Pension Scheme And its Many Challenges

It is now seventeen years since the legislative arm of government enacted the Pension Reform Act 2004,which was amended in 2014. The Act gave birth to the Contributory Pension Scheme. Ebere Nwoji reports that recently, the lawmakers reviewed the scheme to establish its challenges, gains and prospects.

Recently, stakeholders in the pension sector took a critical review of the on going Contributory Pension Scheme (CPS) in the country to determine its achievements and failures after 17 years. The stakeholders that include National Assembly Joint Committees for Establishment and Public Service of the Senate, House of Representatives Committee on Pension, members of Pension Fund Operators Association of Nigeria, (PenOp), representatives of National Pension Commission (PenCom) and representatives of various labour unions from both private and public sectors recently converged at the third annual retreat organised by PenOp for the lawmakers in Lagos. In their deliberation on the performance of the CPS 17 years after the enactment of Pension Reform Act 2004, as amended in 2014, they arrived at the conclusion that though there have been a remarkable growth and achievements in the industry with pension assets growing to N12.4 trillion, against N2.56 trillion pension deficit, before the reform, and contributors growing up to 9.4 million as at April 2021, but despite this progress, the industry is still faced with many challenges.

Challenges
Some of these challenges highlighted by the stakeholders include low coverage of the scheme and compliance, inadequacy of benefits and poor awareness about the benefits of pension scheme. Other challenges highlighted by the scheme operators themselves at the meeting include poor outreach of operators to Nigerian workers, the challenge of deepening investment to create impact and low exchange rate of Naira to dollar. They also identified non-compliance by various state governments, most of which are still operating the “pay as you go” system, as a major hitch to further advancement of the CPS scheme.

THISDAY also gathered that the greatest challenge of the CPS scheme on the part of federal government employees was inadequate or total non- funding of the Redemption Fund against the annual projected pension liability, arising from voluntary and mandatory retirements, death of employees in service and the right of pensioners to pension review in line with section 173(3) of the 1999 Constitution (as amended). Indeed, since the advent of the CPS scheme, the failure of the federal government and some state governments that have keyed into the scheme, to transfer to PenCom the accrued rights of government workers for onward transfer to the various Pension Fund Administrators (PFAs) and managing the workers’ contributed funds have constituted delays to immediate payment of workers’ lump sum benefits after retirement.

Accrued Rights
Accrued rights are entitlement of workers from their employers before the enactment of pension Reform Act 2004 that established the CPS. The result is that in most cases, because of much delay in the release of the accrued rights, most workers don’t receive their benefits two to three years after their retirement. The situation was worsened by the fact that the Act establishing the scheme did not give room for payment of the fund contributed by the employee and his employer to keep soul and body alive pending the time government would have the necessary funds to pay their accrued rights. This often makes the retiring workers feel that there is no difference between the CPS, which is funded, and the Defined Benefit Scheme, which is non funded, since the workers who constitute the contributors have to wait for some years for government to release their accrued rights before they can receive their retirement benefits. The stakeholders however applauded President Muhammadu Buhari for the recent approval of release of workers’ accrued rights and backlog of differential based on 10 percent employer contributions according to Pension Reform Act 2014 (PRA2014).

Approvals
Also PenCom had recently announced that the federal government had approved payment of some critical aspects of the outstanding pension liabilities under the Contributory Pension Scheme.

PenCom said specifically that government had yielded to its submission to clear backlog of accrued pension rights for verified and enrolled retirees of treasury-funded MDAs who had retired but are yet to be paid their retirement benefits, as well as the back log of death benefits claims due to the beneficiaries of deceased employees of treasury funded MDAs. The commission also said government had approved payment of 2.5 percent differential in the rate of employer pension contribution for FGN retirees and employees which resulted from the increase in the minimum pension contribution for employers from 7.5 percent to 10 percent in line with Section 4(1) of the PRA 2014.

It further said government had said payments of these outstanding for retirees and existing employees would take effect from July 2014. It is worthy to note that subsequently, the federal government of Nigeria is expected to continue with the payment of the 10 percent rate of employer pension contribution for its employees, thus ensuring a remittance of at least 18 percent monthly (employer 10 percent and employee 8 percent) as provided by the PRA 2014. According to the commission, funds have already been made available for the settlement of the above stated pension liabilities. It added that accordingly, remittance into the various Retirement Savings Accounts (RSAs) of the affected retirees and employees was already being processed, adding that the affected retirees and employees would be notified in due course by their respective

PFAs
The commission, said the settlement of the outstanding accrued pension rights of verified and enrolled FGN retirees and compliance with the reviewed rate of pension contributions are significant developments that have resolved the challenges in these aspects of the CPS that have lingered since 2014. Indeed, the government approval, if carried out without unnecessary delays from Ministry of Finance, will solve key hiccups in the operations of the CPS.

Achievements
With the recent approval of the accrued rights payment by the federal government coming on the heels of commencement of the transfer window, the pension industry has indeed recorded great achievement this year and in the views of the stakeholders stand the chance of tripling the current pension asset figure if other similar hiccups standing on the way of its advancement would be addressed. Suggesting way forward for the pension sector, the stake holders said there is need for huge public enlightenment to drive compliance among the state governments to expose them to the benefits of embracing the contributory pension and educate them on how to leverage pension assets to facilitate infrastructural development.

In a communique issued at the end of the retreat, the stakeholders agreed that a task force should be set up by the National Assembly to engage the state governments and come up with innovative ways to drive compliance among them. They also resolved that a satisfaction survey should be commissioned by PenOp but handled by a third party to gauge the level of satisfaction with the scheme. The pension stakeholders also resolved that pension operators should take the issue of documentation seriously in order to ensure that pensioners are not made to go through unnecessary stress in order to access their benefits.

Compliance
PenOp President, Mr. Wale Odutola, who is also the Managing Director ARM Pension Managers, said though the pension industry has raised the bar for professionals locally, as investment, risk and compliance professionals within the industry can favourably compare to their counterparts anywhere in the world. He said that there are many areas where the sector is behind its counterparts in other countries.

“One area is the level of pension penetration. Nigeria currently has a pension penetration rate of approximately 11 percent of its labour force. This pales in comparison to 19 percent in South Africa, 20 percent in Kenya and 77 percent in the United Kingdom.

“Consequently, it goes without saying that the industry needs to deepen its level of penetration, especially in the informal sector. Another area of improvement is the level of pension assets to GDP. Nigeria’s level of pensions assets to GDP is only a little over 7 percent while in developed markets, it’s typically above 100 percent.

“So, whilst the level of our pension assets are relatively large in absolute terms, when you look at it in relation to GDP, it is actually low. This further speaks to the fact that we need to increase the level of penetration of the pensions scheme in general, “Odutola stated.

Former Director General, National Pension Commission (PenCom), Muhammad Ahmad, said the micro pension segment market of the sector needs to be tapped in order to bring every Nigerian in both formal and informal sector into pension coverage.

He said pension operators have a lot of work in this regard insisting that large chunk of their work is in the area of conviction and building trust.
He said operators’ starting point in tapping the opportunities in the informal sector is analysing the market.

He noted that the operators need to channel their financial inclusion efforts to the informal sector operators in order to saturate the market.
Ahmad therefore charged the various PFAs not to stay in their offices waiting for informal sector operators to come to them for the purpose of registering into the scheme but to move their workforce into the informal sector market in order to lure them into registering to pension plan.