A set new Bills currently being debated at the National Assembly, if passed into law, will threaten the country’s N6.5 trillion pension funds, as well as the stability and success already achieved with the Contributory Pension Scheme (CPS).
Operators and analysts fear that if the Bills are passed and signed into law, the country may fall back to its old days of huge pension liability, pressure on government budget, lose opportunity for investible long term funds, impoverish more retirees and open another channel for corruption and embezzlement.
One of the Bills sponsored by Oluwole Oke of the House of Representatves, on May 16 this year (2017) which has passed second reading, seeks to amend the Pension Reform Act 2014, to exclude members of the Nigeria Police Force, The Nigerian Security and Civil Defence Corps, Nigeria Customs Service, Nigeria Prison Service, Nigeria Immigration Service and The Economic and Financial Crimes Commission, from the Contributory Pension Scheme.
While a second Bill being sponsored by Aliyu Wamaka, Sokoto Constituency, at the Senate on May 10 also seeks amend the 2004 Pension Reform Act, to allow retirees to withdraw a definite rate of 75 percent of the value of their RSA upon retirement, leaving only 25 percent to be spread over their expected years of retirement, as periodic pension payments.
Industry players under the umbrella body of the Pension Fund Operators Association of Nigeria (PenOp) say the Bill seeking to exempt paramilitary officers from the CPS means additional financial burden on the Federal Government by way of unsustainable pension obligations.
“The Federal Government is already overburdened with the payment of pensions, as illustrated by the 2016 Appropriation Act, which made a provision under the Service Wide Vote for the sum of N200.170 billion as total Pension and Gratuities Allocation. This allocation is still insufficient to fund the pension liabilities of the Federal Government.”
Pension assets in Africa’s largest economy have surged from N265 billion or about 1.4 percent of Gross Domestic Product (GDP) following the reforms in 2006 to today’s level, equivalent to 7 percent of GDP.
Eguarekhide Longe , president, PenOp said exemption of the personnel of the Police and other Paramilitary Agencies indicates by implication, the dismantling of the institutions, systems and processes that government had put in place in the last few years, towards the implementation of the pension reform programme, including the culture of national savings, as well as the efforts to eradicate the structures that encouraged corruption during the pre-pension reform era.
According to Longe, other immediate negative impacts include to unsettle the government’s fiscal policy and financial system stability; erosion of the pool of long term investible funds accumulated under the CPS, which is suitable for economic development of any nation, as illustrated in other jurisdictions, including developed economies, as well as result in loss of confidence in the pension reform and other reform initiatives of government.
On the second Bill concerning withdrawal of 75 percent of RSA balance by retirees, Longe said the proposed amendment would undermine the objective of pension reform, seeking to ensure workers save to cater for their old age.
“Retirees will become targets for unscrupulous business opportunities due to their lack of experience in handling or investing such bulk sums, will spend the money quickly and return to dependency and insecurity.”
He further stated that the proposed amendment would also negatively impact the economy by drawing large amounts out of the pool of pension assets.
Data from the National Pension Commission or PENCOM, shows that as at April 2017, the net asset value of total pension fund assets stood at N6.49 trillion, with 7.4 percent invested in domestic ordinary shares or stock, 55.7 percent in FGN bonds, 15.66 percent in Treasury Bills, 6.26 percent in banks money market securities, 4.79 percent in corporate debt securities and 3.38 percent in Real Estate properties.
Farouk Aminu, head, Research and Corporate Strategy Department, National Pension Commission (PenCom) said after amendment of the Pension Reform Law in 2014, a new amendment two years after, was very unnecessary, urging the National Assembly to ensure that those who sponsor Bills do proper research and analysis of the issues.
Besides, they should also consult with relevant government agencies overseeing activities of such industries, for clarifications and understanding before such Bills are deliberated at the house.
On the Bill seeking 75 percent withdrawal, Aminu said a Bill seeking to amend the 2004 Reform Act after it had gone through amendment in 2014 is off the way.
“The proposal is based on a misunderstanding of the concept of pension payment under the Contributory Pension Scheme. The lump sum should not be fixed. Rather, what should be implemented is a minimum replacement ratio, as monthly pensions.”
Accordingly, the retiree should keep a sum that can procure an amount of monthly pensions as replacement of salary over an expected life span. Whatever remains over that amount, may be taken as lump sum. The current replacement ratio under the Contributory Pension Scheme is 50 percent of last pay, by virtue of the PRA 2014 and regulations issued by the Commission is adequate”
Aisha Dahi – Umar, acting director-general, National Pension Commission, in her submission to the National Assembly Committee, said the proposed amendment would undermine the objective of pension reform seeking to ensure workers save to cater for their old age. “Retirees will spend the money quickly and return to dependency and insecurity. Indeed, it will return retirees to active life, rather than retirement, thereby reducing their life expectancy.”
Meanwhile, the police which the Paramilitary Exit Bill included, have declined its intention to exit the Contributory Pension Scheme.
Nicholas Nneji, executive director, Investment NPF Pensions Limited, said the Police acknowledges and appreciates the solution offered by government, towards addressing the issues of agitation, whilst observing that the other outstanding issues can be resolved within the ambit of the CPS, thus do not need to join in the pursuit of the Bill for exit from CPS.
Modestus Anaesoronye
