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Overview of the Contributory Pension Scheme

amazu

Chinelo Anohu-Amazu

Overview of the Contributory Pension Scheme

By
Chinelo Anohu-Amazu
Director General
National Pension Commission – Nigeria

Definitions
What is Pension?
Pension is an arrangement to provide people with an income when they are no longer earning a regular income from a gainful employment
Pension is different from severance pay or gratuity
It is paid in regular instalments, while severance pay and gratuity are paid in one lump sum
Defined Benefits (DB) – guarantees a certain payout at retirement according to a fixed formula. Example, Nigeria’s Pay-As-You-Go Scheme
Defined Contribution (DC) – provides a payout at retirement that is dependent upon the amount of money contributed and the return on investment

Type
Social and State Pensions – provided by government for its citizens. Typically depends on social insurance contributions
Employment Based Pensions – may be provided by an employer or both employer and employee contribute certain amounts to a fund in order to receive benefits in retirement
Disability Pensions – some pension plans provide benefits in case a plan member suffers disability

Pension Reform in Nigeria
Rationale for Pension Reform
Public Sector operated Defined Benefit (DB) Scheme that was:
unfunded
marred by weak, inefficient and poor administration
prone to financial malpractices
Endless and painful annual physical verifications
Private Sector was characterized by low coverage and compliance leaving most workers with no and/or inadequate retirement benefit arrangement

Pension Schemes Post 2004
Contributory Pension Scheme (CPS) was introduced in 2004 for both Public and Private Sectors
Established PenCom to direct and oversee the overall policy on Pension Matters in Nigeria
Workers are able to save and receive their retirement benefits as and when due
Introduced a pension system that is sustainable and provides a stable, predictable and adequate source of retirement income in Nigeria

Pension Reform in Nigeria…cont’d
The System
Nigeria runs a CPS but maintains DB for those exempted from the Scheme
DC System
Shared Responsibility between the employer & employee
Based on personalized Retirement Savings Account
Incremental accumulation of pension funds and assets
Stems further growth of pension liabilities
Fully funded towards future pension obligations
Curtails the burgeoning pension liabilities of Federal and State Governments
Supports Economic Development
An efficient avenue for Infrastructure and economic development
Availability of investible funds to support the development of the real sector
Stimulates job creation
Alleviates old age poverty

DB System
Maintained for those exempted from the CPS
Proper structure put in place to address inherent weaknesses and administrative abuses
Strong Regulatory Framework for the entire Scheme

Pension Reform in Nigeria…cont’d
Pension Reform Act 2014 signed into Law
Reviewed contribution rate to 10% by employer and 8% by employee
Allowed for part of RSA balance to be used as equity contribution to own residential accommodation
Enhanced the protection of pension fund assets through strict sanctions
Facilitated the provision of pension for the Informal Sector
Provided for the adoption of CPS by States and Local Governments
Organizations with 3 or less employees and the self employed are now eligible to participate
States and Local Governments now covered by the Law
Access of RSA for loss of job now reduced to 4 months waiting period
Pension benefits should be reviewed upwards in accordance with Section 173 of the 1999 Constitution

Board of the Commission was expanded to include Trade Union Congress, Nigeria Stock Exchange and National Insurance Commission
The Board reports directly to the President of the Federal Republic of Nigeria
Pension Protection Fund (PPF)
To be funded by:
Annual Subvention of 1% of monthly wage of FGN employees
Annual Levy on PenCom and Pension Operators
Income from investment of the fund
Utilization of PPF
Funding of Minimum Pension Guarantee (MPG)
Compensation for shortfall or financial losses from investment activities
Any other eligible purpose

Safeguards of the Scheme
Quantitative investment limits & qualitative requirements

Segregation of Pension Funds from assets of operators

Daily monitoring of investment of pension funds

Guarantee from the parent company of PFCs and mandatory statutory reserve requirements for PFAs

Separation of custody from administration of pension assets

Pension funds not to be applied as loans or collateral for loans

Fit and Proper Persons requirements for pension funds management

Strict corporate governance and disclosure requirements

Institutional Framework
PenCom
Regulates & supervises all pension matters in Nigeria
Supervises both FGN and FCT Pension Transitional Arrangement Directorates (PTADs)
Maintains database of all pension matters
Enforces compliance, sanctions & penalties
PFA/CPFA
Registration/Transfer of Contributors
Administration of RSA & Customer Support
Reporting to PenCom and Contributors
Taking Investment Decisions
Administration of Retirement Benefits
PFC
Holds pension fund assets in safe custody on trust
Executes transactions and undertakes other related activities on behalf of PFA
PTAD
Coordinates the activities of Pension Offices/Boards in the Federal Public Service and the FCT for those exempted from the CPS
Employer
Remits monthly contributions

The CPS: A Scorecard
Initially licensed 26 PFAs, 7 CPFAs and 5 PFCs
Presently reduced to 21 PFAs, 7 CPFAs and 4 PFCs due to mergers and acquisitions
Number of registered contributors was 7.01 million as at March, 2016
This represents about 7.45 % of total labour force in Nigeria and 3.95% of total population
26 States of the Federation had adopted the scheme and are at different stages of implementation while the remaining 10 States are at bill stage
About 200,000 private sector employers of labour are implementing the CPS
Over 162,343 had retired under the Scheme as at March 2016 and are currently receiving pensions as and when due
Total pension fund assets had grown to N5.39 trillion as at March, 2016
Average monthly contributions about N25 billion
The assets were equivalent to about 7.72% of the Nigerian rebased GDP
About 60% of the total pension fund assets belongs to the private sector
PTAD fully established to handle issues of FGN retirees exempted from the CPS

Pension Asset Growth
Pension Fund Portfolio as at March 2016
Updates I – Micro Pension Plan
The Micro Pension Plan was introduced to extend coverage to the persons working in the informal sector and the self-employed
The Micro Pension Department has been established to drive implementation of the Plan
Multi-channel Platform will be used in providing customer services to those who will be covered under the Plan
Discussions are ongoing with relevant service providers and regulators to provide the required technology
Sensitization is being undertaken through the print and the electronic media including the various social media platforms
The Commission has started discussions with the CBN and other relevant Government Agencies on extending coverage to the Small and Medium Scale Enterprises

Updates II – Public Sector Pensions
PTAD fully established to handle issues of FGN retirees exempted from the CPS
There were 220,376 pensioners on payroll under the 4 Departments of PTAD with a monthly pension of N6.4 billion as at January 2016
The Commission has conducted the maiden examination of PTAD and report on findings were forwarded to the Honorable Minister of Finance for further necessary action
Follow up examination will be conducted subsequently
Guidelines are being developed for the payment of retirement benefits of Professors and Political appointees in accordance with Section 6(2) of the PRA 2014
The Commission conducted on-site reviews of the compliance status of 42 self-funded public agencies in September 2015
34 Agencies were found to be substantially compliant
Level of compliance of 8 Agencies could not be ascertained due to lack of adequate information
95% of serving employees of the agencies had opened RSAs while the rest were yet to open RSAs

Updates III – World Pension Summit ‘Africa Special’
A platform ‘for and by’ Pension Professionals from across Africa to exchange knowledge and innovative ideas on how to secure sufficient and sustainable pension provision
It is an annual gathering in Abuja, Nigeria, with the objective of sharing expertise and best practices to promote essential development in social security and innovation in pension administration
The National Pension Commission, Nigeria, conceptualized the idea to bring the World Pension Summit brand, originally of the Netherlands, to Africa in 2013 and hosted the first edition in 2014
The Summit has so far attracted participation from over 24 African countries and 4 non- African countries
The third edition of the Summit will hold on 27 and 28 September 2016 at the Transcorp Hilton Hotel, Abuja, Nigeria

Thank you.

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