Pension

Issues in pension enhancement vis-à-vis pension review and constitutional provision by Ivo Takor

Takor Ivor

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The National Pension Commission (PenCom) on 20 December, 2022 announced pension enhancement for retirees on programmed withdrawal under the Contributory Pension Scheme (CPS), who have accumulated significant growth in their Retirement Savings Accounts (RSAs) with effect from February 2023.

The current enhancement will be the third since the commencement of the CPS in 2004. The enhancement like the previous two, is only for those who are under programme withdrawal and have accumulated significant growth in their RSAs. Retirees who opted for annuity are not affected by the enhancements in the same manner they were not affected during the two previous ones.

There are two modes for accessing periodic pension payments under the CPS, namely, programmed withdrawal and life annuity. Programmed withdrawal is a method by which the retiree collects his retirement benefits in monthly or quarterly amounts throughout the length of an estimated lifespan, which is determined using mortality (actuarial) tables. This is a product offered by Pension Fund Administrators (PFAs). When a retiree dies, any balance in the RSA will be paid to the duly nominated beneficiaries. Life annuity on the other hand, is a series of monthly or quarterly payments paid to a retiree for life. This is a product offered by Life Assurance companies.

Pension enhancement is one of the laudable initiatives introduced by the National Pension Commission (PenCom) to periodically boost monthly pension of retirees under the programmed withdrawal mode of the CPS. The reason why pension enhancement affects only retirees who draw pension under programmed withdrawal is because these retirees draw their monthly pension from the balances in their RSAs administered by PFAs, who are supervised and regulated by PenCom and the balance in the RSA belong to the retiree. Those who opted for annuity on the other hand, used the balance in their RSA to purchased products from Life Assurance companies supervised and regulated by the National Insurance Commission (NAICOM) and their payments are based on the Agreements they signed with these companies.

Pension enhancement is not necessarily synonymous with pension review as provided for in the Constitution. Pension enhancement carried out by PenCom is principally based on pension fund investment performance. On the other hand pension plan administrators consider pension reviews based on a number of factors, including general economic conditions such as the rate of inflation and as provided by law. In the case we are reviewing, as provided by section 173(3) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended).

Section 173(3) of the Constitution provides that pensions of Federal public servants shall be reviewed every five years or together with any Federal Civil Service salary reviews, whichever is earlier.

PenCom in interpreting this provision of the Constitution as it affects retirees under the CPS, on 22 March, 2012 issued a circular with reference No. PENCOM/INSP/C&E/CCPA/66/12/615 to all Self Funded Federal Government Agencies under the subject matter “REVIEW OF PENSION RATES IN ACCORDANCE WITH SECTION 173(3) OF THE CONSTITUTION OF THE FEDERAL REPUBLIC OF NIGERIA, 1999. AS AMENDED”. The circular stated that “As part of the transitional arrangements, employees that transited to the Contributory Pension Scheme were assumed to have retired as at 30 June, 2004 for the purpose of determining their accrued rights for the past services rendered. Whereas the gratuity component of the accrued rights is one-off payment, the pension component is for periodic and futuristic payments after retirement.”

The circular further stated that “Therefore by virtue of the provisions of section 173(3) of the Constitution, the pension component of the accrued right qualifies for any pension increase or review from the date of its determination. Accordingly, Agencies are advised to implement the constitutional provision relating to periodic pension portion or the accrued rights of employees that transited from Defined Benefits Scheme to the Contributory Pension Scheme.” It went further to request the said Agencies to ensure compliance with the provisions of the circular.

In 2021 the Federal Government announced a consequential review of pension of Federal public service pensioners as a result of the passing into law a new National Minimum Wage Act. Ideally, this should have been good news for all pensioners as it was to all workers. Unfortunately, that enthusiasm was dampened by the discriminatory application of the review against pensioners under the CPS.

The provisions of Section 173(3) of the Constitution and the clarification circular issued by PenCom not withstanding, Mr Ekpo Nta, Acting Chairman as he then was, of the National Salaries, Incomes and Wages Commission, confirming the review of pensions by the Federal Government on 30 April, 2021, in Calabar. He stated that President Muhammadu Buhari had granted approval for increase in payment of pension to pensioners under the old pension scheme arising from increase in the national minimum wage.

Mr Ekpo Nta also explained then that the increment in the payment of the pension, which was with immediate effect, would be backdated to April 18, 2019 when the minimum wage was signed into law and that all the affected pensioners will be paid the arrears. According to him the review was done in collaboration with other relevant stakeholders like the Nigeria Union of Pensioners, Pension Transitional Arrangement Department (PITAD) that manages and pays pensioners under the defunct Defined Benefits Scheme, Budget Office of the Federation, Federal Ministry of Finance, Office of the Secretary to the Government of the Federation. PenCom the supervisor and regulator of the CPS was left out.

The greater component of pension of those who retired under the CPS, was in the accrued rights under the old Defined Benefits Scheme. Consequently, these categories of retirees are entitled to increases in their pension in accordance with the provisions of the Constitution just as their counterparts under the old Defined Benefits Scheme. To do otherwise, is unconstitutional and against the principle of equity, fair play and natural justice.

Section 173 (1) of the Constitution provides that “subject to the provisions of this Constitution, the right of a person in the public service of the Federation to receive pension or gratuity shall be regulated by law.” Subsection 2 of the Section provides that “Any benefit to which a person is entitled in accordance with or under such law as is referred to in subsection 1 of this section shall not be withheld or altered to his disadvantage except to such extend as is permissible under any law, including the Code of Conduct.” Subsection 3 provides that “Pensions should be reviewed every five years or together with any Federal civil service salary review, whichever is earlier.”

In line with the provisions of the Constitution, Federal public service pension has always been regulated by law and the current law is the Pension Reform Act 2014. Section 17 of the Act, established the National Pension Commission, while section 18 provides that “the principal objects of the Commission shall be to – (a) enforce and administer the provisions of the Act; (b) co-ordinate and enforce all other laws on pension and retirement benefits; and (c) regulate, supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria.”

Section 115(1) of the Act provides that “The Commission may make regulations, rules or guidelines as it deems necessary or expedient for giving full effect to the provisions of this Act.” Subsection (2) further provides that “The contravention of any regulation issued pursuant to any of the provisions of this Act shall constitute an offence and shall be punishable as prescribed in the particular regulation.”

The position of the Federal Government as conveyed by Mr Nta was and remains objectionable, vexatious and unsustainable as it was and remains a clear violation of the provisions of the Pension Reform Act 2014 and the Constitution. Pension in Nigeria is a matter of law and protected by law. It is not left at whims and caprices of any authority or agency of government. The provisions of the Constitution cannot be amended through administrative fiat.

What is happening with the review of pensions of retirees under the CPS is not as a result of the absence of a law to regulate pensions of Federal public servants but disobedience to rules and regulations by public authorities. Laws protect our general safety, and ensure our rights as citizens against abuses by other people, by Organisations and by government itself. In order to obey the law a person must act within some recognition that he/she is in fact doing an action that the law requires. In a phrase, obedience requires knowingly doing the right thing.

It also points to the absence of the rule of law in public administration. According to Dicey, the rule of law means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, of prerogative, or even wide discretionary authority on the part of the government.

In civil governance, there is a legal responsibility of governance. Inherent in this is the principle that government must be conducted according to law. Public authorities are at common law liable for the wrongful acts of their officials or servants and their decisions are subject to control by means of judicial review.

It is my considered opinion, that the Federal Government by failing to review pensions of retirees under the CPS acted and continue to act unlawfully because it is a duty imposed upon it by the status. The government should remedy this unconstitutional, deplorable and indefensible act by immediately reviewing the pension of this category of retirees before May 2023.

By Ivo Takor, mni Esq.

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