Allivation of
• Outline
• Introduction
• The Contributory Pension Scheme (CPS): the journey so far
• Parties to the Scheme: PenCom, PFA, PFC, Employers and Employees
• Approaches to Alleviating Old Age Poverty: MPG, Pension for life
• Going forward
• Conclusion
• CPS: Journey so far
• PFAs are mandated to open individual retirement savings accounts for all employees with a personal identity number (PIN) where contributions are accumulated till retirement, provide regular/ periodic statements of accounts to RSA holders for close monitoring and reconciliation, which will guarantee quick reports of errors and prompt correction of such errors. Currently, there are 21 licensed PFAs, 7 CPFAs and 5 PFCs. These players have recorded remarkable achievements in ensuring payment of retirement benefits to pensioners as and when due in fulfilment of the objective of the Act.
• As at March 2016, over 162,343 retirees had retired under the Contributory Pension Scheme (CPS) and are currently receiving pensions as and when due. PFAs are also responsible for investing and managing pension funds and assets in accordance with the provisions of the Act. In fulfilment of this objective, PFAs have proven competence in financial and investment management, guaranteeing safety and viability of pension funds and careful monitoring of investment instruments to ensure prompt and regular payment of entitlements of retirees. As at March 2016, total pension fund assets had grown to over N5.39 trillion with the monthly average contributions at about N25 billion. Pension funds are projected to hit the N20 trillion mark in the next eight years.
• Structure of Defined Contributory Scheme:
• Contribution Fund Flow
• Description of Existing Pension System Cont’d
• Pension Reform Act 2014
The Pension Reform Act (PRA) 2014 provides for the establishment of a Contributory Pension Scheme with the following objectives:
• Ensure seamless funding of the retirement scheme by assisting improvident individuals save in order to cater to their livelihood during old age
• Ensure that private and public sector employee receives his retirement benefits as and when due and to
• Establish a uniform set of rules, regulations and standards for the administration and payments of retirement benefits.
• The PRA 2014 also established the National Pension Commission (PENCOM). Its duties include:
• Regulate, supervise and ensure the effective administration of pension matters in Nigeria,
• Approval, licensing and supervision of all pension fund administrators
• Establishment of standards, rules and issuance of guidelines for the management and investment of pension funds under this Act.
• Description of Existing Pension System Cont’d
• Pension Fund Administrators(PFA)
The PFAs are licensed under the Act to;
• Open Retirement Savings Account
• Invest and manage pension funds and assets in accordance with the provisions of the Act
• Maintain books of account relating to pension funds managed by it
•
• Provide regular information on investment strategy, returns and other performance indicators to the Commission and employees.
• PFA’s are also mandated to cause retirement benefits to be paid in accordance with the provisions of the Act alongside several other related functions
• Pension Fund Custodians
The PFC has the responsible to
• receive the total contributions remitted by the employer within 24 hours, notify the PFA of same and hold the pension assets in safe custody on trust for the employee and beneficiaries of the retirement savings account.
• settlement of transactions and to undertake activities relating to the administration of pension fund investments including the collection of dividends.
• expected to execute in favor of the PFA relevant proxy for the purpose of voting in relation to the investments
The PFC provides some control over the activities of the PFA and provides a hedge against unauthorized access or trading. The custodian shall however not utilize any pension fund assets in its custody to meet its own financial obligations or that of a third party
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• After futile efforts to run a successful pension scheme in Nigeria under the Defined Benefits Scheme (DBS), in 2014 a systemic pension reform was imperative. There was a total shift from the defined benefit scheme to a defined contributory scheme through the enactment of the Pension Reform Act 2014 (the Act).
• The major objectives of the new scheme were to ensure that every person who has worked in either the public or private sector receives his retirement benefits as and when due, assist improvident individuals by ensuring that they save to cater for their livelihood during old age, establish a uniform set of rules and regulations for the administration and payment of retirement benefits in both the public and private sectors, and stem the growth of outstanding pension liabilities. The Act also gave birth to Pension Fund Administrators (PFAs), Closed Pension Fund Administrators (CPFAs) and Pension Fund Custodians (PFCs) charged with the responsibility of managing and administering pension funds on behalf of contributors.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• The PFAs are mandated to open individual retirement savings accounts for all employees with a personal identity number (PIN) where contributions are accumulated till retirement, provide regular/ periodic statements of accounts to RSA holders for close monitoring and reconciliation, which will guarantee quick reports of errors and prompt correction of such errors. Currently, there are 21 licensed PFAs, 7 CPFAs and 5 PFCs. These players have recorded remarkable achievements in ensuring payment of retirement benefits to pensioners as and when due in fulfilment of the objective of the Act.
• As at March 2016, over 162,343 retirees had retired under the Contributory Pension Scheme (CPS) and are currently receiving pensions as and when due. PFAs are also responsible for investing and managing pension funds and assets in accordance with the provisions of the Act. In fulfilment of this objective, PFAs have proven competence in financial and investment management, guaranteeing safety and viability of pension funds and careful monitoring of investment instruments to ensure prompt and regular payment of entitlements of retirees. As at March 2016, total pension fund assets had grown to over N5.39 trillion with the monthly average contributions at about N25 billion. Pension funds are projected to hit the N20 trillion mark in the next eight years.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• The positive benefits of the Pension Operators in the Contributory Pension Scheme have been highlighted. However, does the contributory pension scheme alleviate poverty in the lives of the elderly citizens in Nigeria? Is the monthly pension adequate to meet their needs? Poverty is one of the most pervasive problems facing Nigerians today. Absolute poverty denotes a condition in which a person or group of persons are unable to satisfy their most basic and elementary requirements of human survival in terms of good nutrition, clothing, shelter, health, energy, transport, education, amongst other things.
• Despite the numerous poverty eradication programmes which past governments had initiated and implanted, a world bank’s report shows that Nigerian Human Development Index (HDI) is 0.416 and that above 70 percent of the population was living on the breadline. Older people in developing countries are among the poorest in the world, with 100 million of them living on less than a dollar a day, 80 per cent with no regular income and with the proportion increasing. By the year 2050, nearly one in ten people in Africa will be over the age of 60 years. In Sub-Saharan Africa and other parts in the world, older people are struggling alone to bring up and care for children.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• While there is evidence to suggest that pension contributes to poverty reduction, this does not translate into poverty alleviation because of the coverage of the pension scheme. The number of registered contributors under the CPS is over 7.01 million, representing about 7.45 per cent of total labour force and 3.95 per cent of total population in Nigeria.
• This signifies the lack of coverage across many private and informal sectors of the Nigerian economy who are not covered by the pension scheme. The informal sector represents 70 per cent of Nigeria’s total working population hence the target of the Commission to extend coverage to a total of 20 million Nigerians by 2019 and 30 million by 2024. There is therefore the need to alleviate both old age and household poverty by extending the scheme to all sectors of the economy.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• As the poverty level keeps on rising in Nigeria, the social demand on government also keeps increasing. And yet, poverty alleviation remains the thrust of government reforms. It appears that poverty alleviation is the motivation for the pensions reform of government. In the light of this, additional social programmes that address the welfare of the poor and poverty alleviation at large, deserve serious attention.
• The importance of pension provision will continue to grow as individuals begin to place less reliance on family to look after them in old age and begin to face the reality that they need to look after themselves by building a nest egg for the future. The success of Operators in Nigeria in alleviating poverty largely depends on the sincerity, collaboration and commitment of all stakeholders like government that sets out the regulatory framework, the regulator, financial institutions who manage and administer contributions, individuals who pay and employers who must also contribute for their employees.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• Pension schemes aim at ensuring that public or the private sector retirees receive their retirement benefits as at and when due and assisting improvident individuals by ensuring that they save to cater for their livelihood during old age. Over a decade after the reform scheme became effective, there is evidence to show that the scheme is leading the country in the desired direction of poverty alleviation and self-sufficiency for the elderly.
• Alleviating old age poverty requires different approach from other age groups and a minimum pension is likely to be the only alternative available. There is unevenness in the impact of pensions on poverty in the current scheme. In particular, the enbloc mode of exiting the scheme does not solve the long-term needs of the retirees as it does not enable access to monthly pension.
• Contributions of the Pension Operators in “Alleviation of old age poverty” in Nigeria
• The Operators have relayed the shortcomings in the enbloc payment mode to the regulator, who is working on a minimum applicable pension. Challenges encountered by Pension Operators in delivering on the objectives of the Act are made known to the regulator through several platforms such as the Consultative Forum, and providing comments on proposed guidelines to be adopted in the industry.
• To address the objective of poverty alleviation, the Commission has commenced strategic initiatives for the pension industry which will be driven by Operators. To name a few, Micro pensions, Minimum Pension Guarantee, Pension Protection Fund and Multi-Fund Investment Structure are initiatives in the direction of tackling old age poverty.
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