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States’ non-compliance with pension law persists

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Pension. Photo: FT

• Lack of political will, misconception, financial constraints top reasons

After many years of constant engagement with various states, local governments, trade unions, and relevant stakeholders on the benefits of the Contributory Pension Scheme (CPS) by the National Pension Commission (PenCom), States’ compliance with the provisions of the Pension Reform Act (PRA) 2014, to adopt the scheme remains sluggish.
 
From a recent survey carried out by The Guardian, most states are yet to adopt the scheme, while those that have adopted the scheme are not making full remittances.
  
The main reason for this shortcoming can be attributed to states’ autonomy, as they reserve the right to enact their own pension law and determine the model and scheme they wish to adopt.

 
If this trend persists, there will be severe consequences, especially for employees who are currently in the nation’s workforce, as they may have nothing to fall back on when they retire.
 
This will also affect the pension industry negatively, as the regulator’s drive to widen Nigeria’s pension basket may be hampered.

Speaking to The Guardian on states’ compliance to the CPS, Regional Manager, Trustfund Pensions, Lagos, Obiora Ozoekwem, said although some states have keyed into CPS and are making contributions, some of them are remitting only the employees’ portion, while some are remitting certain rates that are not up-to-date.
  
His words: “The scheme takes off a whole lot of liability from the states, but if they maintain that they want to stay with the old scheme, there are questions there to ask. Like, how up-to-date are states with the old scheme, and how would they keep up in the next five to ten years?
    
“The fact that the CPS is fully-funded makes it easy for the states to do their evaluation and find out what they owe. They can start the payment and pay off whatever the liabilities are, and begin to make provision on a monthly basis both from the state and from the employees.”

    
He maintained that the non-compliance to PRA 2014, is having a colossal negative effect on the industry, noting that the monies remitted as and when due is more valuable, as there are huge losses on return on investment when they are remitted late.
   
“When employees retire, be it a private-sector worker or a public sector worker, a lump sum is paid to his or her account. If that money were held by the administrator years before retirement, it would have built up some return on investment, which would help augment the retiree’s retirement figure.
    
“When you retire and at the end of the day, they just throw in one principal amount into your RSA after 20 or 25 years, it undermines the objective of setting up the CPS,” he added.
     
The Acting Director-General, PenCom, Aisha Dahir-Umar, had cited lack of political will, misconception about the initiative, and financial constraints occasioned by low internally-generated revenue as major reasons for states’ non-compliance with the law.
 
She told The Guardian that the preference of politicians to invest in visible projects such as infrastructure that serve to improve their political capital rather than settle pension obligations to retirees has been a setback.

Consequently, apart from denying workers the opportunity to receive their retirement benefits as and when due, she noted that states are also unable to access the benefits from pension assets, as Pension Operators (PenOp) cannot invest in a state-issued bond, resulting in poor access to infrastructure or other social benefits.


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