Pencom and the safety of the new pension scheme

On May 16, 2014, my sister, Oluchi, wrote on her Facebook page: “I went to pension office to get my mother’s pension, her January pay. I was humbled. I sat back to watch the humiliation and insults our senior citizens endure just to get paid. I watched old faces full of frustration and dejection. I visualised them as youths in active service. And I wondered what could be going on in their minds. It’s sad to see what our mamas and papas have been reduced to. I gathered that if they do not receive their pay on the first two days that money is being released for payment, it will become arrears that never get paid. I saw my Maths teacher, my Agric. Science teacher and my Vice Principal, wonderful women that put in their best to produce sound and seasoned professionals. They deserve better.” (Source: https://www.facebook.com/oluchi.oke.1?fref=ts)

The mother in question, also my mother, retired during the old pension scheme, in contrast with the new or current scheme – in which, respectively, workers and employers with up to five employees and above are legally bound to contribute monthly 7.5 percent of each worker’s salary into a Retirement Savings Account (RSA) opened by the worker with a licensed Pension Fund Administrator (PFA) of their choice.

The old scheme was marred by unreliability which led to what Idang Abibi (in an article titled “Pencom: One Step Forward, Two Backwards?”, published in Daily Trust of May 8, 2014) describes as “the pains, anguish and absolute horrors” those who retired under the old scheme “used to face in getting their entitlements”, which still persist long after the old scheme was replaced with the new, as my sister’s Facebook post reveals. I have quoted the Facebook post to show in concrete human terms the suffering that an unreliable pension scheme can cause for retirees and pensioners.

The new scheme was ushered in through the Pension Reform Act of 2004, which established the National Pension Commission (Pencom) as its regulator. It has not only straightened out the irregularities associated with the old scheme; it has also – in the case of those retired under the new scheme – ensured reliable access to their entitlements under the scheme, called contributory pension scheme. What is more, it has created a new industry – the Nigerian pension industry – whose assets currently exceed N4.2 trillion.    

Unfortunately, this burgeoning legacy of success and positive transformation seems to have come under threat through a recent action of Pencom, the same government agency legally and morally responsible for sustaining it through conscientious regulation of the industry.

To be specific: Pencom recently licenced a PFA called the NPF Pensions Limited (i.e. Nigerian Police Force Pensions Limited). Then, as if prompted by the word “force” in the name of the new PFA, it directed that contributions belonging to police personnel totalling N302 billion be transferred from previously existing PFAs to the new PFA. This is tantamount to forcing all police personnel to subscribe to the services of the new PFA and also forcing the other PFAs to surrender the accounts voluntarily opened with them by police personnel to the new PFA. Curiously, this is happening in an industry where the law insists on free choice in the opening of RSAs and provides for holders of RSAs to switch their accounts between PFAs only with the opening of a transfer window. And the transfer window was not open when Pencom issued its said directive to the PFAs.

So much can be said about the impropriety of the directive by Pencom, on legal and moral grounds, besides its threat to the safety of the new pension scheme. As I have hinted at, the law is clear on free choice. And I don’t think that Pencom would like to be perceived as a regulator, otherwise a gatekeeper for the law, leading in or encouraging a breach of the law. In the least one would expect it to open the transfer window and let contributors or RSA holders (including police personnel) move freely. And shouldn’t it consider that the gains of the past ten years, since the introduction of the new pension scheme, would have been eroded if, following the precedent it is trying to set with the Nigerian Police Force, all government parastatals and agencies, and even private companies, proceed to set up PFAs. Would Pencom be able to supervise the 1000 or so PFAs that would emerge as a result?

Besides, third party management of RSAs guarantees the independence of the scheme; it is a sort of managerial inbreeding, likely to produce unhealthy “offspring” of blackmail and coercion, to have employers control the RSAs of their workers. The situation that would emerge from the recent action by Pencom, should it stand, would put too much of the destiny of some workers – specifically police personnel – in the hands of their employer; that is, even after retirement. And to think they may not have a choice though the law insists they must!  

Then, in an era of heightening insecurity, one would expect the police to concentrate on their primary function of maintaining law and other; – alas the implied move towards a wholesale appropriation of their workers’ RSAs from other PFAs suggests a preference for perpetrating illegality and precipitating chaos. And even if they recruit professionals to run their PFA, will they find adequate time for the attendant oversight responsibilities while grappling with security and related issues? And we’re talking about billions of Naira whose availability could make the difference between the survival or otherwise of many people after retirement, and whose owners would surely want to avoid the anguish faced by retirees and pensioners under the old pension scheme, as my sister sketched in her Facebook post quoted above.

And there is the particularly immoral element of encouraging people to reap without planting, which is what Pencom would be doing by having the funds transferred to the new NPF Pensions Limited from investors, including foreigners, that set up PFAs and painstakingly sourced subscribers to their services from the teething stages of the industry. (Incidentally, one of the leading banks in the country recently set up a PFA. Will Pencom direct the transfer of the RSAs belonging to the bank’s staff to its new PFA? And if the Nigerian Police Force were to float a bank, would the Central Bank of Nigeria (CBN), perhaps following Pencom’s example, be right to direct that all monies in other banks belonging to police personnel be transferred to the new bank? Also, an RSA is a private account. I still maintain one as a self-employed pensioner.

The depths of the irregularity of its being treated as if it were not a private account, as reflected in the said Pencom directive regarding the Nigerian Police Force PFA, can in fact be plumbed endlessly, like that of the arbitrary imposition on Nigerians of a change of their vehicle number plates by the Federal Road Safety Commission (FRSC), a move later stopped by a court as illegal. And one hopes Pencom would learn from the experience of the FRSC and reverse its controversial action in question or align it with the law.

Ikeogu Oke