Pension

Federal government retirees also need bailout

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Takor

One of the challenges facing Nigeria as a nation is that Nigeria is a country of laws but not under the law. We have very laudable policies and laws, without the political will to implement the policies and enforce the laws.

The Punch Newspaper of Thursday July 14, 2016 carried a story to the effect that the Federal Government has not been remitting the pension contributions of most of Federal Public Servants into their Retirement Savings Accounts (RSA) under the Contributory Pension Scheme since October 2015. According to the newspaper report, the revelation was contained in the 2016 Annual Report of the Pension Fund Operators Association of Nigeria. (PenOp).

PenOp is an umbrella association of Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs). While Pension Fund Administrators are companies licensed by the National Pension Commission (PenCom) to manage and invest pension funds in employees’ RSAs, which they opened for them, Pension Fund Custodians warehouse the funds contributed.

The operators association is therefore the most reliable organisation to say how funds enter and exit the RSA of employees. It therefore holds that any information emanating from the organisation on the issue of remittance of contributions into employees RSAs is the most authentic and reliable.

The Pension Reform Act 2004 replaced by the Pension Reform Act 2014, established the Contributory Pension Scheme (CPS) with one of the main objective of the pension reform being to ensure that every person that worked in either the public or private sector in Nigeria receives his/her retirement benefits as and when due.

The main difference between the new Contributory Pension Scheme and the old Defined Benefit Scheme is that most of the old pension schemes were not fully funded. Therefore upon retirement there were no ready funds to pay the pensioners. The new Contributory Pension Scheme is expected to be fully funded. It is funded through contributions by both the employer and the employee.

The Pension Reform Act 2004 provided for a minimum 7.5 percent contribution of an employee’s total monthly emoluments by the employee and 7.5 percent by the employer. However, these rates were amended by the Pension Reform Act 2014, to put the minimum contribution of an employee at 8 percent and that of an employer at 10 percent.

Employees who were in the public service of the Federation and the Federal Capital Territory, before the commencement of the Pension Reform Act 2004, have accrued rights to retirement benefits protected through the issuance of Federal Government Retirement Bond. The Bond is to be redeemed upon the retirement of the employee.

The Federal Government established a Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria. The Federal Government by law is expected to pay into the Fund, an amount equal to 5 percent of the total monthly wage bill payable to all employees of the Federal Government and the Federal Capital Territory.

On retirement, an employee is expected to be paid a lump sum and monthly pension collected either through a programmed withdrawal or an annuity purchased from an insurance company, from the balance in his/her Retirement Savings Account (RSA).

These entitlements are paid from the balance in the employee’s RSA on retirement. The balance is made up of the total contributions of the employee and employer, the return on investments of the contributions over the years and the accrued pension rights for employees who were already in service before the commencement of the Pension Reform Act 2004 in June 2004.

The accrued right is gotten through the redeeming of the Federal Government Retirement Bond through the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria.

Here then lies the problem. If the Federal Government is in default of remitting into employees RSAs contributions deducted from the monthly salaries of employees and its own monthly contributions since October 2015, then the Government has failed to comply with the provisions of Section 11 (3) of the Pension Reform Act 2014, which provides that “The Employer shall (a) deduct at source the monthly contribution of the employee; and (b) not later than 7 working days from the day the employee is paid his salary, remit an amount comprising the employee’s contribution under the paragraph (a) of this subsection and the employer’s contribution to the Pension Fund Custodian specified by the Pension Fund Administrator of the employee.

Apart from not complying with the provisions of the Act, the Federal Government is short circuiting federal public servants because there will be no money in their RSAs to be invested on their behalves.

Secondly, the implication of the Federal Government’s remittance of deductions from employees’ salaries and its own contributions as an employer, is also not adequately funding the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria.

If the Account is not being adequately funded, there will not be money to pay the accrued pension rights of employees who were in the Federal Public Service before the commencement of the Contributory Pension Scheme. The bulk of pension money for those who have put in over twenty years of service is in the accrued pension rights.

Lack of sufficient money in the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria is the current cause for the delays in paying the pension of retiredFederal Public Servants. Available information indicate that while the National Pension Commission project the sum of N91.91 billion as requirement for the funding of the Retirement Benefits Bond Redemption Fund (RBBRF) Account in the 2016 Federal Government Budget, the National Assembly appropriated only the sum of N50.20 billion, leaving a shortfall of N41.71 billion.

We are gradually returning to the pre pension reform era, where under the Defined Benefit Scheme, retired public servants and pensioners were not sure when their retirement benefits and pensions will be paid. The question therefore is what can be done to avoid the drift to the inglorious past, in the face of current economic challenges facing the nation.

The government of President Muhamadu Buhari has shown that it has interest in the welfare of public servants be they federal, states or local governments. The President on assumption of office, addressed the non-payment of salaries and areas of salaries owed public servants in the States, where most of them were owed as much as seven months salaries.

The Federal Government had to give States Governments funds (bailout) to enable them pay backlog of salaries. It is now time for retired and retiring Federal Public Servant to be bailed out by their employer the Federal Government.

The “bailout” of these categories of public servants has to take the form of immediate remitance into the Retirement Savings Accounts of employees of Federal Public Servantsall the areas of pension contributions of the employees and that of their employer the Federal Government with the appropriate interest.

A failure to remit the areas contributions; amount to noncompliance with the provisions of the Pension Reform Act 2014 by the Federal Government. It also amount to rubbing Federal Public Servants by their own employer. Secondly, the Government should make sufficient payment into the Retirement Benefits Bond Redemption Fund Account in the Central Bank of Nigeria to ensure that retiring Federal Public Servants are paid their retirement benefits as at when due in line with the objectives of the Contributory Pension Scheme.

In doing the aforesaid, the Federal Government will only be meeting up with its obligations in line with the provisions of the Pension Reform Act 2014 and not a bailout. The Federal Government should not be a “Father Christmas” by paying outstanding salaries of States Government workers, while at the same time failing in her legal and moral obligations to her own employees.

The Federal Government should show the moral and political will to implement the Pension Reform, which from a pension deficit N2 trillion, has been able to accumulate an investable fund of about N5 trillion, by complying with the provisions of the Pension Reform Act 2014.

In conclusion, I wish to state that the Contributory Pension Scheme introduced through the pension reform apart from being a vehicle for the eradication of old age poverty, has proven to be a very viable means of accumulation of long term investable fund.

The pension industry, a no existing industry before the Obasanjo’s pension reform in 2004, is now an industry to be reckoned with when discussing long term fund for development. The benefits of the reform have surpassed reform expectations.

The Federal Government must therefore harness her multiple roles in the industry, first as the single largest employer in the country, then as the regulator and finally as the manager of the economy, to develop the political will to sustain the reform; by ensuring that all those concern especially States Governments, key into the Contributory Pension Scheme and comply with the provisions of the Pension Reform Act 2014 and the various pension laws being enacted by the various States Governments.

Barr Ivor Takor, mni​​​​​​​​​
Executive Director, Centre for Pension Rights Advocacy​​​​​​

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