How PRA drives government macro-economic policies
The Pension Reform Act (PRA) 2004, as repealed by PRA 2014, has been described as being beneficial to government through its support for overall macroeconomic policy reforms.
The provisions of the law have also inspired labour market flexibility, while pensioners are no longer at the mercy of employer.These were the remarks of the Lagos State Governor, Akinwunmi Ambode, while speaking on the State’s full commitment to pension reforms at the opening of a training, titled, “Implications of the PRA 2004,” for officers of the Lagos State Pension Commission (LASPEC) and all public servants.
The Governor, who was represented by Commissioner, Lagos State Ministry of Establishments, Training and Pensions, Dr. Akintola Benson, said the training is to ensure that officers of LASPEC can effectively discharge their duties, and the generality of the public service can adequately prepare for the future.
He said the general benefits of the Act as implemented in Lagos State have boosted the welfare of workers and pensioners in the state, adding that it has allowed the maintenance of a Retirement Savings Account (RSA) by each employee, which gives the workers responsibility over their retirement savings.
He further noted that workers could choose how to allocate their retirement savings, and diversify their investments over a range of investment instruments.
He stressed that it has also been argued that personal accounts would provide all workers a higher rate of return than can be paid under the Direct Benefit plan, adding that this approach affords participants an opportunity to pass wealth to survivors in the event of death.
He said: “RSA maintained by millions of workers tend to generate massive long-term funds, which are available for investment. Owing to economies of scale, the cost of investing such funds tends to be relatively lower than if an individual worker were to undertake the investment on his or her own account. Also, having a pension scheme that pays out benefits in the form of a life annuity affords workers with protection against longevity risk, by pooling mortality risk across others.
“On a holistic note, the provisions of the law encourage labour market flexibility. The worker is free to move with his or her account as he or she moves to another place of employment and or residence. In this way, it is an important tool for enabling workers and employers to adapt to changing circumstances especially in a global environment in which change is a constant aspect of social and economic life.
“The government also stands to enjoy benefits under the law. The law will stem further growth of pension obligations and provide a platform for addressing this liability. It will also impose fiscal discipline in the budgetary process because pension obligations would be accurately determined. Also, the health of the economy is always a major concern of the government. Thus, aside from the law’s potential to promote national savings and by implication, economic growth, funded pension schemes have the capacity to promote capital market development.
“Moreover, it is often argued that funded schemes have the capacity to promote economic reforms generally. Another area in which the government stands to benefit from the law is through the scheme’s ability to support the overall macroeconomic policies of reform.”
Benson elaborating on the progress made so far, maintained that at the 38th presentation of Retirement Benefit Bond Certificates to retirees under the Contributory Pension Scheme (CPS), created under Section 3 of the Lagos State Contributory Pension Scheme law of 2007 (hereinafter referred to as “the Law”).
The Director General, Lagos State Pension Commission, Folashade Onanuga, who also spoke to The Guardian said, the Government has helped and continues to help public officers adhere to this invaluable law as a result of its commitment to all-round welfare of its officers.
“Before the 2004 Federal Pension Reform Act, most state governments and companies in Nigeria operated under the Defined Benefits Scheme (DBS), popularly referred to as the ‘Pay as You Go’ scheme. This scheme relied on methods that utilised the parameters of length of service to determine the final emoluments of employees. The benefits were thus easily calculated by employees. Broadly speaking, employees who had spent five to nine years in service were entitled to a lump sum payment referred to as gratuity, while those who had spent ten years and more were entitled to both the gratuity and monthly pension payment.”
Onanuga said available data showed that the model failed woefully as a result of the inability or wilful refusal of employers to budget for and/or properly utilise funds to service pension obligations. Lagos State considers it morally reprehensible for any employer to neglect or refuse to plan and cater for the retirement benefits of its employees, who gave the prime of their active years to their employers. But Lagos State under Governor Ambode, in particular, has faithfully honoured its obligations under the Law.
“Furthermore, the State Government has been consistently winning the National Pension Commission’s award for the Best Pensions Compliant State in the Federation. We aim to maintain this rating by continuing and improving on the timely payment of all pensions and other applicable benefits to our retiring workers upon disengagement from service,” she added.
She continued, “The State Government has never failed to remit monthly contributions into the RSA of workers and, as at March, 2017, about N78,592 billion had been credited into employees’ accounts maintained by our 10 Pension Fund Administrators (PFAs). It has also been consistent in setting aside funds for the payment of accrued rights as provided for in the Pension Reform Law such that the State government has paid accrued pension rights of about N61 billion since the commencement of the Retirement Benefit Bond Certificate Presentations in 2010.