MEMORANDUM SUBMITTED BY
THE NATIONAL PENSION COMMISSION TO
THE SENATE COMMITTEE ON ESTABLISHMENT AND PUBLIC SERVICE AT THE BUDGET DEFENCE SESSION ON THE 2017 BUDGET ESTIMATES FOR APPROPRIATION
14 FEBRUARY, 2017
1.0 Introduction
1.1 The National Pension Commission (“the Commission” or “PenCom”) would like to express its profound appreciation to the Distinguished members of the Senate Committee on Establishment and Public Service for the opportunity to present its Budget Performance reports and 2017 Budget Estimates for consideration by the National Assembly.
1.2 In compliance with the request of the esteemed Senate Committee on Establishment and Public Service, PenCom hereby presents its submission in the following paragraphs.
2.0Budget Performance
2.1The 2016 budget performance report is attached to this memorandum as Appendix 1 with the following details:
A. Total Appropriation to the Commission in 2016 was N849,923,346.90 but the sum of N259,709,963.90 was released. This represents an average of about 30.6%.
B. The releases for the period are analyzed as follows:
APPROPRIATIONRELEASES
i. Overhead SubventionN99,923,346.90N72,209,963.90
II. Capital Subvention N750,000,000.00N187,500,000.00
TotalN849,923,346.90N259,709,963.90
C. Total Appropriation to Total releases2016
I. Overhead Subvention72.3%
II. Capital Subvention25%
D. Total Expenditure against Capital and Overhead Subvention are:
2016
I. Overhead CostsN68,256,300.86
II. Capital ExpenditureN117,842,433.91
E. Unspent 2016 Balances withdrawn by Treasury:
i. Overhead Subvention: The balance of N3,757,571.13 million remained unspent against the Overhead Subvention in 2016 as at the close of the year.
ii. Capital Subvention: The balance of N69,657,566.09 million remained unspent against the Capital Subvention in 2016 as at the close of the year.
2.2PenCom’s IGR for Years 2015 and 2016
The statement of internally generated income on quarterly and yearly basis is attached to this memorandum as Appendix 2 with the following details:
A. Year 2015
I. 1st Quarter – N2,362,931,000.00
II. 2nd Quarter – N2,503,885,000.00
III. 3rd Quarter – N2,682,658,000.00
IIII. 4th Quarter – N2,826,035,000.00
Total – N10,375,509,000.00
B. Year 2016
I. 1st Quarter – N2,643,276,000.00
II. 2nd Quarter – N2,857,755,000.00
III. 3rd Quarter – N2,916,993,000.00
IIII. 4th Quarter – N3,357,971,000.00
Total – N11,775,995,000.00
3.0Commission’s 2017 Budget Proposal
3.1 The Commission’s allocation in the 2017 Appropriation Bill is attached to this memorandum as Appendix 3 with the following details:
A. Overhead Cost – N99,923,346.00
B. Capital Subvention – N750,000,000.00
Total – N849,923,346.00
3.2The Overhead Cost is broken down into the following components:
A. Publicity and Advertisements – N44,965,504.90
B. Local Training – N34,973,172.10
C. Local Travel and Transport - N19,984,669.00
3.3The Capital Subvention is broken down into the following project components:
A. Construction of office building in four (4) existing zonal offices – N150,000,000.00
B. Acquisition of land for offices in North-Central, North-West and South-West Zones – N150,000,000.00
C. Construction of office building in two (2) States (North-Central and South-West) – N450,000,000.00
3.4PenCom wishes to respectfully inform the esteemed Senate Committee on Establishment and Public Service that it was compelled, in its budgetary submission to the Ministry of Budget and National Planning, to stay within the limits stipulated in the template forwarded to it by the Ministry. However, due to the need for the Commission to expand its activities, we would like to request for the appropriation of the sum of N5,000,000,000.00 as Capital Subvention instead of the N750,000,000.00 allocated. The request is broken down into the following project components:
A. Purchase/Acquisition of Land
B. Remodeling/Construction of Office Building
C. Remodeling of Head Office
D. Construction of Zonal Offices
E. Architectural and Other Development Costs
The Summary and Detailed Breakdown of the project components are attached to this memorandum as Appendixes 4A and 4B.
4.0Budget Proposal for Funding of the Retirement Benefits Bond Redemption Fund Account
3.1 PenCom respectfully wishes to draw the attention of the esteemed Senate Committee on Establishment and Public Service to the provision of Section 39(2) of Pension Reform Act 2014 which directs the Federal Government to set aside an amount not less than 5% of its total monthly wage bill towards the settlement of its employees’ retirement benefits. Section 15 (1) (c) of the PRA 2014 further mandates all employers to credit the Retirement Savings Accounts of its employees with their respective retirement entitlements and where there is insufficiency of funds, the shortfall shall immediately become a debt and shall be treated as priority over any other claim.
3.2 The Committee may wish to note that for the year 2014 Budget Appropriation Bill, the Commission requested for a provision of the sum of N93,067,441,000.00 based on the 11,010 verified and enrolled FGN employees scheduled to retire within the year as well as estimates for deceased employees. However, an amount of N30,582,553,824.00 was approved, thus resulting in shortfall of N62,484,887,176.00. Furthermore, the monthly mandates of N2,548,546,152.00 for four (4) months (September – December 2014) amounting to the tune of N10,194,184,608.00 were not cash backed and released into the RBBRF Account by the Office of the Accountant General of the Federation after the Budget Office had issued the Approval To Incur Expenditures (A.I.Es) for that purpose.
3.3 The Committee may further wish to note that the Commission had, based on the data obtained on Federal Government employees retiring in the year 2015 and the death benefits claims as at September 2015, determined the FGN Accrued Pension liability to the tune of N98,705,155,450.00 for 13,799 retirees and estimates for deceased employees of the Federal Government. However, only the sum of N60,251,158,884.00 was appropriated in the 2015 FGN Budget for the same retirees, thus resulting in another shortfall of N38,453,996,566.00 for retirees and deceased employees.
3.4 For the year 2016 FGN Budget Appropriation Bill, the Commission requested for the provision of sum of N91,914,899,000.00 in the Budget Appropriation Bill based on 16,267 verified and enrolled FGN employees scheduled to retire within the year as well as estimates for deceased employees. However, an amount of N50,195,808,918.00 was presented before the National Assembly by the Budget Office, thereby resulting in a shortfall of N41,719,090,082.00. The shortfall notwithstanding, out of the approved sum of N50,195,808,918.00, only N18,823,428,342.00 (mandates for 4 and half months) was released into the RBBRF Account. This implies that mandates for 7 and half months in the sum of N31,372,380,576.00 were not cash backed by the Accountant General of the Federation and released into the RBBRF Account.
3.5 The Commission had, pursuant to a nationwide enrolment exercise conducted for employees of Federal Government Treasury Funded MDAs scheduled for retirement within the year 2017, enrolled 16,267 FGN employees slated for retirement in the year 2017 as well as those who had retired either voluntarily or mandatorily between 2004 and 2016, but were recently verified and enrolled alongside 2017 retirees by the Commission. Accordingly, the Commission had hitherto submitted to the Budget Office of the Federation, the budgetary provision for the RBBRF Account for the funding of year 2017 prospective retirees which is estimated at N113,023,255,000.00 for 16,267 enrolled employees and 9,652 estimated deceased employees of the Federal Government as well as employees yet to be enrolled by the Commission, to be included in the 2017 budgetary provision of the Federal Government. The summary of the proposed budgetary provision for the RBBRF Account for 2017 prospective retirees/deceased employees is as shown in Table 1 below:
3.6 Table 1 – Summary of FGN Pension Liability for the year 2017
S/N
DESCRIPTION
AMOUNT
N
1
16,267 Civil Servants that are to Mandatorily retire in 2017 (inclusive of 1,569 Civil Servants who retired before 2017 but had not been provided for previously)
72,702,581,000.00
2
9,652 estimated death claims (20 % marked up 2016 submitted claims as at August 2016).
19,149,481,000.00
3
Estimate of employees yet to be enrolled by the Commission (2016 estimate marked up by 20%).
21,171,193,000.00
TOTAL
113,023,255,000.00
5.0Constitutional Right to Periodic Review of Pensions
5.1Distinguished members of the Senate Committee on Establishment and Public Service may wish to note that employees of Federal Government Treasury Funded MDAs under the provision of Section 173 (3) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) have the right to pension review. Following the Federal Government’s approval and payment of 15% upward review of pension as a result of the salary review to pensioners under the defunct Defined Benefit (DB) Scheme, retirees under the Defined Contributory (DC) Scheme are also agitating for their rights under the Constitution.
4.2 In compliance with Section 39 (3) of PRA 2014, the Commission engaged the firm of Alexander Forbes Consulting Actuaries Ltd., to determine the financial implication of the 15% salary review in 2007 on the pension components of the defined benefits rights (Accrued Rights). Pursuant to the conclusion of the Consultant’s assignment, the sum of N79,155,550,000.00 has been determined as pension increase for the 79,961 employees who retired under the DC Scheme from 2004 to 2014. The computation for the pension increases of FGN employees who retired in 2015, 2016 and those that were scheduled to retire in 2017 would be forwarded for inclusion in subsequent appropriations after due actuarial valuation is concluded. The breakdown of the amount requested is provided in the Table below.
Actuarial Valuation of the 15% Pension Increase
S/N
Year of Retirement
Number of Retirees
Total Pension Paid
(N’ Million)
Total Benefit with 15% pension increase
(N’ Million)
Additional Funds Required to Defray the 15% Pension Increase
(N’ Million)
1.
2004 – 2007
5,087
16,240.88
21,291.97
5,051.09
2.
2008
10,146
38,539.50
49,243.85
10,704.35
3.
2009
10,928
43,902.34
55,613.29
11,710.95
4.
2010
11,784
46,696.04
58,655.89
11,959.85
5.
2011
11,014
44,938.15
55,778.78
10,840.63
6.
2012
10,381
42,200.92
50,881.26
8,680.34
7.
2013
9,448
35,440.22
44,537.54
9,097.32
8.
2014
11,173
41,124.69
52,235.71
11,111.02
Total
79,961
309,082.74
388,238.29
79,155.55
6.0 Implementation of the New Rate of Pension Contribution
6.1 Distinguished members of the Senate Committee would recall that under the defunct PRA 2004, the rate of pension contribution for Federal Government employees was a minimum of 15 percent (15%) of monthly emolument of the employee, shared into seven and a half percent (71/2) each for the employer and the employee respectively. These rates have been reviewed upwards by Section 4(1) of the PRA 2014, to a minimum of ten percent (10%) for the employer and a minimum of eight percent (8%) for the employee thereby making it a minimum of eighteen percent (18%) of an employee’s monthly emolument. The Federal Government is yet to implement the new rate of pension contributions as revised by the PRA 2014.
7.0 Funding of the Pension Protection Fund
7.1 Distinguished members of the Committee may wish to note that Section 82(1) of the PRA 2014 provides for the establishment of the Pension Protection Fund (PPF) which is, amongst others, to be utilised for the funding of the Minimum Pension Guarantee (MPG) to be paid to all Retirement Savings Account (RSA) holders who have contributed for a number of years to a licensed Pension Fund Administrator (PFA) and for the payment of compensation to eligible pensioners for shortfall or financial losses arising from investment activities. The sources of funding of the PPF includes an annual subvention of 1% of the total monthly wage bill payable to employees in the Public Service of the Federation, which shall be utilised strictly for the funding of the MPG. The 1% of the total monthly wage bill payable to employees in the Public Service of the Federation has been determined as N10,039,161,783.00.
8.0Retired Heads of Civil Service of the Federation and Federal Permanent Secretaries
8.1Distinguished members of the Senate Committee on Establishment and Public Service may wish to note that Heads of Civil Service of the Federation and Federal Permanent Secretaries are allowed, by virtue of the PRA 2014, to retire with full benefits. The Act further provides that any shortfall in their Retirement Savings Accounts (RSAs) shall be funded from budgetary allocations by the employer.
8.2Accordingly, the Commission has determined that the annual pension shortfall of 24 retired Heads of Civil Service of the Federation and Federal Permanent Secretaries that had earlier enrolled with the Commission and estimate of the retirement benefits for 16 Federal Permanent Secretaries scheduled to retire in 2017 is N440,047,832.00 as per details below:
S/N
Description
No.
Amount of Pension Shortfall
(N)
1.
Retired Heads of Service
2
20,842,843.44
2.
Retired Permanent Secretaries Enrolled with the Commission
22
242,697,620.00
3.
Permanent Secretaries retiring in 2017
16
176,507,360.00
Total
40
440,047,823.44.00
9.0Prayer
9.1The Distinguished Chairman and members of the Senate Committee on Establishment and Public Service are kindly invited to Note:
a. PenCom’s Budget Performance for the 2016 fiscal year attached to this memorandum;
b. PenCom’s 2017 budget proposal aimed at facilitating the activities of the Commission.
c. The need to ensure adequate budgetary provision for the payment of retirement benefits of every FGN retiree under the Contributory Pension Scheme as and when due, including the payment of all outstanding pension arrears and death benefits of deceased FGN employees;
d. The need to ensure adequate appropriation under the Federal Government’s Recurrent Expenditure in order to facilitate the implementation of the new eighteen percent (18%) pension contributions rate;
e. The need to also ensure adequate funding for payment of arrears of the approved 15% pension increases for FGN retirees under the Contributory Pension Scheme; and
f. That it is imperative that the Pension Protection Fund be funded in order to effect the payment of Minimum Pension Guarantee to all eligible Retirement Savings Account holders and compensation to eligible pensioners for shortfall or financial losses arising from investment activities.
5.2The Distinguished Senate Committee on Establishment and Public Service is also requested to consider and ensure the appropriation of the following adequate funds to facilitate the Commission’s activities in 2017:
A. Overhead Cost – N99,923,346.00
C. Capital Subvention – N5,000,000,000.00
Total – N5,099,923,346.00
4.3 The Distinguished Senate Committee on Establishment and Public Service is further requested to consider and ensure the appropriation of adequate funds to facilitate the payment of the following liabilities of the Federal Government in 2017:
i. The sum of N10,194,184,608.00 to pay all outstanding accrued benefits for deceased and mandatory retirees of the Federal Government for the periods September to December 2014.
ii. The sum of N41,719,090,082.00 being the shortfall in the 2016 Budget Appropriation.
iii. The sum of N31,372,380,576.00 being the outstanding mandates for 7 and half months in 2016 in order to effect payment of outstanding accrued benefits for deceased and mandatory retirees of the Federal Government.
iiii. The appropriation of the total sum of N113,023,255,000.00 in the 2017 FGN Appropriation Act in favour of the Retirement Benefits Bond Redemption Fund (RBBRF) Account being the Accrued Benefits due to 16,267 retirees/prospective retirees and estimates for deceased employees for year 2017.
v. The appropriation of sufficient funds under the Federal Government’s Recurrent Expenditure in order to facilitate the implementation of the new eighteen percent (18%) pension contributions rate.
vi. The sum of N79,155,550,000.00 for payment of pension increase for the 79,961 employees who retired under the DC Scheme from 2004 to 2014.
vii. The sum of N10,039,161,783.00 being the Federal Government’s statutory contribution to the funding of the Pension protection Fund.
viii. The sum of N440,047,832.00 being the shortfall in the retirement benefits of 24 retired Heads of Civil Service of the Federation and Federal Permanent Secretaries that had earlier enrolled with the Commission and 16 Federal Permanent Secretaries scheduled to retire in 2017.
Thank you.
Director General
National Pension Commission
February, 2017
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