Ten years of pension reform

The Contributory Pension Scheme (CPS) introduced in the country through the Pension Reform Act No. 2, 2004 and revised in the Pension Reform Act, 2014, in spite of its shortcomings, has positively changed the face of pension administration in the country in the last 10 years.

To be clear, the CPS replaced the characteristically problematic Defined Benefits Scheme where employees had to rely entirely on the employer for monthly pension payouts after retirement. Prior to its establishment in 2004, many workers in the country, seeing the difficulty faced by those who had retired before them in accessing their retirement benefits and pensions, were often very reluctant to retire. As such, many resorted to endless alterations of their dates of birth backed by sworn affidavits so that they would remain perpetually in employment. Pension payments were epileptic and often in arrears.

Up till today, it is still an issue in many states of the federation where retired workers in the old scheme are being owed years of pension arrears by state governments. Every so often these tired old men and women are dragged about and summoned to state secretariats across the country for verification exercises that lead to nowhere. After verification, these retirees drag their tired bones back home and wait endlessly for pensions that never come.

Today, the story would appear different. In a decade of operation, the Contributory Pension Scheme (CPS) in Nigeria has registered more than 6.2 million contributors and has transited from a story of about N2 trillion in pension deficit under the defunct Defined Benefits Scheme to a large pool of investible fund of over N4.5 trillion pension assets under management as at June 2014, according to Chinelo Anohu-Amazu, director general, National Pension Commission (PenCom).

Furthermore, out of the 111,210 pensioners under the new scheme, 97,808 retirees are receiving their monthly pension by way of Programmed Withdrawal, while 13,402 retirees are receiving theirs by way of Life Annuity, according to PenCom.

It is also worth celebrating that in 10 years of its operation, the CPS is yet to record a single case of fraud, as against the old regime which was characteristically fraud-infested.

At establishment in 2004, the stated objectives of the CPS were to: (a) ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due; (b) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age; and (c) establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits for the Public Service of the Federation, Federal Capital Territory and the Private Sector.

The Pension Reform Act, 2014, which repealed the 2004 Act, has introduced further changes into the scheme. For instance, it has also expanded the scope of participation in the pension scheme by Nigerians as well as strengthened compliance with its provisions, especially relating to enrolment and remittance of pension contributions. And rather than 15 percent of the employee’s monthly salary (7.5 percent contributed by the employer and 7.5 percent by the employee) provided for in the 2004 Act, the 2014 Act provides for 18 percent to be paid into the employee’s Retirement Savings Account (RSA) domiciled with a chosen Pension Fund Administrator (PFA).

In spite of the good records so far, much more needs to be done. We are saddened by the reports that some private sector employers are not complying with the upward review of the pension contribution rate as stipulated by the Pension Reform Act, 2014. While a few have adjusted their company policies to reflect the 18 percent new minimum rate of pension contribution, according to reports, the majority of employers have refused to comply, relying on the fact that the Act did not specify an effective date. We call on the regulator to move in immediately and find a way to resolve this issue and enforce compliance so as to ensure that the Nigerian worker is not short-changed.

For us, the journey for the pension industry in Nigeria is far from begun. We align with analysts who say that the industry has strong growth potential to be driven by a huge working population, rising per capita income and the integration of the informal sector. We add, however, that this also requires that operators in the industry increase awareness, deploy cutting-edge technology to increase returns on asset, and strengthen capacity through mergers and acquisition to enjoy the benefit of synergy and shared services.