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Tough hurdles for states seeking pension fund loans

By Victor Uzoho
03 January 2021   |   4:30 am
As the controversy rages over the impracticability, availability, legality, or otherwise of state governors borrowing N17trillion from the pension funds, labour unions, retirees insist that trust and accountability deficit...

• We Can’t Trust Politicians With Safety Of Our Life-savings – ULO
• No Sensitive Govt Would Talk Of Borrowing Pension Funds With Many Unresolved Issues – Nworgu
• Assets Can Only Be Invested By PFAs, PenCom Insists
• Most States Yet To Adopt Contributory Pension Scheme (CPS)
• Only FCT, Lagos, Osun, Kaduna, Delta Pay Pensions Under CPS

As the controversy rages over the impracticability, availability, legality, or otherwise of state governors borrowing N17trillion from the pension funds, labour unions, retirees insist that trust and accountability deficit, insensitivity are some factors that make the move a utopian idea.

While the United Labour Congress (ULC) said it was difficult to trust a government that has historically and systematically looted the collective resources of the nation over the years at the slightest opportunity without any conscience, retirees insist that no sensitive government would talk of borrowing from the pension funds when there exist a catalogue of unresolved issues.

For the Nigeria Employers Consultative Forum (NECA), the provisions of the Pension Reform Act (PRA) 2014 and appropriate investment regulations must be strictly adhered to, while there should be in place, a risk management and investment committees to instill a high level of governance and ensure that all investments involving the pension funds follow laid-down rules.

Similarly, individual states must truly brace up to scale hurdles put in place to ensure that workers’ life-savings are not handle with kid gloves, a development that could have dire consequences.

Earlier on, the Socio-Economic Rights and Accountability Project (SERAP) had, in a letter dated December 5, 2020, and signed by its Deputy Director, Kolawole Oluwadare, said: “Allowing the governors to borrow from pension funds would be detrimental to the interest of the beneficiaries of the funds, especially given the vulnerability of pension funds to corruption in Nigeria, and the transparency and accountability deficits in several states.

“It is patently unjust and contrary to the letter and spirit of the Nigerian Constitution 1999 (as amended), the Pension Reform Act, and the country’s international anti-corruption and human rights obligations for the Federal Government and state governors to repeatedly target pension funds as an escape route from years of corruption and mismanagement in Ministries, Departments and Agencies (MDAs).”

The Nigerian Union of Pensioners (NUP) had also kicked against the move, warning that government had no authority over the funds and should not tamper with it.

In a communiqué from the 22nd teleconference meeting of the Nigeria Governors’ Forum (NGF), the forum adopted a proposal by the National Economic Council (NEC) ad hoc committee on accessing a portion of the accumulated pension funds allegedly for infrastructural development.

The document indicated that N2 trillion would be borrowed for the National Infrastructure Investment Fund, and the NGF was aligning with a proposal by the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, to access N15 trillion funding through InfraCredit at an interest rate of five per cent.

Even though the Federal Government has borrowed from the contributory pension scheme through investment opportunities (at least once in the past), the PRA 2014, which controls how pension funds can be used does not provide for direct borrowing, which the governors are seeking to do.

Specifically, the act makes for the investment of pension funds in viable investment options that have the capacity to bolster the country’s economic development.

Unfortunately, most states are not contributory pension scheme compliant, and are therefore, by regulation, not qualified to benefit from pension funds through raising of bonds.

However, even if the governors find their way around and scale through these and other hurdles, it is impossible to borrow N17 trillion from the pension funds as the accumulated figures falls far short of that amount.

As of September 30, 2020, the fund stood at N11.56 trillion (according to PenCom’s last quarterly report), which is N5.44 trillion short of the proposed funds to be borrowed.

The fund comprises N8 trillion of the Retirement Savings Account (RSA)  ‘active’ funds N934.19 billion of the RSA retiree fund; N1.44 trillion of the Closed Pension Fund Administrator (CPFA) fund; and N1.19 trillion for the approved existing schemes funds.

PRESIDENT, United Labour Congress (ULC), Joe Ajaero, while commenting on the issue said: “We do not have confidence in the sincerity of our politicians to deliver in the area of safety of our life-savings when it is entrusted into their hands. They have already gorged themselves full with public wealth and nothing will stop them from doing the same with the pension fund if we are not watchful.”

He urged government to look elsewhere, other than the pension assets for funds, noting that the plan to borrow from the fund was ill-advised and would threaten the future of workers and pensioners.

Ajaero maintained that the union would not allow the governors to dip their hands into the pension funds, noting that only about five per cent of the states were contributing to the fund.

A retiree, Leonard Chijioke Nworgu, who worked at the Federal Ministry of Information and National Orientation, and was abruptly disengaged from service in 2006 at Grade Level 10, said his gratuity was underpaid as a Level 9 officer, while his monthly pensions are still being underpaid at the same level.

He added that no sensitive government would talk of borrowing from the pension funds when many issues were still unresolved.

Said he: “It is disheartening that for 10 years now, I have been underpaid my monthly pension. I retired on Grade Level 10, but to date, the government pays my pension as a Level 9 retiree.

“Also, the arrears prior to the monthly enrollment between 2006 and 2010 have not been addressed. For how long shall I wait? If the government is sensitive to my plight and that of others, it can’t be talking of borrowing from the pension funds. It shows no feelings on the part of the government.

“The last minimum wage has not been implemented on the pensions of retirees, unlike the last administration. Many have lost their lives while waiting for their rights. In 2017, verification exercises took place amidst sufferings and other hardships encountered by pensioners and to date, nothing has been heard of the outcome of the verification exercises where complaints were collated.

“Where is the change that the government promised us? If the government was not ready, why did it disengage people that it can’t cater for? Why did President Olusegun Obasanjo hurriedly carry out a fruitless mission without adequate provisions?”

Also, a contributor to the CPS, who works with the National Commission For Museum and Monument, Lagos, Sharon Ifeoma Nworgu, condemned the proposed borrowing, saying she and some of her colleagues were not paid the minimum wage arrears under the Integrated Payroll and Personnel Information System (IPPIS) of the Federal Government, while some received theirs in December 2019.

“Also, I have not been paid my January 2020 salary till now, and the government is talking of borrowing money from our pension contributions. I traveled from Lagos to Abuja to lay my complaints, but up till now, nothing has been done. This is an act of wickedness,” she said.

HOWEVER, the Director General of the Nigeria Employers Consultative Forum (NECA), Dr. Timothy Olawale, said there was no reason to believe that the provisions of the PRA 2014, and the investment regulations wouldn’t be adhered to by the PFAs and PenCom, while investing the funds.

According to him: “We are not unaware that part of the watertight investment regulations issued by PenCom to PFAs stipulates that the investment of pension assets in infrastructural development must, among others, be through infrastructure bonds and up to a maximum of 15 per cent and five per cent of assets under management respectively.

“There should also be risk management and investment committees of the board to instill a high level of governance and ensure that all investments are as stipulated in the provisions of the PRA 2014, and meet the quality requirements enshrined in the regulations, he said, adding, “it is clear that given the valuation of the pension assets as of October 2020, which was about N12.05 trillion, N2.4 trillion is the maximum amount that can be invested by the PFAs in infrastructure funds and bonds, and not N17 trillion as being speculated.”

MEANWHILE, beyond contending with a barrage of criticisms that have greeted the proposal to borrow from the pension funds’ assets under management, state governments have other hurdles to scale in the laws and regulations guiding the investment of pension funds, especially the CPS.

Investigation by The Guardian revealed that besides extant disapproval of the loan, the federal and state governments must adhere to the laws guiding the investment of the funds.

According to PRA 2014, pension funds cannot be borrowed or given out as loans and can only be invested in line with the investment regulations issued by PenCom.

The investment regulations allow pension funds to be invested only in asset classes, such as Bonds, Sukuk, Treasury Bills, Global Depository Notes and other securities issued by the Federal Government, provided that the government guarantees the securities.

The investable assets also include Bonds and Sukuk issued by eligible state and local governments, provided such securities are fully guaranteed by Irrevocable Standing Payment Orders (ISPOs), which mandates the Accountant General of the Federation (AGF) to deduct at source and remit monthly pension contributions from the state’s share of the Federation Account Allocation to the state.

In addition, such states must fulfill the conditions set out in the PenCom’s circular on “minimum requirements for the inclusion of state bonds as investible instruments in the pension industry. ’’

The circular with ref no: PENCOM/CIR/PSP/12/02, dated November 30, 2012, states that any state government seeking to access pension funds through investment in its state bond must enact a law to establish the CPS, which must give pension contributions the same priority as salaries.

Such a law must fully address every inconsistency observed by the Commission in its review and establish a state pension bureau, and a local government pension bureau to coordinate the implementation of the CPS and other related pension matters in the state.

Among other things, the state must open a RSA with PFAs for all the employees covered under the CPS in the state and fully remit employers and employees’ pension contributions into the employees’ RSAs for a minimum of six consecutive months from the date of commencement of the scheme in the state.

The state must also secure a group life insurance cover that guarantees a minimum of 300 per cent of the annual total emolument of all the employees covered by the CPS, while the insurance companies engaged must be eligible for life insurance companies, licensed by the National Insurance Commission (NAICOM) and duly certified by PenCom.

Responding to The Guardian’s inquiries on the matter, PenCom said pension funds could be invested only in bonds floated by states that have fully complied with the CPS.

It, however, stated that it did not guarantee that pension funds would be invested in the state bonds, as PFAs were required to conduct risk analyses to decide if investing in such bonds meets expected yields and risk appetite, and could decide not to subscribe to a state bond.

It stated: “It is noteworthy that one of the major achievements of the Pension Reform is the establishment of robust legal and institutional frameworks for the administration of pensions in Nigeria.

“In addition to the legal safeguards and institutional checks and balances, the Commission, as the regulator of all pension matters in Nigeria, has entrenched good corporate governance practices and high ethical standards instituted through rigorous supervision and regulation of the industry.”

In an interview with The Guardian, Director General of PenCom, Aisha Dahir-Umar, said the preference of politicians to invest in visible projects, such as infrastructure that serves to improve their political capital, rather than settle pension obligations to retirees have remained a setback to CPS.