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Pension reforms and challenges of implementation

By Collins Olayinka, Abuja
19 January 2016   |   1:24 am
BEFORE the advent of the contributory pension scheme in 2004, it was a common sight 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 smooth even though…
President Muhammadu Buhari

President Muhammadu Buhari

BEFORE the advent of the contributory pension scheme in 2004, it was a common sight 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 smooth even though it is indeed a radical departure from the past defined benefit system.

While reviewing the journey so far in Abuja recently, stakeholders in the sector that included labour, employers and others who major players pointed the way forward for the continued robust of the scheme.

Tracing the factors that influenced the scheme, President of the Nigeria Labour Congress (NLC), Ayuba Wabba, revealed that series of engagements with the then President Olusegun Obasanjo led to the pension reforms that metamorphosed into the contributory pension scheme.

Wabba, who spoke through NLC Deputy President, Peters Adeyemi explained that the non-payment of pension of primary school teachers and the inability of government to pay the pension liabilities of privatized 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 its embrace by the International Monetary Fund (IMF) and World Bank was a worrying signs that enrollees may be shortchanged. The NLC Chief 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 operationalization of gratuity in the new pension scheme has not happened.

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.

Though Wabba admitted that labour and workers were initially skeptical about the implementation of the scheme, it has nonetheless helped to stabilize pension administration in the country in both the public and private sectors.

Despite the fact that the problems of retired teachers at the sate and local government levels arguably kick-started the agitation for pension reforms in the country, Wabba observed that the scheme still ostracized workers at the state and local government levels as most governors have refused to key into the scheme.



His explanation: “The remedial action of going through the Council of State in 2006 to advise the state governments to buy into the scheme provided little success. Though the 2014 amendment to the Pension Reform Act rectified the omission in 2004 Act, the fact that only about 10 states out of 36 states have completed the process of legislation, and full contributory schemes are in place as at the last quarter of 2015, shows the effect of the non-inclusion of states in the earlier reforms. The current fate of states’ civil servants who are being owed several months of pension arrears, some up to 12 months and more, underscores the urgent necessity to bring this category of public servants on board the scheme.”

NLC also identified the ratio of contribution between employer and employee as another formidable challenge to the implementation of the pension scheme.

Again, it observed thus: “From a situation where employers bear 100% of the pension liabilities on their employees, the ration of 7.5% parity as benchmark for ratio of employer and employee’s minimum contribution provided for in the 2004 Act, was putting it grossly inadequate. The 2014 Act slightly increased employer’s contribution to 10% and employee’s to 8% of gross salary, making a total of 18%, a 3% marginal increase over the 2004 Act. Not only has this not fundamentally addressed the concerns of workers, majority of the employers including the Federal Government are yet to begin the implementation of this new rate of deductions.”

Additionally, the central labour organization also noted that although the 2004 Act provided for group life insurance policy, the process for payment to dependent beneficiaries was rather cumbersome due to be admitted to probate or letter of administration.

“The main challenge with the group life insurance policy is the fact that many employers are yet to implement this aspect of the law. For us in the labour movement, we will continue to work with relevant authorities and Pencom for the full implementation of this provision by all concerned employers,” Wabba stated.

Citing the establishment of Trustfund Pensions Plc., as an example of what the coming of contributory pension scheme meant to the survival of the Nigeria Social Insurance Trust Fund (NSITF), a past managing director of the Fund, Ahmed Rufai, said contributory pension scheme served a good escape route for government in its bid to escape the mounting pension arrears.

Rufai, who is the first Board chairman of Trustfund Pensions Plc., said: “The Federal Government was sold on this idea of the pension reform on the good reason that its employees and eve those in the private sector should also contribute towards their pension so that they (government) could be partially relieved of some of the financial burden of pension costs. The industry would also be managed by the private sector in order to save pensioners the unnecessary bureaucracy and inefficiency of government machinery. Above all, the new pension industry will be a defined contributory rather than a defined benefit scheme. Employees will ear precisely what they and their employers contribute plus investment income. As such, the burden of ageing population will not be a challenge to pension payments as was and still is troubling the countries who are presently operating the defined benefit pension scheme.”

Rufai hinted that the Trustfund management under his leadership developed one of the best strategy documents that gave birth to the organization and set its roadmap.

He added: “This blueprint document set up the operational strategy, the process technology and the human capital requirement to drive the PFA. The mission and vision enshrined in the strategy document are still the principles guiding the operations of the company.”

According to the managing director of Trustfund Pensions Plc., Mrs. Helen Da-Souza, the contributory pension scheme has undeniably restored hope of better retirement days to retirees.

She said: “The contributory pension scheme indeed is a success story. The scheme has restored hope to our senior citizens who erstwhile suffered delayed years of unpaid pensions or even outright denial of their pensions due to alleged mismanagement and other sharp practices prevalent in the old system. The scheme has come to stay and to provide that credible remediation and alternative to the challenges faced by the defunct pension scheme.”

The Trustfund boss highlighted the need for increased customer education and enlightenments, saying, “there is still a misunderstanding on the part of some customers that the defunct and the new pension schemes are the same. This creates trust issues in the administration and management of the scheme coupled with customer agitation.”

The Trustfund boss blamed the high rate of recalcitrance among employers on the failure to imbibe the culture of saving, which the scheme was positioned to boost among Nigeria has not been fully realized.