IBIWOYE: PenCom Needs To Make Scapegoats Of Defaulting Employers



How would you describe the pension system in Nigeria in recent times, especially, with the 2004 Act?

BEFORE the 2004 reforms, there were different kinds of pension systems. Some people had plans with insurance companies; others had what could be called self-administered fund, where they set aside some contribution every month and give out to managers. Many times, some of these managers run away with the entire fund. Some companies, like the oil companies had very well defined contribution plan that was well managed and that is why after 2004, they were able to form themselves into what we call the closed pension fund. But for those in the public service, government wasn’t funding the scheme, so, most times, when people leave employment, they were not paid. We all heard of the sad stories, people dying on queues, having accidents when traveling for verifications and so on.

So, in 2004, government changed the system. This time, money is set aside every month 7.5 per cent of the employees salary is set aside and the employer also commits like amount. The money is put outside the company completely, with a Pension Fund Administrator (PFA)/custodian. The custodian keeps the money and administrator looks for the client and does acquisitions. With that, it is expected that, on the long run, by the time those who were young in employment when the scheme started leave about 20 to 30 years after, what they have should have accumulated to a significant amount. Actually, every year, what is left in the fund is invested with interest. So it is a fund that is expected to grow, such that 30 years down the line there is something substantial to go with.
It has been discovered that some employers, especially in the public sector, do not remit counterpart deductions to fund administrators, what

do you think this portends for the system?

It portends a lot of dangers for the pension system. It is not only the public sector that does not remit their part. I am just coming from examining a PhD thesis on pension. The field report showed that even private companies are not remitting part of the fund. This is dangerous, because even if they remit it eventually, it is not going to come with interest. Therefore, the way the fund is supposed to have grown is lots. It could really endanger the fund if it continues like that. This means what could have accrued over time would be lost.

Is there any chance that employers are not the only culprits; are the PFAs guilty in anyway?

Some employees pay, but employers don’t remit theirs. And sometimes, after deducting the employee’s part, they don’t remit it to the fund administrator. The employee has no part in it because he is not part of the payroll operation. It is a function of the employer. The PFA, even, is not supposed to be able to access the fund; it should be with the custodian. And because of this, they are not supposed to be able to play tricks with it.

But many of them are not doing what they are supposed to do. For instance, they are supposed to be informing the employee what the situation of his fund is, where it has gone and what they have invested, but they are not doing that. I can remember when I was informed last of the state of my fund, not to talk of my being able to compare between PFAs. The responsibility for the growth of the fund and a lot of risk is with the employee this time. If one discovers that his PFA is not doing fine, he can decide to migrate to another one. They are supposed to come and market it and one makes a choice, just as we do with telecommunication operators. One is supposed to be able to migrate, but that is not possible when one doesn’t know whether his fund is doing well or not.

They are not giving adequate information and are not transparent. There is supposed to be enforcement of the law by the Pension Commission, but it appears that is weak.

So there are no penalties whatsoever?

Everything is on paper. Have we heard that any PFA has been penalised?

Ideally, employees are supposed to get bank alerts to monitor the performance of their fund and be able to migrate when necessary, how do you
think the non-compliance with this service would impact on the scheme?

That is the problem with pension. It is not an everyday thing; one is supposed to feel the impact of the fund at the end of his working life, which, for some people, may span for up to about 35 years or more. For those who work in the university, if a person starts working at 20 as assistant lecturer and rises through the ranks to become a professor, the person would have spent 50 years working. The person would have to wait for that long to know whether his or her effort has paid off or not. It is a long-term source of fund. That is why, in other climes, pension funds help in doing a lot for development that would yield results. The pension fund would grow and there would be economic development.

Would you say that the law is too rigid to be complied with?

There is nothing rigid about it. There is so much indiscipline in the country; people just don’t want to do the right thing. There is nothing difficult about it as it only takes the employer deducting 7.5 per cent from the employee’s salary and adds the same and sends to the PFA. That is the whole job of the employer. There are guidelines for the PFA to follow. It passes the fund to the custodian so that there is a separation of operation; so that the person keeping the fund would be different. We do things with impunity that is why we run into problems. Although, if the fund is not properly invested, the targeted yield on the long run would not okay. That is not the problem with us in Nigeria. We just don’t even do the basic things first. But many of the states have not agreed to have the same scheme as the Federal Government.

What are the likely reasons for this?

It is obvious, as they are not able to pay salaries to current employees. And it is from salaries that pension contribution is supposed to come from. That is enough problem already. But I believe the lot of those at the states is worse than those at the federal level. If we were to place things in order, I would say the private sector should not have problems, followed by the Federal Government and then the states.
What kind of scenario do you see for states, which are, unfortunately, now in dire straits with finances?

It is a problem. States like Lagos are not behind in remitting the fund. They have some advisers that I am aware of, aside PenCom. They have a local chapter of some sort that advises them occasionally. But I can’t say the same for other states.
This is a labour as well as an economic issue; are you not worried in case it spells adverse implications for the working population?

Maybe the labour unions can step in for organisations that have such structures. The union can meet occasionally with management and ask questions, because they too are involved, as they would know if deductions have been made from their salaries. When they meet, the state of their pensions can be discussed. But many organisations do not have unions and those who depend on the central union, like the labour congress, might not know what is happening in individual companies. That is a problem.

For instance, if a university has two parallel unions, one belongs to Academic Staff Union of Universities (ASUU) and the other doesn’t, the one that is the voice of management would not speak up when they discover foul play with things like this. That would be to the disadvantage of the worker on the long run.

What do you make of complaints of pensioners not being able to access their fund?

There is need for a distinction. There are some people who were in employment before 2004 and are not in the new scheme. As long as they are alive, there pension still have to be paid via the old system. These are the people complaining. All the states as well as the Federal Government have this problem. It is only private companies that pay off their employees when they leave. But for government, if one was in employment before 2004, it means he is in the old system. Government would have to look for money to pay them. Though, the number would dwindle as people die. While one still lives, he must be paid because it is a covenant.

From 2004, the money must be separated so that when an employee is going, he gets it. Retired people and others, who had three years to retirement, were those captured in the old system, after 2004. The process was that after employment — or after confirmation, in the private sector — one becomes a member of the scheme. The eligibility period for pension was 10 years. After that, one is entitled to pension for life. But it increases by two per cent, for every additional year a person stays. By the time a person spends 37 years in service and retires, he gets 80 per cent of his last salary. The idea is that the government wants the person to live as if they are in employment as much as possible, knowing that they would have finished paying school fees, own a home and all.

For the new one, contributions are made every month and are invested, the one for next month is deducted and added to it and invested as well, and the cycle continues. The fund keeps growing every month from deductions and investments. The old one wasn’t about investment, it was about being legible after the 10-year period.

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