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You may be able to draw down your pensions, but is it worth it?


If Nigeria’s pensions landscape was a Google Search bar and one had the opportunity to enter any given year before 2004, the results would have been easily organisable on a neat continuum ranging from confusion to an abject mess. The rules were a spaghetti-like web of contradictory rules, ill-thought out implementation, poor record keeping, problematic legal loopholes, indefensible exceptions and in some cases, ignorance on the part of regulators, operators and contributors centred on the Defined Benefit model which contributed to creating a pipeline that leaked a steady stream of fraud horror stories, non-uniformity in pension arrangements in both the public and private sectors, and a deficit in pension liabilities that at one time was N1.6 trillion large, according to the Pension Fund Operators Association of Nigeria, an umbrella body of the biggest operators in the pensions industry – big enough for almost a sixth of the country’s 2017 budget.

Drawing on the success of similar contributory pension arrangements in Europe, east Asia and some American states, and in one of the Olusegun Obasanjo’s seldom heralded yet consequential moves, the pensions regulatory regime was dramatically overhauled in 2004. The new regime was anchored around a new piece of legislation, the Pension Reform Act 2004 and the introduction of the Contributory Pension System (CPS), a novel innovation in West Africa at the time. The elaborate control mechanisms entrenched in the CPS framework by virtue of the triad of the Pension Fund Administrator (PFA), the Pension Fund Custodian (PFC) and the Regulator – a reinvigorated and empowered National Pension Commission (Pencom), elevated the pensions experience in Nigeria to a level that substantially addressed the ills prevalent in the old DB system. In simple terms, the participatory nature of the new system as well as its unitary nature made the system personalised by engraving ownership for its contributors; well organised and predictable; open and transparent, and had in-built mechanisms for ensuring it was appropriately funded at all times.

As a result, emerging from the ashes of a pensions section saddled with a deficit of N1.6 trillion at the advent of the PRA 2004 – a mere footnote in the Nigerian economy – the ‘new’ CPS, on the back of an amendment in the operating law in 2014, has flexed its new-found muscles and as at June 2017, was a N6.6 trillion behemoths. The twenty-one (21) fiercely competitive and innovative PFAs licensed to operate in a fierce market have between them a total of 7,592,157 contributors and growing. For context, between the period April to June 2017 alone, they generated 97,713 registered Retirement Savings Accounts (RSA) holders. Compliance from the public sector has been somewhat impressive – 1,898,386 registered RSAs belong to federal government employees, with a further 1,537,436 from state government employees. The most enthusiastic participants though, has been the private sector which has pumped in 4,156,335 contributors into the CPS. This seeming miracle occurred within a 12-year span that witnessed a negligible amount of fraud incidents. Armed with the exhaustive legal tools available under the PFA, increased expertise and professionalism, a diversified portfolio enforced by the force of legal backing, and an increasingly educated workforce, Nigerian PFAs have consistently mirrored their larger global colleagues in delivering outsize returns for their beneficiaries, proving the received wisdom that pensions funds can be catalysts for economic growth and development, making sensible investments in critical segments of Africa’s largest economy.


Like all good things, accidental and deliberate that have happened in this country, a time comes when a person or institution arises to shock the system. For the pensions industry, that day of reckoning came in 2010, with a private members’ Bill sponsored at the National Assembly by Honourable Oluwole Oke, representing Obokon/Oriade Federal Constituency of Osun state sought to exempt the Armed Forces (Army, Navy, Air Force) and the intelligence agencies from the CPS. Despite resistance from all the important economic participants in the scheme, this effort was forced through with the passage of a 2011 amendment to the PRA. The amendment, in effect, excluded the armed and intelligence services for the ostensible reason of the sensitivity of their statutory roles in shepherding the country’s security interests and the need to have their pension data within a restricted management circle. A similar effort to excise the Nigeria Police Force from the CPS during the lifetime of the 6th National Assembly was partially rebuffed, the political compromise being the creation of a restricted PFA for the police, licensed by Pencom but crucially, still operating within the sheltered rigour of the CPS.

Oke would not be deterred. In May of this year, he sponsored another bill before his colleagues calling for the removal not only of the police this time, but in addition, “the Nigerian Security and Civil Defence Corps, the Nigeria Customs Service, the Nigeria Prison Service, the Nigeria Immigration Service and the Economic and Financial Crimes Commission from the application of the Contributory Pension Scheme and other related matters.” The bill has passed its second reading and is currently sitting before the Pensions Committee of the House of Representatives which is due to hold a public hearing on Thursday 28 September and has called for “all relevant stakeholders” to submit any memoranda that would aid it to make its determinations. There is one critical thing to note about the above-mentioned bill, which is similar in context, wording and intent to the Armed Forces and intelligence agencies amendment. It seeks to fully exempt the above stated organisations from the CPS and return them to being 100 percent underwritten in relation to pension arrangements by the Federal Government. In simple terms, our lawmakers want to return some of the country’s most critical enforcement institutions to the outmoded, discredited and ill-fitting era of the Defined Benefit arrangement.

Ikemesit is a lawyer and lead analyst at SBM Intelligence

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