By Ivor Takor mni Esq
In Nigeria, the first public sector pension scheme was the Pension Ordinance of 1951, with retrospective effect from 1st January, 1946. The law provided public servants with both pension and gratuity. Pension Decrees 102 and 103 (1979) were enacted for public service and military respectively, with retrospective effect from April, 1974. These Decrees remained the operating laws on public service and military pension in Nigeria until June 2004.
In the private sector, the first pension scheme was set up for employees of the Nigerian Breweries in 1954; this was followed by United Africa Company (UAC) in 1957. The National Provident Fund(NPF) was the first formal Social Protection Scheme in Nigeria established in 1961 for non-pensionable private sector employees. It was largely a Savings Scheme, where both the employee and employer contributed four aria (N4) monthly.
The Scheme provided for only one-off lump sum benefits. The Nigerian Social Insurance Trust Fund (NSITF) was established by Decree No. 73 to provide enhanced Social Protection to private sector employees. The NSITF took over the assets of the NPF and commenced operations in July 1994. All registered members of NPF became automatic members of NSITF. It became mandatory for all private sector employers and employees to register with NSITF. The NSITF was operated along with in-house pension schemes of private sector Organisations, managed by Fund Managers.
The Pension Reform Act (PRA) 2004, which introduced the Contributory Pension Scheme (CPS) was the first legislation of the Federal Government at reforming the pension system for both the public and private sectors. Pension Reform Act (PRA) 2014 enacted with effect from 1st July, 2014, repealed the PRA No. 2, 2004 and made provision for the Uniform Contributory Pension Scheme for Public and Private Sectors in Nigeria and for Related Matters.
The main objectives of the CPS is to ensure that every worker receives his retirement benefits as and when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.
Both PRA 2004 and PRA 2014 all set up the National Pension Commission (PenCom). The principal objectives of PenCom as provided in both Acts is to enforce and administer the provisions of the Act; co-ordinate and enforce all other laws on pension and retirement benefits; and regulate supervise and ensure the effective administration of pension matters and retirement benefits in Nigeria. The Commission, is an Agency of the Federal Government, that reports to the President through the Office of the Secretary of the Government of the Federation.
PenCom as an Organisation, was established as an invisible, insignificant idea in the recommendations of the Fola Adeola Pension Reform Committee. It is like a human being that starts from conception, birth, growth and acquiring of skills and power to change the whole world. Every Organisation is as unique as a human being. However, only a small percentage survived through the journey to become an established entity. Most people even in government did not see PenCom surviving but like a child that has been adequately looked after, PenCom has not only survived, it is one of the agencies of the Federal Government that is delivering on its mandates.
Like human beings who are siblings, even though they look similar, and from the same home and upbringing, they usually are genetically different. PenCom also has carved for itself a different identity, values and established its true purpose, distinguishing itself from its other siblings (other Federal Government Agencies). PenCom has a purpose to serve its clients, who are members of the CPS with its knowledge, skills and resources.
Like every Federal Government Agency created by status, PenCom has its body parts, comprising of the Governing Board, the Director General/Chief Executive Officer, the Executive Committee Committee, Management and Staff.
Section 19(1) of the PRA 2014 established a Governing Board for the Commission, while Subsection (2) provides that the Board shall consist of a part-time Chairman; the Director General of the Commission; four full-time Commissioners; and a Representative each of the following agencies and institutions: Head of the Civil Service of the Federation; Federal Ministry of Finance; Nigeria Labour Congress; Trade Union Congress of Nigeria; Nigeria Union of Pensioners; Nigeria Employers Consultative Association; Central Bank of Nigeria; Security and Exchange Commission; Nigeria Stick Exchange; and National Insurance Commission.
Section 27(1) provides that there shall be for the Commission, a Secretary and Legal Adviser, while Section 28(1) provides that the Commission may, from time to time, appoint such other category of employees as May appear to it expedient and necessary for the proper and efficient performance of its functions under the Act.
PenCom as an Organisation, has passed through phases, towards achieving the objectives for which it was established. The first phase, which is the most critical in its existence is the Startup phase, where it has to first survive, learn life skills to survive and learn the art of rendering service. The long term prosperity of PenCom as an Organisation highly depended on the startup phase. The second phase is where it is presently, the growth phase. The Commission, pushed by its startup phase, has arrived at the growth phase where it is now rendering service to its clients.
According to Don Owens, the Chief Executive Officer (CEO) is the “soul keeper” of an Organisation. If the Organisation has an urgly soul, it is her or his responsibility to redeem it. Everyone watches on the CEO. The CEO thinks strategically, drives change, persuade politically, prepares for the future and rally the troop (employees). Therefore, in looking at the milestones put in place by PenCom towards the full implementation of the CPS, we are going to look at them in sequence under the tenures of those who have been Director Generals and Chief Executive Officers (CEOs), supervising the general administration of PenCom on a day-to-day basis.
M.K. Ahmad was the pioneer Director General from December, 2004 to December, 2012. Chinelu Anohu-Amazu was appointed Acting Director General in December, 2012. She was appointed substantive Director General in October, 2014 to April, 2017. Aisha Dahir-Umar, the current Director General was appointed Acting Director General in April, 2017 and remained in that capacity until November, 2020 when she was appointed substantive Director General.
PenCom became a body corporate with perpetual succession and a common seal with effect from 25th June, 2004 when the then President, Chief Olusegun Obasanjo, GCFR assented to the Pension Reform Act 2004, which established the Contributory Pension Scheme ((CPS) and PenCom with the principal object to regulate, supervise and ensure the effective administration of pension matters in Nigeria.
PenCom effectively took off in December, 2004 when Muhammed K. Ahmad, fondly addressed as MK, was appointed its Director General along with four Commissioners, namely: Pius Akubueze (Commissioner, Finance and Investment); Eyamba Henshaw (Commissioner, Technical); M.T. Mamman (Commissioner, Administration); and Dr. MUSA Ibrahim (Commissioner, Inspectorate). M.K. Ahmad, the Commissioners, employees of diverse academic, professional backgrounds and experiences who were employed or seconded to the Commission together with the inaugural Board of Directors with Chief Fola Adeola, OFR, mni as Chairman directing the affairs of PenCom, should be credited for the take off of PenCom and the CPS.
The CPS was enacted into crisis. Some of the challenges the new scheme faced were that the CPS was established to replace the defined benefits scheme (DBS). The CPS was non acceptable to employees and employers because unlike the DBS, which promised a specific income, the income a contributor might get from the CPS depends on factors including the amount to pay in, the funds investment performance and choices you make at retirement.
Moreover, the employer was the sole bearer of the cost of pension under the DBS while under the the CPS both the employer and employees bear the cost. Also public sector employees were against their pension being handled by Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) that are privately owned and managed companies.
Section 44 of the PRA 2004 provided that from the commencement of the Act, pension funds shall only be managed by pension fund administrators licensed by the Commission. Fund managers who hitherto managed pension funds and who could not meet criteria set for the issuance of a license as PFA, instigated workers and employers against the Scheme. All these combined to caused some unions to take the federal government to court against the CPS.
Employers on the other hand, saw the provisions of Sections 39 to 43 and other provisions of PRA 2004 that deals with transitional provisions for the private sector as being too stringent for them and did everything possible to evade compliance.
M.K. Ahmad led his Team to face and surmount the above and other challenges including those from within the public service. A lot went in favour for M.K. Ahmad as a person in the setup stage of PenCom and the CPS. He was transparent in character, chivalrous, kindly, firm, eloquent and sagacious; his purity of motive and unselfishness commanded absolute confidence in him; he had originality and initiative in dealing with new and difficult circumstances, and great aptitude for details. All these traits robbed positively in maneuvering the line mines in front of PenCom and the CPS.
Under the administration of M.K. Ahmad, PenCom issued several Guidelines, Regulations and Circulars on the administration of the CPS and other related matters. Critical stakeholders consultations were held as well as training workshops and enlightenment programs were also held. A principal milestone was put in place on 20th February, 2006, when the then President of Nigeria, Chief Olusegun Obasanjo, GCFR at the Banquet Hall, State House, Abuja, presented first set of licenses to operators in the pension industry.
Chinelu Anohu-Amazu who was the Commission’s Secretary and Legal Adviser, was appointed Acting Director General in December, 2012 and appointed substantive Director General in October, 2014. She left PenCom in April, 2017. Her tenure, which was a continuation of the setup period also witnessed the putting in place of milestones towards full implementation of the the CPS.
It was during her tenure as the Director General, that the decision by the M.K. Ahmad led administration to establish PenCom zonal offices in the six geo-political zones was implemented in 2013. The establishment of the Zonal Offices in Ikeja for South West; Calabar for South South; Awka for South East; Ilorin for North Centeral; Gombe for North East; and Kano for North West, was in a bid by PenCom to decentralize its activities and bring them closer to contributors and retirees.
A Call Centre was opened at the headquarters of PenCom in Abuja in October, 2013 in order to enhance its service delivery through an efficient complaints resolution process. The greatest achievement under her tenure was the enactment of the Pension Reform Act 2004. After ten years of implementation of PRA 2004, the PRA 2014 was enacted on 1 July, 2014. PRA 2014 repealed PRA No.2, 2004. The review of the Act was conducted primarily to improve on some aspects which were identified in the course of implementation of the CPS with the ultimate objective of enhancing the retirement process for the benefit of the the contributors and retirees.
PenCom remained steadfast in the implementation of the CPS, generating a large pool of investable fund compared with huge estimated pension liabilities in the public sector prior to the reform of 2004 throughout her tenure.
Aisha Dahir-Umar, the current Director General was appointed from within, as the Acting Director General in April, 2017 and remained in that capacity until November, 2020 when she was appointed substantive Director General. During her tenure, PenCom has moved from the startup stage to a growing stage, edging forward towards the fulfillment of it vision, which is ensuring that everyone who worked receives his/her retirement benefits as and when due. Thereby fulfilling the Mission of PenCom, which is to promote a sound and transparent pension industry through effective and efficient regulation and supervision. During her tenure, the following milestones have been established:
The Commission in December 2017, introduced pension enhancement. Pension enhancement is an initiative introduced by the Commission , under the CPS, for boosting the pensions of retirees receiving pension under the Programmed Withdrawal mode.
Since the commencement of the CPS, pension contributions were being invested solely in the RSA “active” Fund, irrespective of the age profile or risk appetite of the contributors. However, in July, 2018, the Multi-Fund Structure for RSA Funds was introduced in the pension industry. There are four distinct funds (i.e. Fund I, II, III & IV) which differ from one another based on age classification of the RSA holders. The Funds were created to meet the peculiarity of some selected age brackets, with the objective of maximizing returns on their investments. In addition, there are two special funds, Fund V for participants in the Micro Pension Plan and Fund VI for contributors and retirees who are interested in having their contributions invested in non-interest financial instruments.
The accumulated pension assets grew from N7.51 trillion as at 31 December, 2017 to N16.78 trillion as at 30 June, 2023. The growth of pension assets, despite challenging economic conditions testifies to PenCom’s diligent implementation of PRA 2014. Pension funds assets are being invested in safe and structured financial instruments, thereby deepening the Nigeria economy.
PenCom in 2019 developed and deployed the Enhanced Contributor Registration System (ECRS). This enabled the harmonisation of the pension industry database of registered pension contributors with the National Identity Management Commission’s (NIMC) database, in line with Federal Government’s directive to all Government’s Agencies that maintain database.
Since inception of the CPS in 2004, RSA holders could not transfer their RSAs from one PFA to another, as provided by Section 13 of the PRA 2014. In November, 2020, the transfer window was launched by the Secretary to the Government of the Federation, Mr. Boss Mustapha.
The Commission’s superintendence over the Nigerian Pension Industry has no doubt engendered the acceptability of the CPS. A total of 9.99 million employees from both the Public and Private Sectors have registered with PFAs as at June 2023, from a total of 7.82 million registered contributors as at 31 December, 2017. This number is significant in view of the challenging economic circumstances prevailing in the country and is indicative of the trust and public incidence in the CPS.
In September, 2022 PenCom activated the provisions of Section 89(2) of PRA 2014, by issuing Guidelines on Accessing Retirement Savings Account (RSA) balance towards payment of equity contribution for residential mortgage by RSA holders. The Guidelines seek to provide an opportunity for ARSA holders to own homes before retirement, thereby increasing wealth and reducing the associated impact of old age poverty occasion by lack of personal accommodation by retiree. PenCom had, as at 8 June, 2023, processed and approved fifty seven (57) applications submitted by RSA holders for deployment of a total sum of N634,639,160.56 being part of the RSA balances of 13 RSA holder, as equity contributions towards payment for residential mortgage.
Pursuant to the provisions of Section 2(3) of PRA 2014, PenCom introduced the Micro Pension Plan, which is aimed at expanding the coverage of the CPS to the informal sector of the economy. Micro Pension Plan allows self-employed and persons in organisations with less than three (3) employees to make financial contributions towards the provision of pension at their retirement or incapacitation. The plan guarantees secured future through steady income at retirement , thereby reducing old-age poverty for this category of citizens. The process is easy, simple and flexible with several benefits/incentives for participants.
The Micro Pension Plan was formally launched by Mr. President on 28 March 2019 and Pension Fund Administrators have, as at 31 May 2023, registered a total of 97,591 contributors under the Plan. It is expected that the Plan would not only expand the pension coverage to greater number of Nigerians, but would also boost the quantum of pool of long term pension assets available for economic development.
The Commission, in its drive to improve the capacity of PFAs in term of operational efficiency, effectiveness and quality of service delivery, increased the Minimum Regulatory Capital (Shareholder’s Fund) requirement for PFAs, from One Billion Naira (N1,000,000,000) to Five Billion Naira (N5,000,000,000). The recapitalisation process led to the reduction of the number of PFAs from 22 to 20 through mergers and acquisitions.
The Commission has been embarking on a holistic review of existing Regulations and Guidelines in order to bring them in conformity with PRA 2014.
The Nigeria pension industry is one of the most critical sectors of the economy, which deals with the welfare of senior citizens, retirees who have give their all during their active life for the development of the country. The industry has metamorphosed from an non existing industry pre pension reform, where in the public sector, where the pension scheme suffered from weak and inefficient administration; less transparent and cumbersome; unregulated; unfounded and inadequate budget allocations; and unsustainable outstanding pension liabilities estimated at N2 trillion.
In the private sector, most workers were not covered by any form of retirement benefits arrangement; pension schemes had been largely unregulated; and pension funds were not segregated from the funds of the company therefore if a company goes under, no pension for employees.
The above milestones put in place not with standing, there exist challenges that should be addressed especially at the level of the Federal Government, the largest employer in the country. These issues are impacting negatively on the implementation of the CPS. In adequate and late release of fund for the payment of Accrued Pension Rights; implementation of Section 82(2) that provides for minimum pension; compliance with Sections 173(3) and 210(3) of the 1999 Constitution, as amended in respect of increase of pensions under the CPS with every salary increase.
Key pension information were sourced from PenCom website.
PenCom has so far operated without interference from higher authorities; and has earned the trust of its clients and operators. However, there are rooms for improved service delivery.
Takor was a two term President of NASU, a two term National Treasurer of NLC and an member of the inaugural Board of PenCom. Takor retired as a Director in federal public service and is now a Lagos-based legal practitioner. He is an alumnus of the National Institute of Policy and Strategic Studies (NIPSS), Kuru-JOS, Plateau State.
