• Friday, July 19, 2024
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PFAs face pressure from retirees as FG fails to pay pensions

PFAs curb equity exposure in search of low-risk assets

Nigeria’s pension managers, also known as Pension Fund Administrators (PFAs), are under pressure following the federal government’s failure to pay accrued pension rights of newly retired employees.

The federal government last paid accrued pensions in 2022 when it released N13.89 billion covering a four-month payment period.

This implies that most of the federal government’s employees that retired in 2022 and 2023 are yet to access their pensions till date.

Many of the affected retirees are however putting pressure on their PFAs to pay pensions, but they are being turned back because their accrued rights from the FG – who was their employer – are not yet paid.

Accrued rights refer to the pension benefits that employees of the federal government’s treasury-funded Ministries, Departments and Agencies (MDAs) are entitled to, based on their service years before the commencement of the Contributory Pension Scheme (CPS) in 2004.

Ugwu Oluwakemi, managing director/CEO, Nigerian University Pension Management Company Limited (NUPEMCO), said in an interview with BusinessDay that PFAs are unable to compute and pay retirement benefits immediately after retirement because of unpaid accrued rights of affected employees.

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“Despite the balances in the Retirement Savings Account (RSA) of the retirees, the PFAs are unable to pay because of Section 2.3 of the Revised Regulation on the Administration of Retirement/Terminal Benefits.”

The regulation, she noted, states that the components of an RSA at retirement shall include accrued pension rights or pre-act benefits (if any) for employees who were in employment before the commencement of the Contributory Pension Scheme (CPS). She noted that employer/employee pension contributions, returns on investment, and the fixed portion of voluntary contributions (if any) must also be included.

Oluwakemi said, “This is giving bad publicity to the industry since retirees are not fully aware of Section 2.3. They assume the PFAs intentionally do not want to pay them.”

She said the delay is leading to a rise in the number of untimely and preventable deaths, stating that due to the waiting period, some retirees who would have had access to health care are deprived of it and they die early.

“This is very obvious in the university system where professors retire at 70 years. Life expectancy in Nigeria is less than 70 years, which means they have cheated death. Yet, they wait for an average of one year before they access their funds. This is very pathetic.”

She said this could also increase crime rates because the children of the affected people may decide to ‘help’ themselves and their parents.

“One of the major purposes of the CPS is to ensure that retirees are paid as at when due, and if retirees have to wait for an average of one year to be paid, then this purpose is defeated,” Oluwakemi said.

Olumide Lateef, a member of the House of Representatives on Pensions, speaking at a recent retreat organised for the lawmakers by the Pension Fund Operators Association of Nigeria said, “We have to make sure that issues around pensions’ accrued rights are resolved to ensure success of the scheme.”

“What we must fight for at the National Assembly this time is that when people retire they have access to their pensions,” he said.

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On what could be done to salvage the situation, the NUPEMCO chief executive officer, earlier mentioned, recommends that government should establish a dedicated pension reserve fund specifically for accrued rights payments. “This fund should be insulated from other government budgetary constraints and competing priorities,” she said.

She said there is a need to identify sustainable and diverse funding sources for the reserved fund such as a portion of tax revenues, investment income, or special levies.

She further suggested the introduction of special levies or taxes dedicated to pension funding and passage of legislation that mandates regular contributions to the pension reserve fund.

The legislation, she said, must outline clear rules for pension funds management and disbursement.

She stressed the need for the implementation of multi-year budgeting practices to better forecast and allocate funds for pension obligations over several fiscal years as well as ensure that budget allocations for pension payments are ring-fenced.

Oluwakemi also advocated an amendment to the existing regulations to allow for more flexible and efficient consolidation processes. “This can include setting specific timeframes for each stage of the consolidation process to ensure accountability.”

“Establish a joint task force comprising representatives from PFAs, PenCom, and relevant government agencies to monitor and resolve issues related to RSA consolidation and the timely disbursement of retirement benefits. Also, float a five-year bond specifically to cater for the employees who would retire in five years, and this will be repeated every five years.”

Matthew Ike, a United States-based pensions expert, said there is a need to insulate the entire pensions industry from government excesses through a legislation.

“It is important to have a legislation that mandates all entities to pay their contributions conformably. It won’t matter whether you are a government or the private sector. Any failure must attract some sanctions,” he noted.