• Monday, June 24, 2024
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Issues on contributory pension scheme

Nigerians tap N208bn pension savings as job crisis worsens

Many Nigerians are yet to understand how the contributory pension scheme works. Some of the matters arising in the industry would include when will pension queues end, why are RSA holders denied the right to draw from their savings and when will they be allowed to determine how their pension savings will be insured among other things

Travelling for verification

When retirees under the old schemes are finally brought under the supervision of PenCom, necessary details about retirees under these schemes would be accurately captured during biometric exercise which will be done once and for all. There the long travels for verification would cease.

Government established the Pension Transition Arrangement Department (PTAD) to take over the management of three pension offices overseeing the residual defined benefits pension schemes including the Civil Service Pension Department, the Police Pension Office and the Customs, Immigration and Prisons Pension Office (CIPPO).

The department is charged to oversee the transition of the three offices into a single pension administration and management under the supervision of PenCom, which reports directly to Nellie Mayshak, the office of the minister of finance while has been appointed as director general of PTAD.

This department would take the biometrics of all retirees drawing pension from the scheme to get all accurate details about them once and for all and after that there would be no need for retirees under the old schemes to travel long distances for verification.

Investment restrictions

For those who are worried that pension assets were being invested in low income yielding instruments, making it impossible for contributors to maximise returns on their accumulated savings.

While it is good to maximise returns on investment, when it comes to contributory pension scheme, emphasis is not on maximisation of returns but on safety of fund under management.

As such, the regulator insists that investment in risky assets should be limited to a certain level.

PenCom prescribes the maximum amount any PFA could invest in certain instruments and the experience PFAs have shown that such restrictions are very beneficial to protect pension savings of workers and retirees from the fluctuations in the system.

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Nobody can afford to toy with his/her pensions so PenCom restricts investments in risky assets like stock and shares. The emphasis here is on safety and not maximising returns. In this regard, government bond is deemed to be the most secured instrument even as the yield in most cases not competitive and PenCom allows operators to invest a sizeable amount of pension assets in this instrument.

Right to determine how pension asset is invested

Many contributors are worried that PFAs do not consult them before investing their pension savings and are asking when contributors would be given the right to determine how their pension savings would be invested.

Under the contributory pension scheme, contributors are not allowed to determine how their pension assets are managed; this is the job of PFAs in line with investment guidelines and regulations issued by PenCom from time to time to ensure that the funds would always be there for the contributor when he or she finally retires.

However, in response to the agitation to maximising returns on pension assets and right to chose how ones accumulated pension savings is invested, PenCom said it has created four variant of funds for different age grades among contributors.

The first fund is an aggressive fund suits contributors who have appetite for risks, particularly workers under 40 years. Here, up to 50 percent of accumulated savings could be invested in equities or floating and variable instruments.

The second fund is a mix between aggressive fund and conservative fund for middle aged workers who still have time to recover should the fund suffer losses and up to 25 percent of accumulated fund could be invested in equities.

The third is conservative fund for people close to retirement and retirees who could not afford to have their investment in floating assets because of the fluctuations in returns and they do not have time to recover from any serious shock so a substantial part of their fund will be invested in fixed income instruments.

The fourth is an ethical fund including Sharia-compliant funds and suits people who will not want their savings to be invested in certain instruments or businesses. Ethical fund would take care of the religious and moral needs of contributors.

Lending to government

Some workers said they are not interested in doing business with government and that government cannot be trusted and as such they are not ready to lend their pension savings to government.

Unfortunately, government bonds remain the most credible and safest investment instrument for pension assets all over the world. Government would always be there, before we were born and after we have gone and it will always settle its financial commitments unlike other institutions that can go into liquidation at any point.

Job creation

Worried by the growing unemployment in the country, some stakeholders are wondering why the over N4.3trn accumulated pension savings of workers could not be deployed into job creation or better still what pension operators are doing to create jobs for Nigerians.

Pension assets are not lying idle, it is being put to work in various sectors of the economy through investment in stock and shares, government bond, etc. These funds are used by the borrowers to expand their businesses and create jobs.

Also, government issues bonds to finance infrastructural development which raises the standard of living of the people and in the process, jobs are created. Pension operators also argue that the best way to impart on the lives of people is through investment in government bonds and as such they are doing their best in the area of job creation.

Drawing from accumulated savings

Some contributors would want them to be given the right to draw from their accumulated pension savings to solve some of their problems daily but in line with provisions with the law, no contributor is allowed to draw on his or her pension savings until he is 50 years or unless he loses his job (not by resignation) and remains unemployed for four months. The other times that a contributor could draw from this account is when he retires by way of lump sum payment, life annuity or programmed withdrawal.