Pension pressure pushed back to government as police, paramilitary seeks exit from CPS
If a Bill before the National Assembly that seeks to exempt the Police and Paramilitary Organizations from the Contributory Pension Scheme (CPS), which has passed a second reading scales through, then, Nigeria would have returned to the old order, where government pays pensions from its annual budgetary allocations.
This also will undermine the successes already recorded in the CPS following the Pension Reform Act 2014, which replaces the old and non-functional Defined Benefit Scheme, which was largely unfunded, underfunded and caused undue hardship for Nigerian pensioners.
Oluwole Oke, member house of representative is sponsoring a Bill for an act to amend the Pension Reform Act 2014 to exclude members of The Nigeria Police, The Nigerian Security & Civil Defence Corps, The Nigerian Customs Service, The Nigerian Immigration, The Nigerian Prisons Service & The Economic & Financial Crimes Commission from the Contributory Pension System.
The Bill has passed a second reading and has been referred to the House Committee on Pensions for further legislative action.
Stakeholders in the industry who have looked at the development are concerned that taking these group away from the CPS would not only take pressure of paying pensions back to government, it increases their risks profile because the structure that guided mismanagement of fund would not be there if it’s taken away
According to an industry position, defended before some members of the Pension Committee in the House of Representative, the Contributory Pension System (CPS) operated under the Pension Reform Act 2014, was initiated to streamline and bring order to the structure of pension administration and management in Nigeria.
Primarily issues of non-funding or under-funding of pension arrangements in both public and private sectors are comprehensively addressed in the PRA 2014.
“The separation of investment management and administration (under the Pension Fund Administrator – PFA), from the custody of pension contributions (under the Pension Fund Custodian – PFC), superintended by an overarching Regulator, was carefully thought to bring professionalism and necessary checks and balances to the system.”
According to the industry, scale is also a factor that is embedded in the CPS. With scale, the system of investing and managing pensions is much better optimized. Focus and professionalism is driven to very high standards this way. This is the reason why operators in the Pension industry are not allowed to engage in any other business other than that for which they are licensed.
Other points canvassed by the operators includes that:
“Fragmentation of the industry by seeking exemptions of certain institutions from the scheme, or seeking individualized management by certain institutions of their pension contributions, such as has been granted the Nigerian Police, can only dilute the quality of professionalism that has been brought to bear thus far in the Pension Industry”
“A request to pull out para-military organisations from the CPS such as was effected with the Nigerian Military, will put increased pressure on already strained public finances. It will not improve the circumstances either for these organisations given that funding issues and dependability of the pension system, which the CPS has introduced, will not be resolved. It would rather be exacerbated.”
“Even the Military currently experiences great inefficiencies in the management and administration of pension having been retracted to exclusive provision under the government’s balance sheet.
“Value of benefit payments, which is often cited by critics of the CPS, is really untenable given that with contributory funding in the CPS, definite accretion to contributors’ accounts is guaranteed, while the unsustainability of the former non-funded defined benefit pension arrangement guarantees nothing.”
“The case of creating special management arrangements for institutions such as granted the Nigerian Police and the Closed Pension Fund Administrators is indeed one that is fading away as addressed by sections 50 & 51 of the PRA 2014. These sections provide for existing employees of Companies granted CPFA licenses to freely opt to open regular RSAs, and furthermore new employees are mandated to open regular RSAs.”
“As the Nigeria Police case evidences, a sizeable number of Police personnel have declined to transfer the management of their Retirement Savings Accounts (RSAs) to the Nigeria Police Pension Limited, preferring to remain under their current PFAs. This gives credence to the widely held assertion that granting a specialised license to specific institutions under the CPS is largely superfluous.”
“The CPS is Nigeria’s most successful pension system. It has demonstrated resilience and utility in its 12 years of operations. The system has been fraud proof, has largely corrected the inefficiency in the accumulation and payment of pension benefits. It is a system resembling the 401(k) plan in the USA and the Defined Contribution Occupational plans in the UK. It is important to nurture what has worked for us in Nigeria with regard to pension arrangements rather than dissipate and fragment it. Expanded coverage, as is being worked upon in the pension industry via the Micro-pension initiative is where focus and legislation should aid. Not in the current development of the CPS which has been tried and tested and has demonstrated great success.”