Dangers of amending Pension Act 2014

The move by the Senate to amend the Pension Reform Act 2014 to allow retirees have access to 75 per cent of their retirement saving is ill-advised. A newspaper quoted Senator Aliyu Wamako (APC Sokoto) the prime sponsor of the Bill as saying, “the Bill when enacted will provide succour to retirees in the delay and other difficulty they face in withdrawing their saving.”

The Pension Reform Act 2014 came into effect on 1st July 2014. The Act repealed the Pension Reform Act No. 2, 2004. Section 1 of the Act state the objectives of the Contributory Pension Scheme established under the Act to be among others (a) ensure that every person who worked in either the Public Service of the Federation, Federal Capital Territory or Private Sector receives his retirement benefits as and when due and (b) assist improvident individuals by ensuring that they save in order to cater for their livelihood during old Age.

The Bill seeks to amend Section 7(1) of the Act as follows:
(a) To exclude persons who retire before the age of 50 years in accordance with the terms and conditions of their employment from accessing their RSA balance in line with Section 7(1) of the Pension Reform Act (PRA) 2014. Our position is corroborated by the proposed amendment in Section 2(c) of the Bill. This amendment seeks to ensure that persons who retire before the age of 50 years in accordance with the terms and conditions of their employment Section 16 (2)(c) of PRA 2014 access the RSA in line with the mode stipulated for employees who disengage or are disengaged from employment before the age of 50 years and are unable to secure another employment within four months Section 16(5). We note that such persons are only allowed to withdraw an amount of money not exceeding 25 percent of the total amount in the RSA Section 16(5).

We further note that those who retire under Section 16(2)© have permanently left the service, while those who disengage or are disengaged under Section 16(5) are under frictional (temporal) unemployment and can still get another job and continue with the scheme.
We are of the considered opinion that this proposed amendment would be unfair on an employee who duly retires in accordance with the terms and conditions of his employment and should not be allowed.

(b) The Bill also seeks to amend Section 7 (1) of the PRA 2014 by inserting the words “of up to 75 percent” immediately after the words “a lump sum”. The import of the proposed amendment, in line with the foregoing, is to allow the following persons to, rather than withdraw a lump sum based on a computation that allows the balance in the RSA to be sufficient to procure a programmed withdrawal or annuity for life, can withdraw up to 75 percent as lump sum, irrespective of whether or not the balance would be sufficient to procure a programmed fund withdrawals or annuity for life:
(i) Employee who duly retire or attain the age of 50 years, whichever is later;
(ii) Employees who retire before attaining the age of 50 years either on the advice of a suitably qualified physician or a properly constituted medical board certifying that the employee is no longer mentally or physically capable of carrying out the functions of his office;
(iii) Employees who retire before attaining the age of 50 years due to total or permanent disability either of mind or body.

The promoters of the current amendment failed to note that the Pension Reform Act 2014 established a Contributory Pension Scheme and not a Provident Fund Scheme. Section 7(1) and Section 2 of Pension Reform Act 2014 attest to this. The International Labour Organisation (ILO) defines pension as old age protection, which covers if not all the population, at least a section of it and in the case of Nigeria, workers.

The difference between pension funds and provident funds is that members of pension funds are able to take out a small portion of their retirement benefits – typically one-third or one forth-in a lump up-front sum. The remaining benefits are distributed in monthly pay-outs. On the other hand, members of provident funds can take out as much of their benefits as they would like in a lump sum.

The National Provident Fund (NPF) was established in Nigeria in 1961 for non-pensionable private sector employees. It was largely a saving scheme and was replace by the National Social Insurance Trust Fund (NSITF) in 1993.

That the Senate is contemplating a back door re-introduction of a Provident Fund which was jettison 24 years ago in 2017 through the proposed amendment is unthinkable and at best, retrogressive. In a country lacking minimum standards of social security for her senior citizens, such as medical care, sickness benefit and old age benefit as provided for in ILO Social Security (Minimum Standards) Convention, 1952 (No.102) one is at a loss as to what the Senate expects the life of retired workers would be, after collecting 75 percent of their retirement benefits as Lump Sum as being proposed in the amendment.

Senator Wamako and his co-sponsors of the amendment, should have asked their colleagues in the Senate, who are former Governors, why they had to rush to enact Pension Laws for themselves at the dying days of their tenures after serving for only eight (8) years as governors. These Laws, provides for them pension and other allowances, which include houses, vehicles, domestic helps, security operatives and provisions for medical tourism. One of the answers they may get is that they were protecting their future against old age poverty.

We are not unmindful of the fact that the proposed amendment may be popular with some workers, because collecting a huge lump sum from ones Retirement Savings Account immediately after retirement is very attractive. Saving for the rainy day can be a difficult pill to swallow for most middle class and low-income earners. They are not alone in this, as majority of State governments if not all fall in this category. A case in point is the Nigerian Sovereign Wealth Fund, which some governors kicked against. We note that paying of taxes is not a popular thing among citizens of any country in the world including Nigeria. However, no government in Nigeria has ever promulgated a law abolishing taxes. The reason is that taxation is one of the biggest sources of revenue for the development of any nation.

The challenge facing federal civil servants under the Contributory Pension Scheme established under the Pension Reform Act 2014 was highlighted in the Punch Newspaper of Thursday July 14, 2016, when it carried a story to the effect that “the Federal Government has not been remitting the pension contributions of Federal Public Servants into their Retirement Savings Accounts (RSA) under the Contributory Pension Scheme since October 2015”. According to the newspaper report, the revelation was contained in the 2016 Annual Report of the Pension Fund Operators Association of Nigeria. (PenOp). Moreover, the federal government was not funding Accrued rights. Accrued rights are benefits which the workers who where in the public service prior to 2004 when the Contributory Pension Scheme was introduced are entitled.

In April 2017, through the intervention of the Speaker of the House of Representative, the Federal Government released N54 billion out of the outstanding Accrued rights. This is what is expected from the Senate rather than embarking on an amendment that is not in the overalls interest of the contributors or retirees.

In view of the fact that one of the objectives of the Contributory Pension Scheme (CPS) established under PRA 2014 is to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age. It is doubtful if the 25% balance in a retiree’s RSA, after deduction of 75% lump sum, would, if spread through the retiree’s expected life span, can be adequate to reasonably cater for his livelihood during old age.

Accordingly, the proposed amendment would only result in the depletion of the RSA without regard for the retiree’s continued subsistence, thereby impoverishing retirees and opening them to old age poverty. The proposed amendment, therefore, would necessarily defeat the above highlighted objective of the Contributory Pension Scheme.

Stakeholders in the pension industry such as the Nigeria Labour Congress (NLC), the Trade Union Congress (TUC), the Nigeria Employers Consultative Association (NECA) and the Federal Government should not allow the Senate to continue with this ill advise amendment.
Ivor Takor is Director, Centre for Pension Right Advocacy