Group Life Assurance and Pensions Reform Act

Any person, who contravenes any provisions of this Act, where no penalty is prescribed under this Act, commits an offence and is liable on conviction to a fine not more than N250,000.00

 

Life assurance is primarily a means of providing for one’s dependants in the event of sudden or natural death within the duration of the policy. It is also a provision for old age. It takes courage, determination and unselfish love of one’s family to buy life assurance. Individuals can take life assurance for a combination of benefits, such as protection, security, savings and investment. The purchase of a life assurance policy is not a license to die. Statistics show that 95% of life policyholders lived to maturity age. Why not invite a registered Insurance Broker to advise you on your insurance needs. But what is group life assurance? Group Life Assurance is a life protection cover usually provided by the employer of labour for the benefit of their employees. When Pension Scheme administration was in the hands of registered life insurance companies, group life assurance was included in Staff Pension Schemes sold by these companies. The group life cover was however, not compulsory or mandatory, much as the establishment of staff pension in a company.

 

Today, the story has changed, the establishment of a contributory staff pension scheme along with group life assurance scheme are now mandatory in Nigeria. Hence some workers view it as a do or die affair. Thanks to 2004 Pension Reform Act which was repealed and substituted by the 2014 Pension Reform Act as amended. 2004 Pension Reform Act All employers of labour including the federal, states and local governments are mandated to purchase a group life assurance scheme for the benefit of their employees. For the avoidance of doubt, the 2004 Pension Reform Act states:- In addition to the rates specie in subsection (1) of this section, employers shall maintain life insurance policy in favour of the employee for a minimum of three times annual emolument of the employee. Section 1 sub-section 2 of the Act states that, the scheme (Contributory Pension and Group Life Assurance) shall apply to all employees in the Public Service of the Federation, States and Federal Capital Territory and Private Sector. Sub-section 2 (b) of the Act states, “in the case of Private Sector, who are in employment in an organization in which there are 5 or more employees”. What the Act is simply saying is that, employer with a minimum number of 5 employees or more is eligible to establish a contributory staff pension scheme with group life assurance of three times total annual emolument. The Contributory Staff Pension Scheme which shall be administered by a Pension Fund Administrator has the following:

Employer 7.5%

Employee 7.5%

The 2014 Pension Reform Act as amended brought down the minimum number of employees in a private company to three only. This means that a company with only three employees is qualified to establish a contributory pension scheme. The Act also increases the rate of contribution to 18% Employer – 10% of the employee’s total emolument Employee – 8% of his or her gross annual salary. Both contributions are paid to the employee’s retirement savings account kept by the Pension Fund Custodian (PFC).  The PFC namely, the commercial banks are appointed by the National Pension Commission to take custody of pension funds.

The contributory staff  pension scheme and group life assurance had long been established for the benefit of Federal Civil Servants and also a good number of purposeful States Government had localized the 2014 Act and implemented it for the benefit of their employees.

NON CONTRIBUTORY GROUP LIFE ASSURANCE

As stated in the 2014 Pension Reform Act as amended, the mandatory group life assurance scheme is non contributory. And indeed, there is no contributory group life assurance scheme. The employer is under obligation to pay full annual premium for the benefit of the employees. But what is the objective of group of life assurance scheme?

 

  1. To mobilize funds that guarantee speedy payment of death benefits.
  2. To give the workers a sense of belonging
  3. To ensure equal treatment for all categories of workers and families of deceased’s employees.
  4. To save the employer (Government or Private Company) from stressful conditions associated with negotiations with the family or families of deceased employee(s).

The 2014 Pension Reform Act as amended brought down the minimum number of employees in a private company to three only. This means that a company with only three employees is qualified to establish a contributory pension scheme

 

  1. To minimize distractions in administration emanating from death of an employee.

Group life assurance is one of the cheapest form of life assurance, but  with unprecedented benefit to one’s family. For instance, a 25 year old employee on gross annual salary of N1,020,000.00 will be N1,020,000.0 x 3 = N3,060,000.00 = N10,090.00. That is, three times of his gross annual salary equals the sum assured in event of death while in service, the annual premium payable for the big sum assured is only N10,090.00. What an insurance cover! Establishment of group life assurance should be seen as a welfare scheme for the employees. It is no longer an optional insurance policy but mandatory or compulsory for all employers of labour with at least 3 (three) permanent employees.

There is a penalty for violators of the 2014 Pension Reform Act as amended under Offences, Penalties the and Enforcement of Powers, section states. “Any person, who contravenes any provisions of this Act, where no penalty is prescribed under this Act, commits an offence and is liable on conviction to a fine not more than N250,000.00 or to imprisonment for a term not exceeding one year or to both fine and imprisonment. So, which one is easier, to pay-a fine of N250,000.00 or to arrange for a group life assurance for your workers, which may not cost up to N100,000.00 per annum?  The benefits and advantages of group life assurance scheme far outweigh the disadvantages if any. Let’s take a second look at the benefits and advantages of having a group life assurance scheme in either public or private sector.

  • No employee in such establishment will be cheated; all would enjoy equal treatment in the event of death.
  • Employer will no longer face the family of bereaved employees to negotiate payment of death benefits.
  • Individual’s next of kin (widow or widower) shall be in a position to see death benefits schedule for verification at the Personnel office.
  • No bereaved family member would have cause to complain of poor or unjust treatment or late payment of death benefits.
  • The group life assurance may eliminate the problem of ghost workers in public service.
  • The scheme will facilitate the production of accurate statistical data of the employees in both public and civil service on yearly bases.
  • Now that the Devil has turned burial to a merry making event, group life would provide enough money for the family of a deceased employee to lavish. Death benefits are settled easily under group life assurance, provided the required documents are submitted to the Consultant or Insurance Brokers of the scheme on time. the following are the documents to support a death claim report:
  1. A written offcial Report ofDeath
  2. Attendant Physician Report
  3. Certificate of Cause of Death
  4. Staff Identity Card
  5. Police Report if Death is by accident
  6. Police and Fire Service reports, if death is by fire hazard.

Your Insurance Brokers will assist until death claim cheque is issued by the Insurer. Do you have group life assurance scheme in your establishment? Should a brilliant child’s education be disrupted just because of the death of a parent? Should a widow start begging for bread just one month after the death of her husband? The answers to the above questions rest with the purchase of a life assurance policy or child education. link about this and act wisely.

 

John E. Urom

08037091628

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