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The imperative of contributory pensions

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There is a big hole in the Pension Fund, and now the government has relaxed rules for the use of Pension Funds. Should BVN not be sufficient? Many pensioners have committed suicide; even so, pensioners still do not receive their money.

A couple of weeks ago, a participant at a workshop drew my attention to the fact that the Rivers State government had shut down over 1,800 illegal schools in the state and was planning to do much more in the months ahead.

The context of our discussion was pensions – imagine if those schools and their teachers had complied with the mandatory Contributory Pension Scheme over the last 12 years, there is no doubt that by now the teachers would have saved up something substantial in their Retirement Savings Accounts (RSAs), that they may now be able to access based on the rules for withdrawal under the Regulations issued by the National Pension Commission (PenCom).

Unfortunately, our conversations revealed that for most of the schools, it was the teachers and staff themselves who were often most resistant to participating in the Contributory Pension Scheme (CPS), because according to them: “their take home pay was too small to accommodate any further deductions to fund the RSAs.”

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While this is not an excuse for the school owners and managers not to have ensured participation, even they like many private sector employers will not mind “dodging” the responsibility for contributing, especially with the tacit acquiescence of their teachers and staff.

Our conversations reminded me of a sales pitch that I made more than a decade ago at a textile factory in Kano owned by an Asian. As my colleagues and I drove from our Hotel to the factory, we passed a number of factories that had been shut down in the Challawa Industrial Estate in Kano. After our presentation and explanation of the CPS to the workforce, the union leaders had similar concerns of the burden of additional deductions. I was immediately inspired by all the signs reading ‘closed down’ that I saw and took the opportunity to explain the ‘imperative of contributory pensions’ to them. My point: imagine the people who worked in those factories that had been shut down for one reason or the other.

If they had a RSA with some savings, they would have had something to fall back on when the factories closed. Because there was no CPS and therefore no RSA, most if not all of the people who worked there would have had no retirement benefits. While the burden of additional compulsory retirement savings may be difficult for the majority of micro, small and medium scale businesses in Nigeria in the short-run, the long-term benefits for the individuals, the institution and the society as a whole are enormous. This is the same message that the workshop participant actually delivered to the schools that are still operational and their teachers and staff: It is a lot wiser to squeeze yourself to set aside a portion of your earnings each month as retirement savings, because you do not know what the future holds. No matter how small it looks, those few hundreds of thousands of naira that you may accumulate over a number of years is a lot better than having nothing!

As we struggle with not only a biting economic recession, and a stricter regulatory environment, one thing Nigerian workers can be certain about is that there is no such thing as job security any longer.

This does not mean that the future is bleak for all of us, it just means that we have to be innovative and adaptive to cope with the realities of a changing landscape. For example, a lot of organizations today will rather deal with contractors and consultants who work based on specific projects and whose income is tied to specific projects.

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Sometimes, depending on the industry and the skills involved, you may even find that you could earn more as a contractor/consultant than as a full time staff. It is quite common to have very senior and talented individuals working today as “temporary staff”, and handling very complicated and sometimes senior level positions. You will also observe an increasing trend towards entrepreneurship for most people, potentially with the power to create more jobs and bolster the economy. I mean, it is a lot easier for a SME to quadruple its workforce from one to four employees than for a mega-bank to do so with its 5,000 employees.

If anything, mega institutions – banks, Telcos and others are pruning their workforce, and in many cases scaling back their operations to deal with the rising costs and declining revenues in the society.

Contributory Pensions therefore provide a safeguard to workers, which workers and business owners must embrace. All that is required is to have your employees select one, from the 20 or so licensed Pension Fund Administrators (PFAs), and start setting aside monies each month, which will be remitted to the PFAs.

Granted, some small business owners will struggle with being able to keep up with the contributions for their staff, but they should start and continue to strive nonetheless.

It is better to acknowledge your indebtedness to your employees’ RSAs than to absolutely refuse to participate in the scheme. It is a lot better to have something in your RSA than to have nothing. The something you have is what is within your control. The day and time that you will need your retirement benefits for most is unknown and therefore beyond your control.

Barrow is a chartered accountant and Pension Industry Strategy consultant and trainer


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