Federal retirees and kinsmen to deceased employees are at the receiving end whenever there are delays in the funding of the Retirement Benefits Bond Redemption Fund by the Federal Government, National Pension Commission (PenCom) Director-General CHINELO ANOHU-AMAZU says in her presentation to President Muhammadu Buhari on the pension reforms since 2004. The presentation also reveals that despite the availability of N3.95 trillion for infrastructure financing, only N156.3 billion has been accessed, leaving N3.77 trillion untapped.
Pension and related issues had received significant attention over the recent past with the aim of solving the myriad of challenges bedevilling the retirement benefit system in Nigeria. The public sector scheme became unsustainable due to lack of adequate and timely budgetary provisions and increases in salaries and pensions. There were demographic shifts due to rising life expectancies, which was a phenomenon that affected the family support ratio. In addition, Pension Administration had been largely weak, inefficient, less transparent and cumbersome. The private sector schemes, which were largely akin to the Provident Fund Schemes, had been characterised by very low coverage and compliance ratio due to lack of effective regulation and supervision. This resulted in complete paradigm shift from the Defined Benefits Schemes as operated by both the public and private sectors to the Contributory Pension Scheme.
The key objective of the pension reform is to introduce a pension system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each worker in Nigeria. The reform also seeks to establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors; stem the growth of outstanding pension liabilities; reduce fiscal cost of pension to government; stimulate domestic savings; and generate pool of long-term funds for financing developmental projects and increase private investments.
Accordingly, the Federal Government enacted the Pension Reform Act 2004, which established the Contributory Pension Scheme and the National Pension Commission. The Commission has been empowered by the Pension Reform Act 2004 to superintend on all pension matters. This includes supervision and regulation of the Contributory Pension Scheme and the Defined Benefits Scheme as well as the administrative structures established pursuant to the provisions of the Pension Reform Act 2004.
After 10 years of implementation of the Pension Reform Act 2004, the Pension Reform Act 2014 was enacted on July 1, 2014. The major thrusts of the 2014 Act are the enhancement of the powers of the Commission in its regulatory and enforcement activities, enhancement of the protection of pension fund assets, provision of greater opportunity for investment of pension funds in infrastructure and housing development, review of the sanctions regime to reflect current realities, provisions that would facilitate the participation of the informal sector and provide the framework for the adoption of the Contributory Pension Scheme by states and local governments. The 2014 Act also repositioned the Pension Transition Arrangement Directorates (PTADs) for greater efficiency and accountability in the administration and payment of pensions under the Defined Benefits Scheme.
The Commission, as regulator of all pension matters, had established institutional and legal frameworks to facilitate the successful implementation of the provisions of the Pension Reform Act 2014. In this regard, 26 Pension Fund Administrators (PFAs), 57 Pension Fund Custodians (PFCs) and seven Closed Pension Fund Administrators (CPFAs) were licensed. However, due to the consolidation of the pension industry following the recapitalisation conducted in 2012, there are currently 21 PFAs and four PFCs while the number of CPFAs remains seven.
The Commission operates under a Board of Directors that reports directly to Mr. President by virtue of Section 9 of the 1st Schedule to Pension Reform Act 2014. The Board is headed by a part-time chairman with a director- general as the chief executive officer. Other members of the board include four full-time commissioners and representatives of the following ten agencies and institutions. They are: Head of Civil Service of the Federation; Federal Ministry of Finance; Nigeria Labour Congress (NLC); Trade Union Congress (TUC); Nigeria Union of Pensioners (NUP); Nigeria Employers Consultative Association (NECA);
Central Bank of Nigeria (CBN); Securities and Exchange Commission (SEC); Nigerian Stock Exchange (NSE) and National Insurance Commission (NIC).
The chairman, the director-general and the four full-time commissioners each represent one of the six geo-political zones. The day–to–day running of the commission is handled by an executive committee that comprises the director-general and the four full-time commissioners. The Senate and the House of Representatives both have oversight functions on the Commission through the Senate Committee on Establishment and Public Service and the House Committee on Pensions respectively.
There is no doubt that CPS has gained public confidence and acceptability as a result of which 6.63 million employees from both the public and private sectors had opened Retirement Savings Accounts (RSAs) as at June 30. The scheme had accumulated approximately N5 trillion worth of pension assets over the same period with a monthly inflow of about N30 billion and an average of 30 per cent annual growth rate. The inflow consists of contributions by employers and employees of both the public (including states and local governments) and private sectors. Initially, the rate of contribution was 7.5 per cent each by employers and employees. However, as provided in the Pension Reform Act 2014, the contribution rate has been reviewed upwards to 10 per cent and eight per cent by employer and employee respectively.
The Federal Government contributions are deducted at source by the Accountant-General of the Federation and remitted into a Contribution Account in the CBN. However, for the Federal Government, Ministries, Departments and Agencies (MDAs) under the Integrated Personnel Payroll and Information System (IPPIS), the Accountant-General of the Federation makes direct remittance of the monthly pension contributions of their employees. In addition, the Federal Government has acknowledged the pension liability for the past services rendered by its employees prior to the enactment of the Pension Reform Act 2004. This liability is being funded by the government through a revolving Fund for which an account, the Retirement Bond Redemption Fund Account, was opened and is being managed by the CBN. The Act provides that the Federal Government remits at least five per cent of its monthly wage bill into this account for the payment of the accrued pension rights.
The Pension Reform Act 2014 has stipulated the allowable instruments for investment of pension funds and assets. The instruments must be structured and traded on the platform of a Stock Exchange licensed or recognised by the SEC; and Money Market Platform approved by the CBN. Exercising its regulatory responsibility, the commission had issued egulation on Investment of Pension Fund Assets to further guide how the pension contributions should be invested. The pension assets have been largely invested in Federal Government Securities, Equities, Money Market Instruments and Corporate Debt. The Commission has been making efforts to stimulate growth in the economy by introducing new assets classes into the portfolio of the pension funds provided they are allowed by the Pension Reform Act 2014. In this regard, infrastructure funds and bonds were introduced to bridge the gap in the financing of infrastructure and housing. However, despite the availability of N3.95 trillion for infrastructure financing, only N156.3 billion has been taken, leaving N3.77 trillion untapped.
The payment of retirement benefits under the CPS to retirees as well as death claims to beneficiaries of deceased employees is regular and timely except for the delays being experienced in the settlement of accrued benefits of the Federal Government retirees and deceased employees whenever there are delays in the funding of the Retirement Benefits Bond Redemption Fund by the government as is the case in 2012, 2014 and 2015. About N483.33 billion has been released into the Retirement Benefits Bonds Redemption Fund Account, which was invested by the CBN and yielded N7.71 billion between 2006 and March 2015. Consequently, N490.09 million was paid as accrued pension rights to 81,764 retirees and 15,244 deceased employees from inception to March 2015.
It is worthy of note that the Federal Government is yet to release monthly mandates for the payment of accrued rights for September to December 2014 and April to August amounting to N35.30 billion. Meanwhile, the accrued benefits of 8,193 retirees and death benefits of 4,847 deceased employees amounting to N48.39 billion were processed for February to August, but were yet to be settled by the Federal Government. This clearly shows that even if the total outstanding monthly mandates were released, there will still be a shortfall of N13.09 billion. In addition, the total mandate for September to December will be N20.08 billion from the total accruable benefits of N23.12 billion, leaving a shortfall of N3.04 billion. Thus, even if all the mandates for the period of September 2014 to August this year were released, there will still be underfunding to the tune of N16.13 billion.
Ten states yet to adopt CPS
Already, 26 states of the federation had adopted the Contributory Pension Scheme and are at various levels of implementation. The Scheme had facilitated increased transparency and accountability in determining budgetary estimates for payments of pensions by the Federal Government and all the state governments that adopted it. Similarly, about 200,000 private sector employers had implemented the scheme.
The PRA 2004 and subsequently the PRA 2014 have both recognised the pension arrangements made for all those exempted from the Contributory Pension Scheme, namely, judicial officers, the military, security agencies and those already retired under the old Defined Benefits Scheme before July 2007. In this regard, the Pension Transition Arrangement Directorate (PTAD) was established by both the 2004 and 2014 Acts to coordinate administration of pension for the latter retirees while the National Judicial Commission (NJC), the Military Pension Board (MPB) and security sgencies handle pension matters for the judicial officers, the military and security agencies respectively. However, the 2014 Act established separate Pension Transition Arrangement Directorates for the Federal Government and the Federal Capital Territory (FCT).
Repositioning the scheme
A five-year strategy plan has been concluded to re-position the pension industry. In this regard, initiatives were designed to extend pensions to the informal sector through Micro Pension Plan. The aim is to extend pension coverage to 20 million Nigerians by 2019 and to 30 million by 2024. All self-funding public agencies had switched over to the Contributory Pension Scheme except the Nigeria National Petroleum Corporation (NNPC). However, a 12-month grace was given to the NNPC to ensure full compliance with the Pension Reform Act 2014.
Challenges of the pension scheme
• Inadequate funding of retirement benefits
• Delays in releasing funds to pay the accrued benefits
• Federal Government is yet to implement the 15% and 33% pension increase for its pensioners as approved in 2007 and 2014
• Substantial amounts are owed to Federal Government retirees under the DB Scheme
• Non-Implementation of new rate of pension contributions for federal employees from the old rate of 7.5% by both employer and employee to the new rates of 10% by employer and 8% by employee as stipulated in Section 4(1) of the PRA 2014.
• Review of Accrued Pension Rights and Entitlements as provided by Section 15(4) of the PRA 2014 pursuant to Section 173(3) of the 1999 Constitution
• Paucity of assets that qualify for Pension Fund Investments.
• Provisions of Section 6(2) of the PRA 2014 on the payment of any shortfall in the retirement Benefits of Professors and category of Political Appointees entitled to retire with full benefits is yet to be implemented.
• Lack of accurate personnel information for prompt remittance of monthly pension contributions of FGN employees of MDAs that are yet to be captured under the IPPIS platform.
• Absence of a Nigerian Mortality Table to facilitate the accurate computation of benefits under the CPS, which necessitated the Commission to adopt the A(55) and A49/52 Mortality Tables published by the Institute of Actuaries of the United Kingdom (UK) and being used by Actuarial firms in Nigeria.
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