Why PenCom can’t compel states to implement contributory pension

One of the key intents and purposes of the Pension Reform Act 2014 was to ensure the domestication of the Contributory Pension Scheme (CPS) at the sub-national level in Nigeria. This motivation is enshrined in Section 2(1) of the PRA 2014 which made the provisions of the Act applicable to any employment in the Public […]

One of the key intents and purposes of the Pension Reform Act 2014 was to ensure the domestication of the Contributory Pension Scheme (CPS) at the sub-national level in Nigeria. This motivation is enshrined in Section 2(1) of the PRA 2014 which made the provisions of the Act applicable to any employment in the Public Service of the Federation, the Federal Capital Territory, the States and Local Government Councils as well as the Private Sector.

However, by virtue of the provisions of Section 210 of the Constitution of the Federal Republic of Nigeria 1999 (as amended), the right of a person in the public service of a State to receive pension or gratuity shall be regulated by law. This therefore implies that federating units were at liberty to legislate on the domestication of the CPS within their various jurisdictions.

Information obtained from PenCom showed that a total of 24 states of the Federation have enacted laws on the CPS. The enactment of these laws which are substantially in tandem with the provisions of the PRA 2014 is the first major step towards the domestication of the CPS at the sub-national level.

In addition, six states have drafted CPS bills and are undergoing the legislative processes towards their passage into laws.

On the other hand, three states have embarked on pension reform but chose not to adopt the CPS while one has elected to continue with the Defined Benefit Scheme (DBS).

In a recent interview with Daily Trust, the acting Director General of the National Pension Commission (PenCom), Aisha Umar-Dahir, said the commission’s regulatory oversight of States and Local Governments pension schemes is guided by the provisions of the enabling laws in the States.

Umar-Dahir said Section 23(h) of the PRA 2014 clearly emphasised that the Commission’s role with regards to the application of the CPS at the states and local governments levels shall be to promote and offer technical assistance to States in line with the objectives of the scheme.

She said it would therefore be contrary to constitutional provisions for the commission to enforce the provisions of the PRA 2014 on the states without recourse to the extant laws and prevailing economic limitations of the states at every material point in time.

“There is a positive correlation between performance of states under the Defined Benefits Scheme and the adoption of the CPS by states. Most states that were doing well in the payment of retirement benefits under the Defined Benefits Scheme were more favourably disposed to adopting the CPS and are doing better in its implementation than those who were not,” the PenCom boss said.

As a result of the constitutional limitations on the commission therefore, the commission has continued to adopt the persuasive approach in its efforts at driving full implementation of the scheme at the states and local governments levels.

However, as a mechanism of encouraging sub-national governments to adopt the contributory scheme, the scheme has also banned Pension Fund Administrators (PFAs) from investing in the bonds of states yet to comply with the scheme.

Analysis of the level of implementation of contributory pension scheme (CPS) has shown that many states are reluctant in the full implementation.

Details sourced from the National Pension Commission (PenCom) showed that less than 10 states have complied substantially with the contributory scheme while many are still either at the level of domesticating the legal framework or are still unable to implement the law already in place.

A pension expert, Sani Mustapha, told Daily Trust Saturday that low financial standing of many states is partly responsible for the reluctance of state governors to fully implement the scheme at sub-national level.

Mustapha, a former staff of AIICO Pension Managers Limited, said, “Things that are good are always difficult.”

Mustapha told Daily Trust Saturday that states that are still dragging foot on full implementation may be unaware of the full benefits, including relief from pension burden as Lagos State enjoys currently.

Details from the nation’s apex regulatory body for pension matter show that though Taraba enacted law on CPS in 2009, no other CPS implementation milestone has been achieved since the enactment of the law while Imo that enacted law on CPS in 2008 is yet to establish administrative structures to drive implementation.

Sokoto’s CPS law dates back to 2007 but no other implementation milestone has been achieved since the enactment of the law and Abia is yet to record any implementation milestone despite enacting law last year.

Kwara, Plateau, Cross River, and Benue are yet to pass a law on CPS while Ebonyi State enacted law on CPS in 2017, started implementing the scheme and later suspended it. On Ebonyi, PenCom notes that the state is “Yet to establish administrative structures to drive implementation of the CPS.”

Ogun enacted law on CPS in 2008, established Pension Bureaux, registered employees but is yet to start funding accrued rights and there is no valid Group Life Insurance cover for the workers.

Kebbi enacted law on CPS in 2010, established a Pension Board, registered employees, started remitting only employees’ portion of contributions but has not started funding accrued rights and no valid Group Life Insurance cover.

In Niger, there is a CPS law, which was amended in last year, but remittance of contributions and funding of accrued rights stopped in 2015 despite having established Pension Board and registered employees.

Bayelsa has a CPS law in place since 2009, with a Pension Board, but no Actuarial Valuation, no pension contribution remittance, no funding of accrued pension rights and no valid Group Life Insurance cover.

Enugu has a law on CPS but nothing has been achieved after the enactment of the Law while Kogi is still amending the law the scheme.

Oyo State is currently in the process of amending its law to commence CPS implementation, while, though Gombe enacted law on CPS in 2008, the state is yet to establish any administrative structure in line with its law.

One state that has performed considerably well in the implementation is Lagos State that enacted law in 2007, established a Pension Commission, registered employees, conducted Actuarial Valuation, remitting pension contributions, funding accrued pension rights and has a valid Group Life Insurance cover.

Kaduna State has also done well as the state amended law on CPS in 2016, established a Pension Board, registered employees, conducted Actuarial Valuation, remitting pension contributions, funding accrued pension rights and has a valid Group Life Insurance cover.

The Federal Capital Territory Abuja has a law, a valid Group Life Insurance cover two Pension Boards and has also registered employees, funding accrued pension rights and emitting pension contributions but has backlogs for the Area Councils’ employees.

Edo is yet to commence funding of accrued pension rights but has a valid Group Life Insurance cover while Delta has established two Pension Bureaux, registered employees, remitting pension contributions for State employees, conducted Actuarial Valuation, remitting only employees’ portion for Local Government workers.

The state still has huge arrears of accrued pension rights and no valid Group Life insurance.

In Osun, remittances of pension contributions are irregular but funding accrued pension rights with huge arrears and no valid Group Life Insurance cover.

Ekiti stopped remitting pension contributions in December 2017 for most employees while Ondo is remitting pension contributions for only core civil servants employed from September 2014 and few self-funded agencies.

In Anambra, there is partial remittance (employee portion) for state government employees and irregular funding of accrued pension rights for local government employees but no valid Group Life Insurance cover while Rivers is currently remitting only employees’ portion of contributions.

Another expert, Jeff Uzoma, told Daily Trust Saturday that the issue of accrued rights is a major obstacle that is impeding the implementation at the state level.

Uzoma, an analyst with Lead Finance, called for increased awareness creation by pension regulators to increase the acceptance of the scheme at sub-national level as provided in the amended Pension Act, 2014.

He said states that fail to offset pension liabilities now are creating financial burden on the future generation as the accrued rights could continue to grow and this can be avoided through contributory scheme.