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Pension reform and the tardiness of accrued rights

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Paddy Ezeala

By Paddy Ezeala

It has been severally reiterated that the Contributory Pension Scheme (CPS) is arguably the most successful initiative of the Federal Government since the return to democratic governance in 1999. The plight of pensioners under the previous Defined Benefit Scheme (DBS); before the enactment of the Pension Reform Act in 2004, is not worth recalling. However, it is worth emphasizing that while the DBS accumulated a deficit of more than 2 trillion naira before 2004, the CPS since then has amassed the sum of 7.8 trillion naira as Funds under Management (FUM).

Comparison of the two schemes with regard to effectiveness and functionality in Nigeria is akin to evaluating the contrast between night and day. There is no doubt that the CPS has given rise to a pension industry that has the potential to be central to Nigeria’s economic development. The Federal Government continues to fall back on accumulated pension funds to support infrastructural development while the industry itself has been generating job opportunities. The National Pension Commission (PenCom) has been doing a great job of strictly regulating the new pension industry and making it impervious to abuses.

While the pension industry is obviously gaining ascendancy, it is important to plug all the holes that make unfettered rendition of pension administration tedious or even impracticable. It is important to point out these impediments and address them conclusively in order to forestall a reversal of the gains of the industry.

Apart from the threat of some failed legislative manipulations to accommodate some interests and the largescale ignorance of the workings of the scheme even in high places, another sore point is the lateness in the payment of Accrued Rights to retiring or retired workers. While Accrued Rights are largely entitlement of workers before the advent of the private sector – driven Contributory Pension Scheme, its late payment by especially, the various tiers of government renders pension administration cumbersome or even impossible. This is because Accrued Rights have to be lumped into Retirement Savings Accounts (RSAs) before lump sum and Programmed Withdrawals could be worked out for retirees. Most, if not all retirees from government establishments for now have their entitlements straddle both the DBS and the CPS. It is worth re-noting that lack of prompt payment of entitlements by government is adversely affecting the smooth running of the new Contributory Pension Scheme. Those who do not understand these intricacies would conclude that the new pension scheme is not as rosy as being touted.

For a proper understanding of the quagmire in which Pension Fund Administrators (PFAs) somehow find themselves, more light should be shed on Accrued Rights or Benefits. Accrued Rights is a total amount of a pension plan as on a specified date. They are usually in agreement with the terms of the pension plan and are based on the participant’s salary package and length of service. In Nigeria, it is not different. It is a term used to describe what the Government owes its workers who have been in service before the commencement of the Pension Reform Act, 2004 (Reviewed in 2014). It is recognised as an amount acknowledged through the issuance of Federal Government Retirement Benefits Bonds. When the Government employee retires, the bonds are liquidated and added to the retiree’s balance in his/her Retirement Savings Account (RSA) managed by a PFA. It is the addition of these two that makes up the retiree’s entitlement. Sometimes, the Government finds it difficult to cash back Retirement Benefits Bonds domiciled in the Central Bank. For instance, the Federal Government unpaid Pension Accrued Rights for the period covering May, 2017 to April, 2018 stand at N97.55 billion.

The major challenge now is that, as a measure to ensure that the Government settles the ever mounting backlog of Accrued Rights, PFAs are not allowed to grant access to RSAs until the Government releases Accrued Rights. This implies that in the Contributory Pension Scheme, government retirees can only get their entitlement when their Accrued Rights are released by the Government.

Pension reform in Nigeria has been informed by the desire of the Federal Government to ultimately improve the welfare of retirees and eliminate institutional corruption and unnecessary bureaucracy or red tape. The huge pension funds now available to support economic development is an icing on the cake. The plight of pensioners in Nigeria across board before the CPS was so bad that workers received condolence visits to their homes once their retirement took effect. It is therefore unthinkable and unacceptable that any impediment to the smooth rendition of the new pension scheme could be tolerated.

It is true that we are emerging from economic headwinds that affected every sector. It is also a known fact that economic downturns, apart from bringing enormous stress on available resources, most times negatively affect the real value of currencies. It then becomes a double tragedy for a retiree awaiting his entitlements when currency is plunging and the Return on Investment is below inflation rate. The economic scenario and on ground reality are not such that workers should retire and wait for months or years before getting their entitlements.

Pension administration should be viewed holistically by the various tiers of government, most especially, as the country has very poor social security foundation and warped reward system. Serving the Government and retiring is not a crime and therefore not punishable. The Federal Government should prioritize payment of retirees’ entitlements and facilitate the work of Pension Fund Administrators. The Government should look beyond payment of contractors when the need arises to inject liquidity and reflate the economy. Payment of retirees’ entitlements is also a way of circulating liquidity.

While the Federal Government struggles to offset the backlog of pension liabilities that it is burdened with, most state governments are completely unperturbed. Some have neither promulgated the necessary pension laws that would enable them key into the Contributory Pension Scheme nor addressed the years-long accumulated pension liabilities; not even monthly pension is paid as and when due. Many states have to take their cue from Lagos State Government that is to a great extent up to date in meeting its responsibilities with regard to the old and the new pension schemes.

With the successful promulgation and review of the necessary pension laws in the country, a different law to enforce compliance at all levels in the public and private sectors might be necessary. Moral suasion has not worked.

Without prejudice to the good work of the Pension Transition Arrangement Department (PTAD) and the enormous challenges it is faced with, there is no doubt that a drastic action has to be taken to address the backlog of pension liabilities in the country. Otherwise, we would have been presenting ourselves as a country of insensitive and bile-hearted people inured to hardship, incurious and insular with regard to the plight of an ordinarily respectable segment of society.

 

Paddy Ezeala, FIMC, CMC, a communication, development and management specialist is based in Enugu