Not yet uhuru for pension reforms
Before the advent of the Contributory Pension Scheme (CPS) in 2004, it was a common view seeing public officials shedding tears at public functions decrying the plights of pensioners.
With the implementation of the Pension Reforms Act 2004 by the Federal Government more than a decade ago, the road may have not been completely smooth even though it is a radical departure from the past defined benefit system.
The anxiety over the utilisation of pension assets since the arrival of the current dispensation under the leadership of President Muhammadu Buhari, for infrastructure development is fast becoming worrisome, with every workshop and seminars groping to find creative ways of unleashing the funds particularly at a period of economic challenges motivated by global crisis.
It’s rather unfortunate that even after series of conferences with stakeholders from various sectors of the economy trying to strategise on ways to tap into the huge pension resources for roads and housing among others, the story hasn’t really changed.
The pension industry apex regulator, the National Pension Commission (PenCom), had repeatedly held that safety of investments was paramount to funds commitment, noting that unless government particularly provided guarantees, pension assets would be jeopardised.
The commission’s strict stance is not surprising nevertheless, given the magnitude of corruption witnessed in the management of workers’ pension in the defunct pension scheme.
The Director General, Ondo State Pension Commission, Jaiyeola Olowosuko, who spoke to the Guardian on the development, said the privatisation of pubic enterprises under former President Olusegun Obasanjo further exposed the stack realities and burdens of the nation’s declining pension system.
According to him: “Every enterprise the government wanted to sell carried huge baggage of pension liabilities, such that potential investors wanted the pension liabilities taken off or be given the enterprises for chicken fees. It was at that point that the then DG of the Bureau for Public Enterprises (BPE), Mallam Nasir El-Rufai and Obasanjo, took the initiative that gave birth to the pension reform.”
Obasanjo had empaneled the Fola Adeola Pension Reform Committee, with Chinelo Anohu-Amazu as a member. The Committee received ideas from various stakeholders, which it combined with global best practices to come up with a bill that resulted into the Pension Reform Act (PRA) 2004.
The significance of the Act is reflected in lifting the nation’s pension liability from over N2 trillion deficits inherited at the takeoff of the reform to over N6.5 trillion of assets it claims as at today in Nigeria.
President, the Nigeria Labour Congress (NLC), Ayuba Wabba explained that the non-payment of pension of primary school teachers and the inability of government to pay the pension liabilities of privatised assets by the Bureau of Public Enterprises (BPE).
Wabba said, the introduction of contributory pension scheme is indeed a radical departure from the Pay-As-You-Go defined benefit scheme, which was hitherto in operation in the public service.
However, Wabba was quick to add that the Chilean origin of the scheme coupled and embraced by the International Monetary Fund (IMF) and World Bank was a worrying signs that enrollees may be shortchanged. Wabba pointed at the absence of gratuity in the scheme as shortchanging workers as most employers have abolished gratuity especially the government because the scheme is silent on it even after 12 years in operation.
NLC posited that gratuity, which is otherwise called ‘golden handshake’ in the private sector, was one of the major attractions of old defined benefit scheme. It added that despite numerous meetings held by the NLC, private sector employers and Pencom, which culminated into Pencom drafting ‘guidelines for administration of gratuity benefits’ in 2009, the operationalisation of gratuity in the new pension scheme has not been captured.
He added: “Our expectation is that the new clause in the 2014 amendment of the pension act, specifically section 4(4)(a) has taken care of the dispute with our colleagues on the employers’ side on whether or not the 2004 Pension Act abolished gratuity in the private sector. Our position has been that gratuity is a product of collective bargaining and that employers were paying it, including the mandatory NSITF contributions.”
Indeed, the section 4(4)(a) which is a new addition to the Act provides that notwithstanding any of the provisions of the Act, an employers may agree to pay gratuity.
PenCom’s position is further strengthened by the provision of the Pension Reform Act 2014, which stipulates the ratio of investment of assets in certain instruments and safety conditions that should be satisfied.
Wabba maintained that it’s still difficult for government to issue guarantees and satisfy regulatory requirements needed to unleash pension funds for infrastructure, particularly the proposed mass housing project for Nigerians.
According to him, fund administrators had over time been reluctant to commit their assets to sectors including power, housing, petroleum among others because they see such sectors as too risky and had often blamed the absence of investible instruments to invest in.
An Industry analyst, who also spoke on condition of anonymity said: “In contrast to the mismanagement that used to be the story of pension funds, the most prolific of the pension funds in Africa, which is the South African Public Investment Corporation (PIC) has over $150 billion assets under management.
“In Nigeria alone, they have $289 million in Dangote Cement, $98 million approved but yet to be drawn for Notore Fertiliser, $230 million in MTN Nigeria, $270 million in Erin Energy (formerly CAMAC) and $150 million in Mainstream Energy Solutions (in the power sector of Nigeria).”
According to him: “By contrast, the question to ask is what is the ‘home-based’ pension fund doing? If, as I have shown, the “visiting” pension fund from South Africa has a total of $897 million in our economy.”
Proffered solutions to some significant challenges visible in the pension system in the country, the Managing Director, Linkage Assurance Plc, Dr. Pius Apere, who is one of the few actuarial scientists in the insurance and pension sectors, said
the challenges arising from different areas of pension management include, but not limited to, transitional pension management, guaranteed minimum pension, additional voluntary contributions, pension protection fund, investment guidelines, public education and enlightenment, pension database, risk management and human capacity development.”
Apere stated that the different pension regimes operating in the country, which are the Defined Benefit and Contributory Pension Schemes, gave rise to varying set of problems that limit the capacity of key stakeholders within the Nigerian pension industry to meet pensioners’ expectations.
He said that Nigerian pensioners had high expectations on the new government to ensure an effective implementation of pension regulations existing in the country, because of the need to have sustainable standard of living in retirement and their benefits paid as at when due.
The actuarial scientist said that the establishment of Pension Transitional Arrangement Department and various penalties for pension funds mismanagement, introduced by Pension Reform Act 2014, would address some of the lingering challenges of pensioners in the public service pension administration in the country.
However, he added that other things had to be done, like creation of pensioners’ biometric database, “that is suitable for future actuarial valuation and demographic and financial projections, which would also eliminate ghost pensioners.”
According to him, there should be adoption of a pragmatic approach to pensioners’ biometric verification process (a self-verification system), automation of pension/gratuity calculation and payment system to ensure that pension increases are implemented on a timely basis relative to increase in workers’ salaries and also allowing pensioners to receive their pensions/gratuities as at when due.
The actuarial scientist said there was need for a periodic actuarial valuation of the old DB pension scheme as required by law to be carried out in order to ascertain the value of the pensioners’ liabilities at a given date as the scheme runs off.
He also said PTAD should set up a realistic pension stabilisation fund (to be invested) with the primary aim to stabilise the pension/gratuity payment system, which is always in arrears.