Pension

Lagos As Flagship and Good Example to Other States in Pension Administration

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By Ivor Takor

NIGERIA in 2004 carried out a comprehensive reform of her pension schemes with the passage of the Pension Reform Act (PRA) 2004, which became effective on 25th June 2014. The Act established a Contributory Pension Scheme (CPS) for employees’ in the public service of the federation, Federal Capital Territory (FCT) and the private sector.

However, the Act excludes employees of the public sector of states and local governments from the coverage. This was not an oversight. Though in the draft bill sent to the National Assembly, employees of states and local governments were covered, however, state governors mobilised representatives of their states in both chambers of the National Assembly to remove employees of states and local governments from the bill before it was passed into law.

Their position was that the country was under civil rule and therefore must, in the spirit of true federalism, accord states and local governments the freedom to enact their own pension laws, which does not fall in the exclusive legislative list of the Constitution.

Decision of National Council of States
PRA 2004 repealed the Pension Act of 1990 that was of universal application at the federal, states and local governments and introduced a CPS. The resultant effect was that states and local governments were left without any law covering the pension rights of workers in the states and local government levels.

– Notice –
Disturbed by this lacuna, the Board of the National Pension Commission (PenCom) approached the National Council of States and got the Council to agree to adopt the CPS for employees of states and local governments. In the end, the Council resolved that state governments should enact their own pension laws in line with a draft bill that was prepared for them by PenCom.

Status of Implementation of the Contributory Pension Scheme in States
We have discussed generally the status of implementation of the CPS in states as at September 2020, based on information sourced from PenCom, the regulator of pension in the country. I will, beginning from today, going to attempt to provide in-depth discussion of status of implementation in each state of the federation. Today we are starting with Lagos State.

Status of implementation by Lagos State
The Lagos State government adopted the CPS and became the first state in Nigeria to commence the CPS with the signing into law on 19th March 2007 the Lagos State Pension Reform Law 2007 and eventual commencement in July 2009. This, and some novel provisions in the 2019 reviewed law and their implementation, makes Lagos State the flagship of the CPS.

It should now be clear to all why I referred to Lagos State as the flagship of the CPS. The state enacted a law on CPS in 2007; amended some sections of the principal law in 2019; established the state’s pension commission; registered employees with PFAs; regularly remits 10% employer and 8% employee pension contributions; conducted actuarial valuation; funding accrued pension rights; opened retirement benefits bond redemption fund account with two PFAs for state and local governments; and has in place a valid group life insurance policy. It should now be clear from this presentation that in certain aspects, the state fares better than even the federal government. We only hope that other states can emulate Lagos State.

Provisions of Lagos State Pension Reform Law
Some provisions in Lagos State’s 2019 reviewed law that are worthy of note are as follows:

(a) The provisions of the law apply to employment in public service, local government areas, tertiary institutions, and the state’s parastatals.

(b) The compulsory retirement age for all public servants is sixty (60) years and length of service is thirty (35) years. However, the compulsory retirement age of:
(i) Academic staff in the professorial cadre is seventy (70) years;
(ii) Academic staff not in the professorial cadre shall be sixty five (65) years; and
(iii) Non-Academic staff shall be sixty five (65) years.

(c) Political appointees and professors covered by the Universities (Miscellaneous Provisions) (Amendment) Act, 2012 shall earn 100 percent (100%) of their terminal benefits as pension. In the interpretation section, political appointees are defined as Head of Service, the Clerk of the State House of Assembly, Permanent Secretaries in the state’s public service who have put in a minimum of twenty (20) years of service and their counterparts in the legislative arm of government in accordance with the terms and conditions of appointment.

(d) Dismissed Employee: where an employee who has contributed to the scheme is dismissed from the public service, such an employee shall be entitled to the contribution and the accrued interest, but shall not be entitled to the contributions of the employer, which shall be computed and remitted by the Pension Fund Administrator to the employer at the same time refund is being made to the employee.

(e) In addition to entitlement of any employee who dies in active service, twenty percent (20%) of the annual total emolument shall be paid by the employer with the mandatory life assurance cover procured by the state government to the personal representative of the deceased. This provision is an innovation that is not provided for in PRA 2014. It clearly makes a distinction between death in service and death in active service and has made this special provision for any employee who dies in active service or in the line of his/her duty.

Lagos State Pension Commission
The Lagos State Pension Reform Law established the Lagos State Pension Commission (LASPEC) in 2007 as a corporate entity to regulate, supervise and ensure the effective administration of pension matters in Lagos State Public Service in accordance with the provisions of the Pension Reform Act 2004.

Registration of Employees and the Rate of Contribution
The state has gotten her employees registered with Pension Fund Administrators (PFAs) where they (employees) have opened Retirement Savings Accounts (RSA) into which contributions are regularly remitted. The rates of contribution are as follows:

(i) A minimum of ten percent (10%) by the employer; and
(ii) A minimum of eight percent (8%) by the employee.

PRA 2014 increased the rate of contribution from seven and a half per cent (7:1/2%) contribution by both the employer and employee with effect from 2nd July 2014. Lagos State subsequently, amended its law to reflect the same rates of contribution. While the federal government, six years down the line of the implementation of PRA 2014, is yet to implement the new rates, Lagos State government has implemented the new rates and is regularly remitting contributions based on the rates. Unfortunately, there are state governments who are not remitting the rates provided for in their laws while some are remitting only employees’ contributions.

Actuarial valuation
Lagos State has carried out actuarial valuation of the scheme. This is with a view to ascertaining its pension liability based on accrued rights of workers who were in service before the commencement of the CPS. Haven ascertained the accrued rights of their workers; the state government is funding the accrued pension rights of these workers. The state however still has areas of accrued rights.

Redemption Fund
The state has established a Retirement Benefits Bond Redemption Fund Account, referred to as “Redemption Fund” for the benefit of specified retirees from public service of the state. The Redemption Fund includes pension benefits shortfall account to meet obligations to political appointees who by virtue of their terms and conditions of employment are to retire with full benefits (full salaries). For this purpose, accounts have been opened with two PFAs for state and local government.

Group life insurance policy
In line with the provisions of the pension law, the state has taken a group life insurance policy for all her employees. When an employee dies, his entitlement under the life insurance policy shall be paid to the beneficiaries named in the death benefit nomination form in line with section 57 of the Insurance Act. The law provides for the payment of three times the annual total emolument of the employee.

Conclusion
It should now be clear to all why I referred to Lagos State as the flagship of the CPS. The state enacted a law on CPS in 2007; amended some sections of the principal law in 2019; established the state’s pension commission; registered employees with PFAs; regularly remits 10% employer and 8% employee pension contributions; conducted actuarial valuation; funding accrued pension rights; opened retirement benefits bond redemption fund account with two PFAs for state and local governments; and has in place a valid group life insurance policy. It should now be clear from this presentation that in certain aspects, the state fares better than even the federal government. We only hope that other states can emulate Lagos State.

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