Contributory Pension Scheme and plight of pensioners

By Kayode Adebiyi, News Agency of Nigeria (NAN)

In 2004, the Nigerian government established the Contributory Pension Scheme (CPS) through the Pension Reform Act (PRA), which was repealed and re-enacted in 2014.

As implied, the CPS is a plan where both the employer and the employee contribute a portion of an employee’s monthly remuneration towards the payment of the employee’s pension at retirement.

Unlike the Defined Benefits (DB) Scheme managed by the Pension Transitional Arrangement Directorate (PTAD) where the total pension obligation is borne by the employer, 18 per cent of the employee’s monthly remuneration goes into their Retirement Savings Account (RSA).

That percentage comprises the employer’s 10 per cent and the employee’s eight per cent of the contributions.

The CPS is privately managed by Pension Fund Administrators (PFAs) under the custody of Pension Fund Custodians (PFCs).

The objective is to ensure that every person who worked in either the public or private sectors in Nigeria receives their retirement benefits as and when due.

However, recent events suggest that this objective has been somewhat defeated, with backlogs of pensions owed by the federal and state governments increasing to over N193bn, according to a national newspaper.

Another report suggests that, 20 years after it was first established, 26 states of the federation have failed to fully implement the CPS.

The situation has taken dramatic twist to the extent that the National Union of Pensioners (NUP) recently issued a letter directing its state chapters and branches to stage protests.

A recent survey by the News Agency of Nigeria (NAN) indicated that civil servants who retired in March 2023 had not received their accrued benefits in several states.

One of the retirees interviewed by NAN said the federal government’s failure to release funds for accrued liabilities has led to non-payment of his pension by his PFA since he retired in October 2023.

“My pension administration has not called me to explain the reasons for the delay, but we heard that the delay was due to the federal government’s failure to pay the National Pension Commission.

“PENCOM will now pay pension funds administrators before retirees can get their money,” he said, pleading anonymity.

A financial expert, Mr Kehinde Adeoye, said there are many reasons for the Federal Government’s failure or delay in releasing funds for accrued benefits.

“We know that the government has a shortfall in revenue and has been borrowing pension funds.

“As at November 2018 when pension assets were around N8.49 trillion, the federal government borrowed 72.5 per cent of the fund and invested in the FGN securities.

“That’s around N6.16tn during the period under review,” he said.

He said when PFAs delay payments it was often because the government has not released adequate funds for accrued benefits to match the percentage of borrowings from pension assets.

“Earlier this year, there were reports that the government intended to borrow another N20 trillion from pension assets for infrastructure.

“Whether that is true or not, we know that funds released for pension do not in any way commensurate with what is taken from the pension purse.

“When it comes to releasing funds to pay accrued rights, it is often a fraction of the funds. For instance in 2021, released N48.64 billion to pay accrued pension.

“It is, therefore, unfortunate that competing expenditures have made pensions a lower priority on the scale of preference of government at all levels,” he said.

Other stakeholders with slightly different view from that of Adeoye say pension funds are protected by robust legal safeguards that prevent government interference or unauthorised access.

The Pension Fund Operators Association of Nigeria (PenOp) said access to pension funds is subjected to struct regulatory measures, and that the process of raising funds through the CPS is actually an investment in government securities.

“Pension funds invest in a diversified portfolio of assets, including stocks, bonds, and real estate.

“These investments stimulate economic growth by providing capital to businesses, which, in turn, create jobs, generate tax revenues, and contribute to economic stability.

“According to data released by PENCOM, in the second quarter of 2023, 54 per cent of portfolio growth in the pension industry was attributed to investment performance.

“These underline how well pension fund managers are doing relate to the general investment guidelines,” it said in a media report.

However, some pensioners argue that, since both the federal government and PFAs benefit from workers’ pension contributions, retirees should be paid 100 per cent of the funds in their RSAs upfront.

“The administrators make money from workers’ contributions right from the onset of their employment and continue to enjoy the same until their retirement age.

“Workers should be given 100 per cent of their contributions a month to their retirement,” Abdulrahman Abdullah told NAN.

Mrs Gloria Umoren, a retiree, said some provisions of the PRA (2014) should be amended.

“Personally, I think drawing 100 per cent from RSA after retirement should be made an option.

“With inflation and other economic challenges, the value of the monthly pension paid pensioners reduces every time.

“If you pay pensioners who want to invest their hard-earned money 100 per cent of their entitlement, they can make profit from such investment.

“Programmed Withdrawal or Life Annuity of 50 per cent of a retiree’s monthly remuneration as at the date of retirement should be optional.

“Other provisions that need to be amended are the conditions for accessing funds from the RSA.

“Contributors must not clock 50 or wait for their health to deteriorate before having access to their own money. What if a contributor is not destined to live above 50?” she asked.

Mr Michael Fagboun, an Ibadan-based lawyer, said the changes contributors and retirees want to see in the CPS require an amendment to the PRA which established it.

He also said that the PRA and the CPS should be periodically reviewed to reflect the ever-changing financial landscape, especially from the angle of the plight of pensioners.

“The Pension Reform Act and, by implication, the CPS, should be reviewed every 10 years, taking into account what contributors and pensioners experience and go through to access their funds,” he said. (NANFeatures)