of 50 years (whichever is later), shall utilize the balance standing to his or her credit in either of the following ways:
Programmed Withdrawal, to be administered by a Pension Fund Administrator (PFA); or
Annuity for Life, purchased from a life insurance company licensed by the National Insurance Commission (NAICOM).
The statute further permits the retiree to collect a lump sum, provided that the residual balance is sufficient to procure programmed withdrawals or an annuity that will yield not less than 50% of the retiree’s last annual remuneration.
This provision is mandatory in character. It prohibits total withdrawal of retirement savings and is clearly designed to ensure income security in retirement.
2. Programmed Withdrawal: Legal Character and Implications
Under Programmed Withdrawal:
The RSA remains under the management of the retiree’s PFA.
The funds continue to be invested in accordance with regulatory investment guidelines.
Periodic payments are computed based on actuarial life expectancy and projected returns.
The retiree may receive an approved lump sum subject to the statutory 50% threshold.
Legal Implications:
The investment risk is not extinguished; it remains indirectly borne by the retiree.
Payment levels may be reviewed periodically based on fund performance.
The PFA owes fiduciary duties in the management of the fund.
Programmed Withdrawal therefore retains a dynamic structure. It is suitable for retirees willing to accept market-linked variability within a regulated environment.
3. Annuity for Life: Legal Character and Implications
An Annuity for Life entails the transfer of the RSA balance (after any lump sum withdrawal) to a life insurance company duly licensed by NAICOM.
Upon purchase:
A contractual relationship arises between the retiree and the insurer.
The insurer assumes longevity risk.
Periodic payments are guaranteed for life in accordance with the annuity contract.
Legal Implications:
The transaction is generally irrevocable once concluded.
The retiree relinquishes investment control.
Payment obligations become contractual and enforceable against the insurer.
Annuity therefore transforms pension savings into a guaranteed lifetime income stream, shifting risk from the retiree to the insurer.
4. The 50% Minimum Pension Safeguard
The statutory requirement that post–lump sum pension must not fall below 50% of the retiree’s last annual remuneration is a protective mechanism embedded in Section 7(1). It serves three purposes:
Prevents premature depletion of retirement savings.
Ensures income continuity.
Promotes financial sustainability in old age.
Any lump sum computation must therefore be assessed against this statutory threshold.
5. Professional Legal Considerations in Advising Retirees
From a strictly legal and risk-based standpoint:
A retiree seeking certainty, predictability, and insulation from market volatility may find Annuity more legally secure due to its contractual guarantees.
A retiree who prefers continued participation in regulated investment structures and accepts potential payment adjustments may opt for Programmed Withdrawal.
It must be emphasized that the Pension Reform Act 2014 does not prioritize one option over the other. The legislature deliberately preserved choice within a regulated structure.
6. Conclusion: A Cautious and Informed Election
The decision between Programmed Withdrawal and Annuity is both a financial and legal election with long-term consequences. It affects income stability, risk exposure, estate planning considerations, and contractual obligations.
As a matter of prudent legal advice:
Retirees should carefully review the terms of any annuity contract before execution.
They should request detailed benefit projections from their PFA under the Programmed Withdrawal model.
Independent financial and legal consultation is strongly advisable before making a final election.
Retirement benefits represent deferred earnings accumulated over decades of service. The choice permitted under Section 7(1) should therefore be exercised deliberately, knowledgeably, and in full appreciation of its legal consequences.