Contributory pension scheme and Nigerian states

Eleven years after the Contributory Pension Scheme (CPS) was introduced in Nigeria with the enactment of the Pension Reform Act 2004, it is sad to note that some states of the federation, particularly those of the South-East, are yet to embrace the scheme.

The CPS was introduced to replace the old pension scheme which was riddled with innumerable challenges that worsened rather than help the situation of retirees in the country. There were, for instance, issues of arbitrary deductions, delays and outright non-payment of entitlements as a result of poor administrative structures. Often, retirees were made to spend months and years waiting for their retirement benefits and pensions, and in some cases some of these senior citizens who had spent their youth in the service of the country died even before their entitlements were ready.

The new pension scheme was therefore introduced to change the ugly narrative. The Pension Reform Act 2014 stipulates a monthly contribution of 15 percent (7.5 percent each by the employer and the employee) of an employer’s salary into an employee’s retirement savings account (RSA). The Pension Reform Act 2014, however, increased the contribution to 18 percent (10 percent by employee and 8 percent by employer).

At the heart of the new scheme are efficient service delivery and good investment returns. Pension Fund Administrators (PFAs) approved by National Pension Commission (PENCOM), the industry regulator, have had to put in place systems as well as personnel and services that ensure that contributors can check their account balance, maximise returns to be earned on their retirement benefits over time, and, on retirement, receive their benefits with ease. PFAs are required to be prudent in the management of pension funds, and Pension Fund Custodians (PFCs) are expected to diligently monitor the investment decisions of the PFAs and provide a guarantee as to the security of pension fund assets.

Of importance also is the fact that there are inbuilt checks and balances in the scheme which ensures, for instance, that workers’ funds are securely invested and will yield sufficient returns to meet their retirement needs. 

What this signifies for the Nigerian workers is the elimination of unnecessary delays in the payment of their entitlements. It also means that they do not have to travel long distances to get their pension payments or even to present themselves for periodic pay parades since pension payments are made directly to retirees’ accounts through banks of their choice on a monthly basis. In addition, PFAs are required to have offices across the nation to enable clients have easy access to them. Also, the new scheme enhances labour mobility as workers can move freely from one employer to another without their retirement benefits being negatively impacted. 

Indeed, the CPS, in states where it is operational, has instilled a savings culture among Nigerians, thus creating a pool of long-term investible funds for the development of the financial markets and the economy as a whole. The life insurance cover for employees also improves staff welfare and promotes workers’ commitment and loyalty while providing adequate cover for a worker’s family in case of any eventuality.

This is why we call on states that have not embraced this scheme to do so as a matter of urgency. This will relieve them of the burden of having to cater to these workers after their retirement. In a country where states are unable to pay salaries of workers in active service, we can only imagine how much more difficult it would be for them to remember those who are no longer in active service. We believe that keying into the new scheme is a win-win for the states as well as the workers whom the scheme guarantees continued sustenance when they would no longer be active to do meaningful jobs.