Strengthening the Contributory Pension Scheme


THE renewed moves by some federal public agencies on employee pensions refocus attention on the thriving Contributory Pension Scheme. The ambition by the Nigeria Police leadership and National Assembly workers to exit the CPS raises fresh anxiety on its continued viability, the need to re-examine its objectives, and the propriety of major public agencies opting out. Given its success and its impressive growth, the federal and state governments, organised labour,and private sector employees should resolve to expand and safeguard the fund.

A rare success story in an environment that has killed off every other financial buffer or social security safety net,the CPS has been rising steadily from just a few millions at inception to almost N15 trillion currently. Also, from a few thousand enrollees, by 2017, about 2.6 million employees had signed on with Retirement Savings Accounts. The number rose to 9.86 million in 2022.

Reports from the industry regulator, the National Pension Commission, indicate that retirees are getting value and receiving their dues on leaving active employment. Given this and the terrible experience with the previous, chaotic, and corruption-afflicted system it replaced, it is curious that some agencies want to opt out.

The Nigeria Police Force and NASS are two of such agencies. Their motives, capability to undertake pension management effectively, and protect workers post-retirement, and their past records should be thoroughly scrutinised by PenCom, the NASS and the executive branch to avoid a return to the messy past.

Most importantly, sustaining the objectives of the pension reforms should be paramount.

Introduced by the Olusegun Obasanjo administration (1999-2007)with the enactment of the Pension Reform Act 2004, the Federal Government sought to solve its perennial inability to meet its pension obligations. Before then, the country operated the Defined Benefit Scheme in which employers bore the entire pension burden of employees on retirement.

Across the land, the federal, state, and local governments could never adequately fund it. Worse, only a few private employers adequately funded their own pension schemes.For millions of retirees, post-retirement was therefore often one of unmitigated misery. News of senior citizens collapsing and dying in pension verification queues, or in penury, was common. Fraud thrived in the public service, the military and paramilitary services as corrupt officials brazenly embezzled pension funds.

Among other objectives, the PRAsought to correct this chaotic situation.Amendments in 2014 raised the mandatory contribution for each employee from 5.0 percent of their monthly gross salary to8.0 percent, and the minimum contribution by employers from 7.5 percent of employee’s pay to10 percent.The scheme was also extended to private sector employers having up to 15 employees on their payroll.

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The only exceptions are judicial officers, Armed Forces, intelligence, and security services personnel, as well as employees who had three or fewer years to retire as of June 25, 2004, when the scheme began.

In a country blighted by massive corruption and inefficiencies, the scheme has been a shining light. By December 31, 2022, a total of 9,862,129 workers had RSAs with their respective Pension Fund Administrators. In the three years to September 2022, a total of 315,112 retirees had collected monthly pensions valued at N13.88 billion, and another N887.60 billion as lump sum under the programmed withdrawal plan.Another 102,696 retirees under life annuity had collected monthly pay-outs of N5.95 billion and lump sum of N193.32 billion, said PenCom. This is in sharp contrast to the past when many public sector retirees died in penury without ever collecting their entitlements.

Moreover, apart from enabling individuals to save during their working lives to finance their consumption in retirement, pension funds have a positive impact on an economy, with potential to increase GDP and standard of living. Studies published by AIMS Press found that by providing stable, long-term funds, pension funds promote financial development in developing countries, stimulate capital markets, and provide support for public and private infrastructure.

Typically, adds the Social Protection and Human Rights Platform, a United Nations initiative, “The increased consumption and demand generated by people spending their pensions can be a significant stimulus to national economies, bringing benefits to business, strengthening social cohesion, generating more peaceful and equitable societies, and building an improved investment climate.”Enlightened governments therefore pay close attention to pensions. The world’s 100 biggest funds in 2021 were collectively worth $17 trillion, reported Visual Capitalist, with Japan’s state-backed fund the highest with $1.7 trillion. Following decades of reforms, Brazil’s pension assets reached $499.48 billion by 2018, according to Statista. When last year the United Kingdom’s economy faltered, the pension industry was relied upon to bail it out.

Discretion is therefore required in considering the exit bid by agencies to manage the pension assets of their employees. Regulators and lawmakers should bear in mind that a major advantage in the reformed pension scheme is that funds are now managed by professionals –from expert risk managers to regulators and bankers through the Pension Fund Custodians. There is also strict (and so far,) effective regulation.

Persistently, allegations and reports of unpaid, stolen allowances and benefits, even the death benefits of slain officers, are rife in the NPF. This reputation should immediately discourage handing over the pension funds of personnel to it.In 2012, several civil servants and officers were indicted for alleged diversion of N32.8 billion from the Nigeria Police Pension funds; another six persons were arraigned in court in 2020 by the Economic and Financial Crimes Commission for stealing N20 billion of police pension funds.

Neither the police nor the NASS workers have provided convincing reasons to leave. The police ambition to follow in the military’s exemption is lame. Those who want out should prove that they can manage the funds professionally,and how their ambition tallies with the overall national objectives of a strong, virile, and resilient national pension fund.

The CPS should be protected. Studies have shown that about 80 percent of people who get gratuity and invest it after retirement lose their money; regular, guaranteed monthly pension pay offers better protection. In the interest of the workers, the economy, the requests to leave should be strongly discouraged. ,

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