The assent by Muhammadu Buhari to the National Assembly Service Pensions Board bill, which exempts National Assembly workers from the Contributory Pension Scheme on the eve of his departure as president, raised fresh concerns on the country’s pension system. It is the latest in a growing list of public institutions seeking to opt out of the rousingly successful initiative that has restored comfortable post-retirement existence for millions of Nigerian workers. While those seeking to leave ultimately anchor their decision on the right to choose, workers, the parliament and the government should not lose sight of the objectives of the CPS and the country’s terrible experience with pensions.
Effectively, the action removes the employees of the NASS Service Commission from the scheme. Also seeking out are the Nigeria Police for which the Senate has passed a Bill for the Establishment of a Police Pension Board. Before then, claiming the peculiar nature of their job, the military services had first, been exempted from making contributions like other workers to their pension, leaving the government to shoulder the full burden; and then taken out of the CPS altogether. That opened the floodgates. After the police, other paramilitary agencies, also citing professional peculiarities, want out.
Exit is not the only threat to the CPS. Attempts have been made to legislate higher lump sum withdrawal from their individual Retirement Savings Accounts by retirees –from the current 25 percent of total to 75 percent. Moreover, over the years, successive governments have been casting covetous eyes on the rising pension assets and making – so far unsuccessful – moves to change the stringent regulations to facilitate easier access to the funds.
There is an urgent need for caution, and restraint. Exits weaken the size and strength of the pension assets. The NASS and the government should be reminded of the background to the Pension Reform Act, enacted in 2004 and amended in 2014, the objectives of the reform and its deliveries.
Regarded as a major success of the Olusegun Obasanjo administration, the PRA replaced the Defined Benefits Scheme that failed spectacularly, deprived workers of succour in retirement, facilitated massive corruption, was under-funded and saw many senior citizens collapsing and dying in endless pension queues.
Over the years, trillions were stolen by civil servants, police, and military pension fund managers while retirees lived and died in penury. The Economic and Financial Crimes Commission reported in 2021 that it had probed pension frauds worth N157 billion. Of the over N300 billion that vanished on its watch, Abdulrasheed Maina was convicted for stealing only N2 billion while he was chairman of the (since disbanded) Pension Reform Task Team.
Moreover, pensions were administered by non-professionals. Yet, as a fixed retirement fund paid to an enrolee at regular intervals (usually monthly) post-retirement, pension administration is a technical sub-sector of the financial services/insurance industry that requires professional and managerial expertise. The PRA reformed the sector and handed over management of pensions to professionals, and custody of the funds to selected deposit money banks.
Perhaps most revolutionary, it shifted pensions from the DBS mode where the employer solely funded gratuity and pensions, to the modern and more viable contributory format where both employer and employee contribute fixed sums into the employee’s RSA.
In a country where almost all financial schemes have failed, the CPS has been a rare success story. Total Pension Assets Under Management have been rising steadily, hitting N14.27 trillion by June 2022. Total number of enrolees also hit 9.79 million. For enrolees, the horrors of unpaid pensions, verification queues and stolen benefits have disappeared. For the economy, this is a major plus as it sustains retirees as economically active and self-reliant citizens exerting demand on goods and services.
It also provides an impressive pool of long-term investible funds, a stream that is gapingly lacking in Nigeria’s disarticulated and informal sector-driven economy. Aisha Dahir-Umar, the director-general of the National Pension Commission, reported that N8.77 trillion, representing 65.35 percent of total AuM, was invested in government bonds and part was subsequently deployed in funding critical infrastructure. With the success of the CPS therefore, the pull-out and efforts to dilute it are ill-advised. If the military claim peculiar service considerations, there is decidedly nothing special about the service rendered by NASS workers over and above the regular civil service.
The police and paramilitary services seeking to quit should reconsider. Fraud, mismanagement, and unpaid benefits were rife when they ran their own pensions. In February 2020, the EFCC arraigned six persons for stealing N64.6 billion of police pension funds; another N45 billion once vanished. Industry experts say the government would require about N2 trillion to cater for the pensions of the 371,000 police officers.
PenCom and professionals have persistently pushed back against what Dahir-Umar calls the “aggressive push” by the Nigeria Police, aided by an unenlightened NASS, to exit the CPS, and the equally short-sighted move to raise lump sum payment. For the individual, the greatest value of a pension is the guarantee of regular payment long after retirement. Those seeking the higher percentage for business should be guided by the reality that 80 percent of all SMEs fail within the first five years, according to studies, while experts say retirees venturing into new businesses often suffer losses.
Japan’s state-backed pension fund in 2021 was worth $1.7 trillion. Statista estimated Brazil’s pension assets at $499.48 billion by 2018. The amended PRA 2014 raised the mandatory contribution for each employee from 5.0 percent of monthly gross salary to 8.0 percent, and the minimum contribution by employers from 7.5 percent of employee’s pay to 10 percent. The CPS was also extended to private sector employers having up to 15 employees. In March 2019, PenCom opened the Micro Pension Scheme for artisans. By September 2022, it had 84,612 enrolees.
Such progressive improvements and pulling in more states and contributors are what the CPS needs, not departures on flimsy grounds. The NASS and the government should stop the exodus.
