Rising spate of unfunded accounts in pension industry

The rate of unfunded accounts recorded in the pension industry has become very worrisome not just to the National Pension Commission(PenCom) but also to the industry operators and as a result the National Pension Commission has appointed some agents to take up the uphill task of collecting unremitted contributions on behalf of the Pension Fund Administrators.

It is on record that only 22 percent of all the registered employers are funding the Retirement Savings Account (RSA) of their employees, 78 percent of these employers’ stands as unfunded on the Commissions data base.

Out of about 5million registered RSA only about 1.3million are funded, representing just about 25 percent of the total RSAs in the industry. Speaking in monetary values only N32.3 billion is funded while N 62.67 billion stands as unfunded. This is a far cry from expectations.

A critical examination of this high rate of unfunded accounts reveals that it is as a result of combination of factors including: Fictitious registration; Compliance issues; Increase in the rate of contribution; Economic down turn, as well as Integrated Payroll and Personal Information System (IPPIS).

Many employers and RSA registrations on the data base of a lot of PFAs are fictitious. Fictitious registrationsdates back to when PFAs contracted sales agents to open Retirement Savings Accounts; monetary values were attached to each form that was registered. The sales agent in their quest to make money resulted in fictitious registration. These sales agents will manufacture non-existent names of employers and employees and forward to the PFA. There are several accounts of sales agent paying photographers to acquire several passport photographs to attach to RSA forms and submit to PFAs in order to get paid. This has resulted in many PFAs carrying fictitious and non-existent registrations on their data bases.

Many employers have refused to comply with the provisions of the Pension Reforms Act (PRA) 2014 as amended with respect to remittance of employee contribution. Some employers deduct pension contributions but refuse to remit, while some remit the employees contribution and keep back the employers portion.                                                                                         

Under the PRA 2014, a total contribution of 15 percent from the monthly emolument (Basic, Housing & Transportation allowance) of the employee was required; employee 7.5 percent, employer 7.5 percent and 15 percent where the employer elects to wholly make the entire contribution on behalf of the employee. But under PRA 2014 as amended the rate of contribution was increased to 10 percent employer, 8 percent employee and 20 percent where the employer elects to contribute wholly on behalf of the employee. Employers have refused to contribute claiming that they are still battling with the 15 percent contribution. Even the employees after registration have refused their employers from makingsuch deductions claiming that their salary is too small to make contribution for the future.

The present economic crisis is adversely affecting businessesmany companies are not able to pay salaries not to talk of making pension contribution. Some have begun rationalizing and laying-off their workers thereby increasing the unfunded position industry wise.

Many employees in the public sector make mistakes in the process of uploading personal information on the platform provided by the Integrated Payroll and Personal Information System IPPIS; one of the federal government reform initiatives. It is aimed at improving the management of human resources and eliminating fraud in the Nigerian public service. IPPIS is adepartment under the office of the Accountant General of the Federation saddled with the responsibility of payment of salaries to workers in the public service as well as deduction of pension contribution and remittance to Pension Fund Administrators. PFAs are listed alphabetically on the IPPIS platform and each worker when filling out the personal data is supposed to click on the PFA they have registered with, however they make mistakes by clicking on the wrong PFAs especially the PFA with the first alphabet by default. Since IPPIS recognizes the first PFA on the platform, the workers’ pension contribution ends up with that PFA and this will continue until the mistake is corrected. This has accounted for many employees RSA accounts not funded.

The National Pension Commission however has taken steps to ensure that this position improves within the shortest possible time.Processes have been put in place to ensure that contribution remittances of the worker residing with one PFA is transferred to the legitimate PFA.

The appointment of recovery agents for un-remitted contribution is yielding result as defaulting companies are now in a hurry to remit outstanding contributions they have deducted to avoid paying penalties.

Almost all PFAs requires a data clean up exercise to be championed by the National Data Bank department of the Commission, only then can PFAs improve on their funding rate and that of the industry in general. Data has been sourced from the National Pension Commission records.