Continued from yesterday

With the reform, the CPS has been regarded by Nigerians as an outstanding success story. Under the CPS, it is mandatory for employers in public service and private sector with a certain number of employees to make a minimum contribution towards the retirement benefits of their employees.

There is also the contribution by the employees themselves, which is akin to compulsory savings towards retirement. The funds are invested by the Pension Fund Administrators (PFAs) and kept in custody by Pension Fund Custodians (PFCs). As a result, the old story of “no funds” became history. Nobody needed to wait for any budgetary allocation to pay pensions as the funds were already warehoused during the employee’s active years.

Also, value is added to the savings over the years through returns on investment. These fundamental changes have created a new economy. From a negative position of huge unfunded liability, pension assets in Nigeria had grown to N15.45 trillion as at February 2023. The total number of pension contributors is close to 10 million and growing.

Unfortunately, it is not everybody that is excited by the success story as we can now see. For years, some interests in the Nigeria Police Force had been making efforts to exit the CPS. When police agitation reached its height under former President Goodluck Jonathan in 2013, the police were allowed to set up their own PFA as a compromise, to take care of their supposed peculiarities.

Still, they were not content. According to previous reports that were not refuted, the determination of the police to exit went to the illegal extent that the Deputy Inspectors Generals of Police (DIGs) and Assistant Inspectors General of Police (AIG) were enrolled on the Integrated Payroll and Personnel Information System (IPPIS) to collect full salaries for life under a defined scheme that was not intended for them. This they did without the permission of anyone. They did not get the permission of the president and the regulatory authority and it is not in conformity with the Pensions Reform Act.

Some of the statistics should be of concern to us. Of the N577 billion budgeted for pensions in 2022 by the Federal Government of Nigeria (FGN), military pensions and gratuities account for N237 billion. That was close to half of the entire pensions budget. Police pensions and gratuities for certain exempted groups amount to N8 billion of the FGN budget for pensions for the year under discussion.

However, if the National Assembly succeeds in pulling the NPF out of the contributory pension scheme altogether, that alone would have consumed the entire FGN budget for pensions in 2022. The military is just about 25 percent of the size of the police, so FGN is going to be saddled with a pensions and gratuities budget that will pass N1 trillion. With its current fiscal challenges, FGN will have no other option than to owe pensions. Meanwhile, the contribution of police funds to the pensions sector will shrink and this will no doubt affect the growth and prospects of the pension industry in particular and the Nigerian economy in general.

The passage of the Bill for the Establishment of a Police Pension Board by the National Assembly always looked like they were working to an answer. At the public hearing organised by the Senate Committee on Police Affairs on January 20, 2023, all major stakeholders, apart from the police, opposed it.

The National Pension Commission (PenCom), which regulates the industry, the Pension Fund Operators Association of Nigeria and the Nigeria Labour Congress (NLC) canvassed robust arguments against it. Mr Boss Mustapha, former Secretary to the Government of The Federation (SGF), informed the Inspector General of Police, via a letter, in July 2022 that an SGF circular Ref. 59149/S.1/C.1/11/266 dated July 20, 2021 which said the police must be under the CPS remained in force.

Mustapha also referred to the White Paper on the report of the Presidential Committee on Restructuring and Rationalization of Federal Government Parastatals, Commissions and Agencies which forbids any government body, apart from the military and the intelligence services, from exiting the CPS.

It is important to mention that the argument of those seeking exemption is that they will secure a guaranteed full monthly salaries package upon retirement under the Defined Scheme compared to what they may take from the PFAs under the Contributory Scheme. However, this is erroneous. There are other ways of getting more benefits allowed by the Pension Reform Act.

For instance, what the Pension Act prescribes is merely a minimum contribution rate, which can be enhanced by the employer. Thus, rather than shoulder a burden of unsustainable pension liability, government can decide to do one or two things that are permissible under the Pension Reform Act.

Government can increase the rate of its monthly contribution above the current minimum 10 percent. Government can also have a gratuity package that will be a lump sum paid to the retirees on exit from service, in addition to the contributions remitted to their employees’ RSAs. Indeed, if government decides to do both or any of these two benefit improvements under the CPS, the pension system would still be less costly and less volatile for government. Returning to the Defined Scheme is going to be fatal.
Concluded
Abayomi, an economist, lives in Akure, Ondo state.