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No End in Sight for Suffering Pensioners in Nigeria by Bisi Ogunwale

Picture of Bisi OgunwaleNigerian pensioners suffer mainly because past governments have been irresponsible in meeting their obligations to those who have used their productive life to serve the country. Although Nigeria’s pension system has witnessed significant growth and development since the Pension Reform Act (PRA) came into effect in 2004, not so much has changed for pensioners. The recently released Quarterly Report by the sector regulator, National Pension Commission (NPC), gives strong indications that the agony of pensioners is not likely to abate soon.

Before we examine the NPC’s 2019 Q1 Report, let us look at the applicable provisions of the PRA (2004) and (2014) respectively. Before PRA (2004) took effect in August 2004, Nigeria practised Defined Benefit Scheme; a scheme that allowed employers to determine retirement benefits for her employees based on the number of years in service and salary earned before retirement. Under this scheme, employees were at the mercy of their employers even years after they might have stopped working for the organisation.

However, with the PRA (2004), the story changed, and Contributory Pension Scheme (CPS) took effect. Under this scheme, as the name suggests, employers and employees are required by law to contribute a percentage of monthly earnings to a fund manager, called Pension Funds Administrators (PFA). Employers contribute 10% while employees contribute 8% of their salaries. Employees are also encouraged and allowed to contribute more to their retirement savings voluntarily. Also, an employee reserves the right to choose the PFA to manage her Retirement Savings Accounts (RSA).

If this scheme has been operational for fifteen years, why then is the suffering of retirees likely to persist into the future?

The law permits the state and local governments to choose between DBS and CPS. However, the Commission encourages the sub-national government authorities to adopt the contributory scheme. Besides, the PRA (2014), mandates that employers must provide group life insurance to cover employees. When compared with the pre-CPS era, the potential misfortune awaiting government workers in different states across the country is so enormous going by the NPC 2019 Q1 Report.

According to the report released in June 2019 by Nigeria NPC, the Commission has been engaging all the states to encourage the sub-national governments to domesticate the law in their respective states dating back to the year 2010. However, as of first quarter 2019, only twenty-seven states out of the thirty-six (including Federal Capital Territory) have enacted laws on Contributory Pension Scheme. In eight out of the remaining nine states, the bill has been sitting with the legislators for a different number of years, while one state is yet to commence the process at all. The trophy winner of the non-compliant states is Yobe State!

Jigawa State, in its own wisdom, has decided to stick to Defined Benefit Scheme, and it has been contributing the funds to some selected PFAs. However, her neighbouring big brother, Kano State, though deducting pension contributions from its employees, has decided to manage the funds in-house and has therefore not transferred the funds to any Licensed Pension Operator. It will be helpful for the Kano State government to explain the structure it runs because as a regulator, NPC does not seem to have any information on what the state government does with the funds deducted from employees’ salaries as pension.

Edo, Lagos, Kaduna, and FCT are the only sub-nationals that are regular and up to date in the remittance of pension contributions for their workers. Ekiti State has remitted contributions for both state and Local Government (LG) workers up to January 2019. Niger State stopped remitting contributions since 2015. Also, Ogun State has stopped remitting with huge arrears while its counterpart in Osun has been very inconsistent in its remittance. Delta & Zamfara states are up to date with remittance of pension contributions for state workers but only remits employees’ portion for LG workers.

In Anambra State, the dynamics are different as the state has remitted both employer and employee pension contributions for LG workers up to March 2018. While employees’ pension contributions for state workers have been remitted up to February 2019, remittance for employer’s portion stopped in December 2016. Kebbi and Rivers states have been remitting only the employee’s portion of the pension contribution with huge arrears of unremitted employer’s portion. Ondo State’s case is even more complicated in the sense that, Akure remits pension contributions for only core civil service workers employed from September 2014.

In essence,  besides enacting the law on CPS, only twelve states and the FCT have commenced and are remitting pension contributions into the RSAs of their employees. The remaining states do not remit any form of pension contribution.

Apart from the monthly deductions from workers’ salaries toward CPS, there is also the issue of accrued rights. Accrues rights refer to the pension deductions before the advent of PRA 2004. Every employer is expected to fund the RSA of their employee with pension entitlements earned up to when CPS took effect. The only states that are regularly funding accrued rights for all their employees are Lagos, Kaduna and FCT only. Delta, Osun, Rivers and Anambra also fund accrued rights but with huge arrears, while the remaining states do not make any provision for funding accrued rights.

There are even more worrying revelations from the report. Of all the states, only Kaduna, Lagos, Anambra and FCT have ever put in place a Group Life Insurance policy for their employees. However, at the time of the report under review, only Kaduna State and FCT have valid Group Life Insurance for their employees. So, the question is what happened to the Life Insurance policy Lagos and Anambra had in place?

Across the country, we have witnessed different former governors institutionalising pension for themselves and deputies through the State Houses of Assembly. We are now beginning to see Speakers and Deputy Speakers as well as members of several state legislature seeking to pass pensions for serving those offices. However, there are millions of workers who might never receive their entitlements, but with many states having new governors, one can only hope that the new administration prioritises some of these pending issues.

  • Bisi Ogunwale is a public policy analyst.

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