Retirement Savings Accounts and Wills: The Meeting Point

By Gbolahan Oluyemi

Due to the increasing problems pertaining to pension payment, the National Assembly enacted the Pension Reform Act 2004 during the Chief Olusegun Obasanjo Administration. However, when the legislation did not effectively achieve the objectives after 10 years of operation. 

Consequently, the National Assembly passed the Pension Reform Act 2014 which was signed into law by the former President – Dr Goodluck Jonathan in July 2014.

The Pension Reforms Act 2014 repealed the Pension Reform Act 2004. While the objectives of the 2004 and 2014 Pension Reform Acts are the same, the 2014 Act seeks to achieve the smooth operations of the contributory pension scheme.

The 2014 Act, which is the extant law, mandates all employees covered by the scheme to create a Retirement Savings Account (RSA). The RSA is funded by a monthly contribution of 8% of an employee’s emoluments by the employee and a monthly contribution of 10% of an employee’s emoluments by the employer. However, Section 4 (3) of the Act permits an employee to make an additional voluntary contribution to the RSA.

Given the previous problems surrounding access to pension funds, the law provides the mode for accessing contributed pension funds. Generally, the contributed fund is accessible upon retirement or attainment of 50 years of age in the manner stated in Section 7 of the Pension Reform Act.

Persons unemployed for a period of not less than four months are allowed by Section 15(5) of the Pension Reform Act to access 25% of the funds in their retirement savings account.

By Section 10 of the Pension Reforms Act, the retirement savings funds are tax exempted. The exemption makes voluntary contributions by employees a viable estate planning tool for tax mitigation.

Indisputably, the introduction of the contributory pension scheme has brought sanity to the pension payment system and relief to pensioners.

However, there is a meeting point between accessing the RSA funds and Will writing. This is evident in Section 8 (2) of the Pension Reforms Act which states the requirement for accessing the pension of a deceased person.

Where employees or retirees dies, the law requires a valid Will admitted to Probate or Letters of Administration issued by a High Court.

Upon receipt of either of a Will admitted to Probate or Letters of Administration, the Pension Fund Administrator obtains the approval of the Pension Commission. Then, the Pension Fund Administrator releases the funds in the Retirement Savings Account to the beneficiaries in the Will or the Administrators appointed by the court.

While there are two options, the option of a Will is preferable considering the realities surrounding intestacy (i.e. dying without a Will).

A letter of administration is the legal authority granted by the Probate Division of the High Court of a State to a person called the Administrator/Administratrix to administer the estate or property of a person who died without leaving a Will. The process of getting this document is time-consuming and bureaucratic. I ordinarily do not advise people to allow their loved ones to fall into this category for the following reasons:

    Letters of Administration are issued to persons who apply in line with the Administration of Estates Law of the state. Most times, the grant does not reflect the deceased’s wishes on the administration of the estate.

    The Administrators share the estate by the personal law binding the deceased and not in line with the deceased’s wishes or the peculiar needs of his dependents. Due to ineffective monitoring, some Administrators emerge as emperors, thereby administering the estate to their benefit or as they please.

    In a polygamous setting or a complex situation, the situation can get messy as such that some dependents may be frustrated out of the inheritance and denied benefiting from their deceased benefactor’s hard-earned assets.

    Given the inadequate data management system, the procedure may be open to fraud or misrepresentation of facts in obtaining the Letters of Administration.

    Since the deceased did not expressly dictate his/her wishes, socio-cultural limitations may be imported into the estate administration, thereby depriving some culturally disadvantaged beneficiaries such as children outside wedlock, girl-child etc.

    In complex situations, beneficiaries may have to resort to litigation to get what is due to them from the Administrators.

    Dying without a Will is synonymous with living without a plan.

However, when someone dies leaving a valid Will, the person is said to have died testate. His assets, including the funds in his retirement savings account, are distributed as stated in his Will. Another benefit of leaving a valid Will is that it resolves inheritance issues in complex and polygamous situations.

A Will allows you to decide who will manage your asset. Additionally, a Will can be used to announce lifetime secrets, appoint a guardian for underage children, pass on family values, protect culturally disadvantaged beneficiaries and avoid litigation over one’s assets.

Except where the validity of a Will is contested, the process of obtaining Probate is less complicated compared to the process of obtaining Letters of Administration.

In practice, after you write a Will, a sealed copy is usually lodged at the Probate Registry of the High Court of the State for records. Upon the death, the Will is unsealed and read to the family of the deceased. This process guarantees that the testator’s wishes are not altered.

Most times, people don’t write their Wills because they believe that a Will is a document to be made in anticipation of death.  This reasoning is myopic because no one knows when his/her last day.

It is safer to plan for the far future than to run into the future unplanned.  I usually advise that anyone with dependents (i.e. children, spouse) and assets (i.e. Retirement Savings Account, Land, Bank Accounts etc.) should have a valid Will.

Writing a Will is not only ideal, it saves your family and guarantees that your hard-earned assets do not fall into wrong hands or are subject to waste.

I am available to provide more information and answer your questions on your retirement savings account, Wills and estate planning. Please feel free to ask me questions via [email protected] or [email protected]

You might also like
Leave A Reply

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More