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The Nigerian pension reform and the legislative do-gooders

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Executive Director, Business Development and Investment, Premium Pension Limited, Mr. Kayode Akande, Mr Anifowose Segun Johnson and Mr Wilson Ideva, Managing Director/CEO during the presentation of prizes to the winners of the Reward4DHustle Campaign organized by Premium Pension Limited

By Paddy Ezeala

It seems that Nigeria would have disappointed the rest of the world if the Contributory Pension Scheme (CPS) were to run unfettered without spanner being put in the works somehow somewhere. Arguably, the CPS operating under the Pension Reform Act 2004 as amended by the Pension Reform Act 2014 has been the most effective and visibly successful programme of the Federal Government since the return of democratic governance in 1999.

Needless to recount or reminisce on the plight of pensioners in the old defined benefit pension scheme adopted by the various tiers of government and even some private sector establishments before the advent of the CPS. The runaway success that the CPS has become is turning out to be its greatest burden. With amassed pension assets to the tune of more than 6.5 trillion naira and more than seven million enrolees, the centrality of the pension industry in the future development narrative of Nigeria is almost assured. I addressed the issue of the role of pension funds in national development in a widely published article entitled: The Liquidity Squeeze and the Traction of Pension Funds.

However, the sore point of this rapidly growing industry is the clearly perceptible lack of adequate public awareness on the workings of the scheme. This ignorance permeates even the very high echelon of society including the highly educated circles. This lack of awareness can be said to be at the root of the barrage of policy or statutory somersaults emanating from the legislative arm of the Federal Government. This however does not detract from the altruism and/or good intensions that could underlie the actions of the legislators behind the more than seven bills snaking their way through the chambers of the National Assembly. These bills aim to profoundly amend the Pension Reform Act of 2014. One would not believe that legislators deliberately set out to make laws to disorientate a scheme that has run without hitches for twelve years without any known case of fraud.

The most contentious of the bills already in the works in the National Assembly is the one sponsored by Honourable Oluwole Oke on May 16, 2017 seeking to amend the Pension Reform Act 2014 in order to shut out some paramilitary organisations including the Nigerian Security and Civil Defence Corps (NSCDC), Nigeria Customs Service, the Nigeria Police, the Nigeria Prison Service, Nigeria Immigration Service and the Economic and Financial Crimes Commission (EFCC). This bill has already passed its second reading and is being treated by the relevant Committee of the House of Representatives. Another one is the Bill sponsored by Senator Aliyu Wamako of Sokoto North Senatorial Zone seeking to “…further amend the Pension Reform Act 2014 to Provide for Definite Percentage a Retiree can withdraw from his RSA and for other matters thereto.” This clause is recommending that retirees withdraw 75% of the total value of their Retirement Savings Account (RSA) while the remaining 25% remains to service their pension requirements.

These two recommendations fall flat in the face of reason and operability. It negates the whole essence of individual participation and contribution that defines the CPS. It is this individuating element of the scheme that stands it out. Participation in the CPS is an individual thing and not a collective enterprise. Not even when pension funds are managed collectively. There is a fiduciary relationship between an RSA holder and his Pension Fund Administrator (PFA). The beauty of the scheme is the freedom of the worker to choose his/her PFA. This freedom would further be accentuated by the portability that would come with the impending opening of the transfer window by the National Pension Commission (PenCom). Railroading a group of workers into one pension option is evidently retrogressive. Also, returning paramilitary establishments to the Defined Benefit Scheme is a giant step backwards into the dark era of dysfunctionality and corruption that characterized pension. The commandism that characterizes the military and paramilitary organizations would not even help matters in managing both salaries and pension of their officers and men.

It should be noted that the old Defined Benefit Scheme left a deficit of almost two trillion naira by 2004 before the commencement of the CPS. It is against the backdrop of this deficit that pension assets have been grown to more than 6.5 trillion naira. To manage the backlog of pension liabilities, the Federal Government set up the Pension Transition Arrangement Directorate (PTAD). With the annual pension liability of more than 388 billion naira out of which more than 255 billion naira constitutes unfunded liability, there is no doubt that the Federal Government is overwhelmed by crushing pension burden. This is the situation under which the legislators are proposing additional burden.

The exit of all paramilitary agencies from the CPS would entail dismantling of all structures in those institutions including pension desk offices established to oversee compliance of those establishments with the scheme. It would also shake up the financial system considering the fact that pension assets are invested in various asset classes, the bulk of which is in government securities.

The most devastating of all the consequences would be the ripple effect this ill-advised legislative proposal would have. What would prevent all the ministries and even all agencies of government from exiting or having their own PFAs? We should not forget that one of the demands of the Academic Staff Union of Nigerian Universities (ASUU) in the ongoing nationwide strike is the establishment of a special pension scheme/PFA that would among other things allow professors and associate professors retire with their full monthly salaries. The CPS is indeed severely threatened by Nigerian peculiarities and unbridled impetuosity. The Government can still bridge the shortfall in the pension of professors if need be without university teachers dabbling into pension fund administration.

The other Bill proposing the withdrawal of 75% of the total value of RSAs by retirees is a clear manifestation of lack of proper understanding of the real essence of pension. The pension industry under the CPS is arguably the most regulated industry in the country today. The industry, intricate as its, operates under clearly laid down and airtight procedures and guidelines and the regulatory body, PenCom, has lived up to expectation in enforcing compliance.

What matters is the amount a retiree goes home with as pension every month or what is called replacement ration. Pension replaces one’s salary in the whole arrangement. The replacement ratio in the current scheme is 50%. In other words, a retiree should be able to earn a minimum of 50% of his/her salary at the time of retirement as pension. How many workers would be able to amass Retirement Savings Accounts 25% of which would be able to fund monthly or quarterly pension worth 50% of their monthly salary for the rest of their life? Pension administration in modern times is an intricate and highly technologically-driven enterprise.  It can survive policy reforms but certainly not politicization. There is need for a demonstration of proper understanding of issues and in-depth research before contributions are made to enrich or buttress government policies. Our legislators should tread softly even when they might seem to mean well for the citizenry.

The contributory Pension Scheme remains the answer to the growing pension liabilities in the country and the unimpeachable social security safety net for Nigerian workers on retirement. It is participatory, all-inclusive and transparent. It should therefore be insulated from unnecessary politics and the excesses of meddlesome interlopers and latter day do-gooders.

Paddy Ezeala is a communication and development specialist based in Abuja

paddyezeala@yahoo.co.uk