Strengthening regulatory oversight for improved service delivery in Nigeria pension industry

Takor Ivor

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By Ivor Takor

The provision of pension is of a fundamental economic and social importance with the goal of ensuring successful delivery of adequate retirement income to retired employees as and when due. It is so important that it has been made a fundamental right of every employee. Sections 173 and 210 of the Federal Republic of Nigeria 1999 Constitution (as amended) guarantees the right of pension for employees of public services of the Federation and States respectively, while Section 2(2) of the Pension Reform Act (PRA) 2014 guarantees the Rights to pension for private sector employees.

The Constitutional provisions above states that the rights of the employees to pension or gratuity shall be regulated by law. In compliance with this constitutional provision, PRA 2014 was enacted. The Act repealed the PRA No. 2, 2004 and made provision for the Uniform Contributory Pension Scheme for Public and Private Sectors in Nigeria and for Related Matters.

Section 1 of the PRA 2014 established a Contributory Pension Scheme (CPS). The main objectives of the CPS is to ensure that every worker receives his retirement benefits as and when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

The CPS is a product that is being sold to non-professionals. It is other people’s money managed by privately owned Pension Fund Administrators (PFAs) and kept in the custody of Pension Fund Custodians (CPFs) that are also privately owned. Supervision is therefore required to achieve the degree of protection needed to support privately managed savings.

One of the weaknesses of pension schemes operated in Nigeria before the pension reform carried out in 2004, especially the Defined Benefits Scheme (DBS) operated in the public sector, was lacked of regulatory oversight, which contributed to weak and inefficient administration of the scheme, corruption and late payment of benefits to retirees.

In order to address the manifest weaknesses inherent in the DBS, section 14 of the PRA 2004 established the National Pension Commission (PenCom). Section 17 of of PRA 2014, which repeal the PRA 2004 also established the PenCom.

The principal objectives of the PenCom as provided in section 18 of the PRA 2014 is to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria.

Tight supervisory and regulatory oversight of the pension industry have become increasingly necessary considering the complexity of pension products, involving assumption over future salaries, longevity, difficulty in valuation of assets, liabilities and the fiduciary duties of both PFAs and PFCs .

Pension intermediaries are under greater pressure now more than ever as regulatory landscape evolves and focuses on driving pension adequacy, transparency and sustainability. The core of pension regulatory oversight are protection of contributors against opportunistic and hazardous behaviours on the part of pension fund operators; maintenance of contributors confidence in the pension system and in the integrity of pension fund operators; ensuring systemic stability; and safety of as well as soundness of individual operators.

PenCom has so far achieved its regulatory and oversight objectives through regularly evaluation of operators’ risk profiles, financial conditions, their risk management processes, compliance with provisions of the PRA 2014, regulations as well as effective use of framework for continuous assessment of operators.

PenCom as a Ragulator, has been consultative in Rule Making. This is done through regular consultations with Pension Fund Operators Association (PenOp), and other regulatory agencies of government that have regulatory and supervisory oversight of organisations operating in the Nigeria pension industry, such as the Central Bank of Nigeria (CBN), Security and Exchange Commission (SEC) and the National Insurance Commission (NAICOM). Moreover, Section 19(1)(d) of the PRA 2014 provides for a representative each of the following agencies and stakeholders to be in the Board of PenCom: Head of the Civil Service of the Federation; Federal Ministry of Finance; Nigeria Labour Congress; Trade Union Congress of Nigeria; Nigeria Union of Pensioners; Nigeria Employers Consultative Association; Central Bank of Nigeria; Security and Exchange Commission; Nigeria Stick Exchange; and National Insurance Commission.

Regulatory oversight is the variety of functions and tasks carried out by bodies or entities of government in order to promote high-quality evidence-based regulatory decisions. Oversight and regulations in the pension industry are therefore important functions that help assure quality performance of the industry and maintain public trust through transparency and assurance. In other words, oversight or watchful care is a safety net to ensure the following: Due diligence takes place before key decisions are made; policies and strategies are being implemented as intended; and key risks are identified, monitored, and mitigated.

PenCom regulatory and oversight philosophy is anchored on four pillars namely: prudence; transparency and disclosure; consultation; and risk based approach. It carries out its oversight functions as stipulated under Section 23 of the PRA 2014 as follows: regulating and supervising pension schemes in Nigeria; issuing guidelines, rules, and regulations for the investment of pension funds; approve, license, regulate and supervise pension fund administrators and custodians; establish standards, benchmarks, guidelines, procedures, rules and regulations for the management of pension funds; effective onsite and offsite supervision; ensuring high level of compliance and corporate governance culture; carrying out public awareness and education on the establishment and management of the scheme; promoting capacity building and institutional strengthening of pension fund administrators and custodians; promoting and offering technical assistance in the application of CPS by States and Local Governments; and receiving and investigating complains of impropriety leveled against any pension fund administrator, custodian or employer or any other staff of agent.

Service delivery is simply the act of providing service to customers. Some of the elements required to deliver service are customers, the contact personnel, the physical support, the service and the internal system or back office of the Organisation.

In the Nigeria pension industry, there are three levels of services expectations, namely: entry, accumulation and payout.

The entry level is the level at which employees enter the scheme. For the CPS, it starts with employees choosing PFAs of their choice in line with the provisions of Section 11 of the PRA 2014. It is the responsibility of employees to choose a PFA, register with it and open. Retirement savings Account (RSA) and not that of the employer. However, because under the PRA 2004, employers had taken refuge under the excuse that some employees failed to register with PFAs and therefore had no RSA into which contributions will be paid into, Section 11(5) 5 of PRA 2014 therefore makes it mandatory for an employer to open a nominal RSA with a PFA on behalf of an employee who fails to open one, six months after assumption of duty, for remittance of his pension contributions.

The first service at the accumulation stage is provided by the employer. Section 11(3) makes it mandatory for the employer to deduct from source the monthly contributions of the employer and employees and not later than 7 working days from the the day the employee is paid his salary, remit the contributions to the PFC specified by the PFA. The PFC shall notify the PFA of the remittance and the PFA shall credit the RSA of the employee. Section 55 of PRA 2014 provides for the services to be rendered by the PFA, which include customer services; prompt and effective handling of enquiries and complains; issuance of RSA statements; and optimal return on investments.

The pay-out level, which is crucial has responsibilities for employees, PFAs/PFCs and PenCom. These responsibilities include completion of retirement documentation requirements by employees/PFAs; Enrollment and Accrued Rights computation by employees, PFAs and PenCom; prompt processing and payment of retirement benefits by PFAs/PFCs/PenCom; and continuous public education/awareness and updates on the CPS by PFAs and PenCom.

There are key challenges facing the Nigeria pension industry some of which are: the service culture in the industry is evolving; Call Centre are non-functional; inadequate spread of PFAs branches and Service Centres and inadequate infrastructure; incomplete customer information and records; high staff attrition rate; inadequate sensitization and public enlightenment programs; external exigencies and dependencies of the pension industry e.g. employers, financial ecosystem and other service providers and vendors.

The greatest challenge to the CPS and the industry has come from unexpected quarters, the Federal and States Governments as well as the National Assembly. The Federal Government that put in place a Pension Reform Committee and forwarded an Executive Bill to the National Assembly based on the recommendations of the Committee and the biggest employer in the country, has been the most guilty of non-compliance with the provisions of PRA 2014 especially on the issue of deductions and remittence of appropriate contributions rate for a period of 6 years and 11 month after the enactment of PRA 2014 and releasing of funds for the payment of accrued pension rights of federal public servants.

Nineteen years after the repeal of the Pension Act 1990 that was of universal application in the federal and states public services in 2004, the number of states (including the Federal Capital Territory) with laws on the CPS are 25. Out of which only Lagos, FCT, Osun, Kaduna, Delta, Ekiti, and Edo are paying pension under their own laws on CPS. Five states have enacted laws on Contributory Defined Benefits Scheme (CDBS), with only Jigawa and Kano states among them, that are currently implementing the Scheme. Kwara, Plateau, Cross River, Borno, Akwa Ibom, Katsina and Yobe states have not enacted any pension law for their public servants.
The National Assembly that enacted PRA 2004, which established the CPS in 2004; repealed it in 2014 and enacted PRA 2014 in order address some administrative and legal issues that were regarded as drawbacks to the smooth implementation of the Scheme in the cause of operating the law for 10 years, is now the greatest challenge to the industry. Private member’s bills are being sponsored regularly by members of the National Assembly, on behalf of certain categories of federal workers, with a view to exempting them from the CPS.
The greatest surprising challenge to the industry came in May, 2023 when former President Muhammadu Buhari, with less than 24 hours to his handing over power to President Bola Tinubu, assented to the National Assembly Service Pension’s Board Bill, which exempted National Assembly Staff from the mandatory CPS. This single act of the former President, continue to heat up the pension industry negatively, throwing both the public and private sectors workers in confusion as to the future of the CPS.

In order to address service challenges in the industry, PenCom has taken the following actions: in its effort to ensure compliance with the provisions of PRA 2014 by private sector employers and mitigate the complains from employees and PFAs on non-remittance of pension contributions by private sector employers, It has appointed Recovery Agents for the recovery of un-remitted pension contributions and penalties from defaulting private sector employers; Increased the Minimum Regulatory Capital of PFAs from N1 Billion to N5 Billion in 2022. The recapitalisation was to strengthen the capacity of PFAs and increase their presence nationwide through the creation of more business outlets and generally improve service delivery to members of the Scheme; created a Customer Protection Department to promptly and adequately address service issues as well as promote service excellence in the industry; embarked on strict enforcement of the Guidelines on Operations of Branches and Service Centres and Circular on Service Delivery by PFAs; Continuous stakeholder engagements by PenCom and Operators; and Establishment of a Pension Academy for continuous human capacity building and development in the industry.

The need for service delivery is key for the overall success of and sustainability of the CPS, considering its retail nature. Achieving service excellence in the industry is a collective effort by all stakeholders and PenCom continuous engagement of and collaboration with stakeholders to ensure enhanced service delivery in the industry.

Takor was a two term President of NASU, a two term National Treasurer of NLC and an member of the inaugural Board of PenCom. Takor retired as a Director in federal public service and is now a Lagos-based legal practitioner. He is an alumnus of the National Institute of Policy and Strategic Studies (NIPSS), Kuru-JOS, Plateau State.

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