Avoid sorrowing, don’t borrow pension funds
A recent plan by the National Economic Council (NEC) under the Chairmanship of the Vice President, Professor Yemi Osinbajo, to consider the possibility of borrowing from the Contributory Pension Funds, to finance public infrastructure, has come under serious attack by the labour unions and other stakeholders. This is understandable at this time.
Specifically, the Nigeria Labour Congress (NLC) and other stakeholders such as the United Labour Congress (ULC), the Trade Union Congress (TUC) and the Nigeria Employers’ Consultative Association (NECA) have raised concerns about the protection of the workers’ retiring benefits in view of the fact that government has not shown sufficient sense of fiscal responsibility in its operations.
Moreover, governments across the federation have been consistently defaulting in the payment of pension benefits, under the old pension scheme, to its retired workers. Stakeholders thus wonder why the government would attempt to jeopardise the well functioning of the contributory pension scheme, which so far has been making payments to retirees with minimal hiccups. The argument has been raised in some quarters that the attraction of government to the pension funds is primarily due to its current project financing challenges.
Secondly, the increasing growth of the pension funds appears to have been too tempting for the government to simply look the other way. This is borne out of the fact that the contributory pension assets have grown by leaps and bounds from about N4.21 trillion in May 2014 to about N8.14 trillion in May 2018. It currently stands at about N10 trillion by December 2019, about the value of the entire 2020 Federal Government’s annual budget.
It will be recalled that the passing into law of the Pension Reform Act in 2004, a policy initiative of the Olusegun Obasanjo administration was heralded with lots of optimism by many at the time given the multifarious problems that had bedevilled the old unfunded defined benefit scheme for public servants.
In the old scheme, budgetary provisions were regularly made by the government with so much vulnerability of funds availability coupled with uncertainties such as funds inadequacy, untimely release and accumulation of arrears of payments for pension beneficiaries. It came as a positive reaction to the sorry state of retired workers who littered the pension verification centres across the country then, with some of them reportedly dying in the process. Though the operation of the Contributory Pensions Act has its challenges such as delayed payments of benefits, sometimes up to a year after retirement, and the payment of only 50 per cent on retirement as against the demand for 75 per cent (or even 100 per cent) in some quarters, the scheme has largely met expectations. The blossoming of the 2004 Pension Reform Act has been a very good development given that prior to the enactment of the 2004 Act, pension assets were reported to have been in deficit to the tune of about N2 trillion.
The success of the contributory scheme has been largely accentuated by the fact that it commits both employer and employee to put aside certain proportions of earnings for pension purposes. The Pension Reform Act 2004 thus introduced a great degree of certainty into the pension business with checks and balances introduced with the establishment of the National Pensions Commission, as a regulator, the Pension Fund Administrators, Pension Fund Custodians, the employers and most importantly the employees.
These benefits accruing to the Nigerian worker is what labour and the other stakeholders are fighting to protect. This clamour for government to steer clear of the pension funds has continued in spite of the assurance of the minister of finance that government has never borrowed from the pension funds and that what the NEC is doing is to consider the possibility of designing investment products that would allow it to access the funds for the development of infrastructure. Given the history of government abuse of the public trust over the years, as regards public finance, many are inclined to take the minister’s assurance with some suspicion.
The way out of all this is for labour to engage government on their proposed plan to access the funds for the development of public infrastructure. Yes, in many other climes, governments have been able to access pension assets to develop infrastructure but the case of Nigeria has been largely discouraging. Reason: The perception is strong that government at all levels here has been notorious for fiscal indiscipline despite the presence of the Fiscal Responsibility Commission backed by an Act of National Assembly since 2007.
Fiscal indiscipline in Nigeria discourages the pursuit of global best practices of using pension funds to finance infrastructure. This newspaper believes in the groundswell of views that workers’ retiring benefits should not have toyed without legal guarantee – that the loan will not be used for consumption of public servants and will be repaid as specified in the datelines.
In this regard, the government should steer clear of the Contributory Pension Funds except some meaningful arrangement is worked out. Even now, without the government having full access to the funds, there are already some delays in the payment of benefits to retiring workers. What would happen when the government begins to access the funds? This is an area of concern. Labour should keep up the pressure so that the “labours of our heroes past shall not be in vain.”