A fresh insight into the Contributory Pension Scheme has reignited the debate on its operations. In a sobering update, the National Pension Commission – the regulator – has stated that less than 15 per cent of Nigeria’s workforce are currently enrolled in the scheme. This is alarming, considering the fact that the CPS has been in operation for more than one decade. Since this landmark financial scheme has been of considerable benefits to retirees, this is a wake-up call for the regulator to pull in more workers.
Specifically, PenCom noted that out of the country’s 70 million-strong workforce, only 8.41 million were enrolled in the scheme. Percentage-wise, this is just 12.09. This is too low. To some extent, it negates the objective behind its establishment. As of December 2018, the contributors were just about 4.29 per cent of Nigeria’s population. This figure portends an uncertain future for the majority of Nigerian workers because it excludes the chunk from preparing adequately for life in retirement.
In this respect, the most culpable parties are the state governments. To date, about 200,000 private sector employers of labour have enrolled their workers in the scheme. This sector thus contributes 60 per cent of the N8.63 trillion total pension assets as of December 2018. Averagely, that has been the size of Nigeria’s budget in each of the past three fiscal years.
Nevertheless, the Federal Government, which initiated the programme, has been compliant, but the state governments have been coy. So far, only 26 of the 36 states have made some steps toward the implementation of the CPS; nine are currently working on the law to domesticate it in their parliaments. One state has not attempted anything on it. This is wrong. It makes the affected workers vulnerable in retirement. Additionally, some states are making deductions from their workers’ salaries, but are not remitting such to employees’ retirement savings accounts or paying their own counterpart funding. The situation is more noxious in states where governments owe salary arrears.
It is strange that employees at the state level and the labour unions have not devised a plan to engage their irresponsible governments over the illegality and the benefits of being in the scheme. This negligence is partly why Nigeria’s pension fund assets-to-GDP ratio lags far behind those of other countries. Although pension fund assets in Nigeria are inching up, the ratio to GDP is still abysmal at 7.4 per cent.
On the contrary, pension funds assets exceeded $28 trillion in the Organisation for Economic Cooperation and Development countries in 2017 (or 56 per cent of the OECD-area GDP), the organisation noted. In this, pension fund in the United States – the highest globally – cumulated to $16.2 trillion or 83.7 per cent of GDP as of 2017. Other top ranging pension assets: the United Kingdom is ($2.9 trillion or 105.5 per cent of GDP); Australia ($1.7 trillion or 120.4 per cent of GDP); and the Netherlands ($1.6 trillion or 182.5 per cent of GDP).
Undoubtedly, the CPS has been a lifesaver. Until 2004, Nigeria’s pension system was defined by chaos and sleaze. Pensioners could not access their entitlement, with many dying long before their pensions were ready. Others collapsed in queues. Crooked officials got richer by cheating workers out of their sweat. It was harrowing for those at the receiving end.
Fortunately, government summoned the political will to annul that burdensome system. In its place, it pioneered a new contributory scheme with the Pension Reform Act 2004. Originally, each worker contributed 7.5 per cent (minimum) of his or her income on a monthly basis; the employer also parted with 7.5 per cent. Following fresh amendments to the law in 2014, the employee is currently contributing a minimum of eight per cent, and the employer 10 per cent. A worker can make additional voluntary contributions. PwC Nigeria, a financial service provider, says the new act has now made it mandatory for state and local governments to implement contributory pension schemes for their employees. “It is our view that state governments can no longer ignore the need to implement it even amidst rising recurrent expenditure and the current economic climate.” But the snag is that states also have the constitutional powers to enact their pension laws.
For huge benefits that workers stand to gain from the scheme, the Nigeria Labour Congress and the other labour unions should show a greater interest in the fate of the workers of non-compliant states. With 18 licensed Pension Fund Administrators managing the scheme, there are largely no more calamities or pension queues. Cumbersome and dangerous journeys for endless verification schemes are outdated. Every business outfit, with as few as three employees, can take advantage. Now, retirees access their benefits easily. The latest data from PenCom are encouraging: 260,808 retirees are currently receiving an average monthly pension payment of N10.18 billion. The enrollees are contributing an average of N29.15 billion per month.
With total assets in trillions, various sectors of the economy are also benefiting as the fund is invested in the stock market, government bonds and infrastructure renewal. Yet, the challenges are not to be wished away. For one, the fund should be larger, helping to fund critical areas of the economy. Two, it is not inclusive enough. To maximise its benefits, all categories of workers, particularly at the state level, should be enrolled.
PenCom recovered N14.38 billion unremitted pensions (including penalties) from offending employers from 2012 to 2018. This is cheering, but it must similarly recover such funds from state governments who are guilty of deducting workers pension but fail to remit to their PFAs.
PenCom should strictly enforce the law. Without a doubt, the NLC priority should be a campaign to compel all state governments to get on the CPS bandwagon. Anything outside of this is failure on labour’s part.
