Workers’ Day: How contributory pension redefined retirement for workers

Before the introduction of the Contributory Pension Scheme (CPS) in 2004, retirement from active service was a nightmare for many workers in Nigeria. Due to billions of unpaid retirement benefits in the old Defined Benefits Scheme (DBS), many retired workers spent years without accessing their gratuity let alone monthly pension, even as many of them […]

Before the introduction of the Contributory Pension Scheme (CPS) in 2004, retirement from active service was a nightmare for many workers in Nigeria.

Due to billions of unpaid retirement benefits in the old Defined Benefits Scheme (DBS), many retired workers spent years without accessing their gratuity let alone monthly pension, even as many of them die without their due benefits.

The sleaze and mendacity in the DBS necessitated the Federal Government to establish the disbanded Pension Reform Task Team (PRTT), also known as the Presidential Task Force on Pension Reform (PTFPR) in 2010 to clear the pension mess at the Office of the Head of Service of the Federation.

Despite the gains recorded by the Task Force, it became a subject of investigations by graft agencies because of allegations of corruption allegedly perpetrated by its former Chairman, Mr. Abdulrasheed Maina.

The Pension Reform Act, 2004 (PRA, 2004), amended in 2014, created the National Pension Commission (PenCom) and the Pension Transitional Arrangement Directorate (PTAD).

While the PRA, 2004 conferred PenCom with the powers to regulate the CPS, the Act empowered PTAD to administer the Defined Benefit Scheme DBS to address the numerous pensioners’ complaints that bother on issues such as non-payment of monthly pension, short payment of pension and gratuity, removal of name on pension payment voucher, non-payment of harmonized pension arrears, irregular payment of federal pensions and non receipt of pension after retirement.

Significantly, in 16 years of the pension reform, the pension industry in Nigeria has witnessed a watershed.

For instance, as at January 2021, the value of accumulated pension assets under the CPS has reached N12.3 trillion.

Records from PenCom show that Nigeria currently has 22 Pension Fund Administrators (FFAs), seven Closed Pension Fund Administrators (CPFAs) and four Pension Fund Custodians (PFCs).

As at January 2021, PFAs in Nigeria had registered 9.27 million Retirement Savings Accounts (RSAs).

Pension remittances into these RSAs are invested by PFAs in safe financial instruments for fair returns without endangering the safety of the funds.

Section 85 (1) of the PRA 2014 states that “All Contributions made under this Act shall be invested by the Pension Fund Administrator with the objectives of safety and maintenance of fair-returns on the amount invested.”

Also, section 85 (2) states that “Pension funds and assets shall only be invested in accordance with regulations and guidelines issued by the Commission, from time to time.”

Guidelines issued by PenCom states that pension funds and assets shall be invested in bonds, bills and other securities issued by the Federal Government through the Central Bank of Nigeria, as well as State and Local Governments; Bonds, debentures, redeemable shares and other debt instruments issued by corporate entities and listed on a Stock Exchange under the Investment and Securities Act; ordinary shares of public limited companies listed on a Stock Exchange under the Investment and Securities Act; bank deposits and securities; real estate development investments; specialist investment funds and such other financial instruments as approved by PenCom from time to time.

The Director General of PenCom, Aisha Dahir-Umar, recently said that the nation’s pension assets are “currently invested in varied but quality financial instruments, all tailored towards the development of the Nigerian economy.”

Dahir-Umar said that the availability of pension funds, unlike in the past, has been the reason “payment of pensions under the CPS is now seamless, prompt and consistent.”

Data from PenCom showed that as at February 2021, N7.34trn was invested in federal government bonds, N676.91bn in Federal Government treasury bills, N11.91bn in agency bonds and N117.82trn in state government securities.

Similarly, a total of N870.30bn was invested in corporate debt securities, N1.62trn in local money market securities and N158.96bn in mutual funds during the same period.

Meanwhile, PenCom introduced the Multifund Structure of pension fund investment to ensure that PFAs invest pension funds in a safe way that also guarantees fair returns to the RSA holders depending on their ages.

The long clamour of workers for the implementation of the RSA Transfer window became a reality in 2020.

The transfer window confers on the RSA holder the power to switch PFAs to get better services or even return on pension investment.

It is worthy of note that in the past, only workers in the formal sector enjoyed pension, leaving millions of others in the informal sector to suffer a life of financial uncertainty in old age.

The introduction of the Micro Pension Plan (MPP) to enable informal sector workers participate in the CPS is a major plus to the pension industry in Nigeria.

However, the implementation of the CPS in Nigeria has not been all rosy over the years.

Like never before, workers that keyed into the CPS had their RSA balances to fall back on when they lost their jobs.

This is in line with Section 7 (2) of the PRA, 2014 which states that “where an employee voluntarily retires, disengages or is disengaged from employment as provided for under section 16 (2) and (5) of the PRA 2014,  the employee may with the approval of the Commission, withdraw an amount of money not exceeding 25% of the total amount credited to his retirement savings account, provided that such withdrawals shall only be made after 4 months of such retirement or cessation of employment and the employee does not secure another employment.”

For instance, PenCom approved a total of 5,396 requests from individuals seeking to access 25% of their RSA balances from January to February 2021.

The sum of N2.68 billion was paid to the employees that lost their jobs during the period.

In the meantime, delays by the Federal Government in the release of Accrued Pension Rights remains a huge challenge for both PenCom and PFAs in the timely payment of retirement benefits to workers.

According to PenCom, this challenge, which started in 2014, was essentially triggered by the appropriation of insufficient amounts for payment of Accrued Pension Rights of Federal Government retirees and further aggravated by late or non-release of full appropriated amounts.

There is no doubt that if Accrued Pension Rights are paid in full, delays in payment of retirement benefits under the CPS would be eliminated.

In addition, PenCom is also grappling to ensure full compliance at all levels of governments with the new minimum statutory rate of pension contribution of 18 per cent since 2014.

It is important to note that PRA 2014 confers on employees’ certain rights, which provides some level of protection, compensation and alleviation to them and their loved ones during their working years and upon retirement.

These rights cover all employees in the Public Service of the Federation, Federal Capital Territory and states that have implemented the Contributory Pension Scheme as well as the private sector.

It is therefore important for employees and employers to know what some of these rights are in order to be guided accordingly.

Section 4(1) of the PRA 2014 and Section 4(5) of the PRA 2014 mandate employers to remit workers pensions and subscribe to Group Life Insurance policies for them respectively.

Workers should constantly report non-remittance of their monthly pension contributions to the PenCom and also verify that their employers subscribed to Group Life Insurance policies.