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Borrowing from pension fund could compromise scheme, erode confidence — Workers

By Eno-Abasi Sunday, Gloria Nwafor (Lagos) and Mathias Okwe, Collins Olayinka (Abuja)
23 February 2020   |   4:27 am
On Tuesday, December 31, the African Development Bank (AfDB) openly endorsed the idea of African countries spending part of their pension funds on infrastructure development.

• Pension Funds Constitutes More Than 40% Of Govt’s N17t Domestic Debt Stock
• Stop Frenzied, Delirious Attempt To Annex Pension Fund, Seek Other Financing Options – ULC
• The Pension Reform Act 2014 Provides For Investments, Not Borrowing – NLC
• PFAs Are Investing Organisations, Not Borrowing Organisations – CPRA

On Tuesday, December 31, the African Development Bank (AfDB) openly endorsed the idea of African countries spending part of their pension funds on infrastructure development.

President of the AfDB, Dr. Akinwunmi Adesina, while speaking with State House correspondents after meeting behind closed doors with President Muhammadu Buhari, at the presidential villa, said with the continent’s $1.8t pension and sovereign wealth assets, it has no business going abroad to borrow to fund some projects.

The AfDB chief, who noted that the country could tackle her infrastructure deficit by committing the pension funds that are idle on infrastructure, added that the continent had an infrastructure gap of $68b to $108b, which could be adequately addressed by utilising the $1.8t accrued pension and sovereign wealth funds.

He stressed that there was the need for African leaders to invest in infrastructure development.

Buoyed by what looks like an express approval granted the country by the AfDB boss to borrow from the pension fund, the Vice President, Yemi Osinbajo, while speaking at the National Economic Council (NEC) meeting, which he presided over recently disclosed that the government had concluded plans to borrow N2t for infrastructure development.

Hardly had the disclosure been made by the government than workers’ unions, stakeholders, and interested parties began to urge the Federal Government to look elsewhere.

Specifically, the stakeholders, including experts on pension matters are of the view that the move, which they described as unnecessary and an attempt to frustrate the future of contributors if not halted, can threaten the scheme, as well as erode contributors’ confidence.

They further argue that with the idea behind the pension fund being to guarantee a meaningful and modest life after employment, it was unacceptable for government, for whatever reason, to dip its hands into the funds without taking into cognisance, regulations guiding the investment of the pension fund, and also having robust consultations with stakeholders.

Obviously, not many workers are aware that already, as much as N7t of the more than N10t workers’ contributions have been invested in the several Federal Government security instruments, which the government deploys to borrow money at a minimal cost from the public.

Findings by The Guardian reveal that the N7t pension investments by Pension Fund Administrators (PFAs) represent about 41.1 per cent of the gross domestic debt stock of the country, which at end of September 2019 stood at N17t.

This revelation is contained in the December 2019 Summary of Pension Fund Assets, by the Acting Director-General of PenCom, Hajia Aisha Dahir Umar, exclusively obtained by The Guardian, in Abuja.

The report showcases all classes of assets, as well as the level of investments made by the PFAs from monthly FGN Bonds to other classes of instruments.

Reacting to the Federal Government’s planned borrowing of N2t from the pension fund, the Director-General of the Debt Management Office (DMO), Ms. Patience Oniha, said there was nothing untoward in whatever has been done with the funds.

She added: “We are aware that the PFAs participate in our programmes of infrastructure development like in the Green Bonds and the Sukuk, which are primarily geared towards infrastructure development. I don’t see anything wrong with that. More so, these investments are in line with relevant regulatory laws.” Oniha said in a chat with The Guardian.

The passage of the comprehensive National Pension Act in 2004, and its subsequent review, were lauded by many, as a watershed in the nation’s pension reform and administration.

One of the critical objectives of that act was to unify pension administration by bringing together, the various private sector pension schemes and those in the public sector so that a steady pool of resources would be made available at all times to address the retirement benefits of workers, releasing in the process, its resources for greater efficiency and to catalyse the financial sector.

It also had the intention of securing the funds for a more guaranteed future for Nigerian workers on retirement, whatsoever the sector.
Globally, pension funds are treated with the utmost care, and steps are taken by all stakeholders, especially the states, if they are genuinely committed to the people, to ensure the continuous integrity and protection of the fund.

It is therefore shielded from the vagaries of the market place and the political arena, and its deployment is rather towards activities that would not compromise its value, both qualitatively and quantitatively.

This is as a result of the fact that anything that compromises its value, puts into jeopardy, the lives of many that retire daily from active work life, and have placed enormous hope on the proceeds collectible from the fund, which they have toiled day and night to contribute to.

The capacity of the fund to deliver on workers expectations at all times and in all situations must, therefore, be assured and held sacrosanct by all, especially policymakers.

It is on this premise that organised labour views with the utmost anxiety, the proposal by the Federal Government to borrow N2t from the pension fund to fund infrastructure development.

For instance, the Nigeria Employers’ Consultative Association (NECA) specifically maintained that it considered the proposal as fearful and a huge threat to the future of Nigerian workers.

While expressing grave concern at the fate workers, in the face of incessant borrowing by the government at all levels without corresponding development, NECA noted that it was unthinkable for the government to borrow from the pension fund when the citizens have not felt the impact of the mounting debt of government at all levels.

The Director-General of NECA, Timothy Olawale, who condemned the move noted that the scheme is known as a contributory pension scheme, and appropriately involves contributions from employers and their employees, and without contributions from the government.

He wondered why the government would take such a fundamental decision solely without due consultation with representatives of employers and employees, who are critical stakeholders and recognised by law to be on the board of PenCom.

“We urge the government to stop without delay any discussion relating to the use of the pension fund as this is unnecessary, risky and unacceptable. We also call on the government to, without delay, reconstitute the Board of PenCom to enable the commission to perform its statutory role as enshrined in the law setting it up. While we support investment in infrastructure development, the government should channel the recovered Gen. Sani Abacha loot and other recovered/forfeited stolen funds into infrastructural development and not dip its hands into the pension fund.”

The United Labour Congress (ULC) is unequivocal in its submission that the future of Nigerian workers cannot be guaranteed, “if a large chunk of pension funds are controlled by crass, profligate and often insensitive politicians famous for their careless handling of public funds.”

According to its president Comrade Joe Ajaero, “We find it difficult to muster any confidence from anywhere to entrust our livelihood in the hands of a group that has historically and systematically decimated our collective resources over the years, pauperising us at the slightest opportunity, without any conscience.

He urged the Federal Government “and any other person thinking of cornering “workers’ money” through the pension fund to look elsewhere. “It is ill-advised and will threaten our future. Nigerian workers work for their retirement benefits, as they do not enjoy while at work. It is therefore immoral and careless to subject such funds, which is the life-blood of Nigerian workers to the itchy-fingers of Nigerian politicians no matter how well-intentioned, especially when we know that ‘the way to hell is littered with good intentions,” Ajaero said.

The labour leader continued: “In any case, since we are the owners of the fund, we insist that whatsoever benefits that purportedly will accrue to us as a result, we do not want to be part of it. We also insist that before anything could be done regarding our Pension fund, we should be the first to know as the custodians of the interests and desires of Nigerian workers.

“We do not have confidence in the sincerity of our politicians to deliver on the area of safety of our life-savings when it is entrusted into their hands. They have already gorged themselves full of public wealth and nothing will stop them from doing the same with the pension fund if we are not watchful.

“If they can make this nation fiscally insufficient despite decades of humongous windfalls, our future may also be subjected to the same situation if we allow them to make use of it to finance politically-induced infrastructure development projects.”

On claims that some other countries have borrowed from their pension fund for a similar purpose, he said the country’s case must be discussed within the context of the pervasive corruption in the nation; the untrustworthiness of government officials, and the humiliating incompetence with which public funds have been managed recently and historically.

He advised that the government could continue with its open market instruments, through treasury bills to raise money from any PFA that finds it attractive enough so that the market can determine its proposal “and not this borrowing by fiat, which in that case will no longer be borrowing, but a ‘hijack.’

Said he: “There are many financing options available to this government to fund its various activities. We urge it to seek them out and forget about the pension fund.

“We have always remembered the greed with which successive governments have announced the degree of expansion in the size of the pension fund. When it was N2t, they were watching, when they announced it was N3t, the look on their faces changed; when they said it was over N4t, they began to salivate and now that it has grown to about N10t, it has become a frenzied and delirious attempt to annex it.”

The Nigeria Labour Congress (NLC), which shares similar sentiments reminded with the ULC, said that the Contributory Pension Scheme, which came into being in 2004 is fully funded by workers and employers, and privately managed by Pension Fund Administrators (PFAs), adding that the funds are in the individual Retirement Savings Account (RSA) of beneficiaries hence should not be toyed with.

The President of NLC, Ayuba Wabba, while faulting the government’s plan explained that the main objective of the scheme is to ensure that after retirement, every worker in public or private sector, who had contributed to the scheme receives his/her retirement benefits as at when due.

He informed that the N10t pension fund is not warehoused in the pension commission (which is the regulator), the Central Bank of Nigeria, the Pension Fund Administrator, or the pension fund custodian. Instead, the fund is warehoused in the private individual Retirement Savings Accounts (RSA) of contributors, who are workers and beneficiaries.

He further explained that the guidelines on investing pension funds, which had the input of organised labour, the pension union has the primary objective of adequate returns on investment and the safety of the fund.

Wabba added: “The pension fund administrators are investing for maximum returns on investment for the benefit of the beneficiary, and not borrowing. The Pension Reform Act 2014 provides for investments, not borrowing. The Pension Fund Administrators (PFAs) is to invest based on their risks and reward appetite; but usually in minimal risk entities. They are not to be coerced or cajoled to invest because it is criminal to do so.”

The NLC chief said labour is curious that as a critical stakeholder, as provided in the Act, both the NLC and Trade Union Congress (TUC) were not consulted on the borrowing.

“It is equally a violation of a provision of the Pension Act that five years down the line, the board of Pencom statutorily saddled with taking or approving decisions as weighty as this has not been constituted. Pencom is a very critical labour market institution,” he stated.

He reiterated that labour concern is further deepened by the fact that at the moment, the government’s indebtedness to pensions in accrued rights, pension differentials, minimum pension guaranty, pension increase, etc. are in excess of N400b. “Government has to be inclined to pay up this debt,” he declared.

He noted that the claim that direct borrowing was consistent with practices in Chile, is patently false.

He explained: “In Chile, the government accesses pensions funds through the money market, and all such investments are guaranteed by the government to cover for the principal and return on investment.

“We strongly advise the Federal Government to shelve its plan and not to do anything that will undermine the integrity of the pension scheme. We will continue to watch over the safety of the funds to protect the interest of workers and pensioners.”

On the continent, South Africa is also looking at using workers’ pensions to finance development and infrastructure projects in the country.

This development was made public on Thursday, August 22, 2019, when President Cyril Ramaphosa, spoke at a parliamentary Question and Answer (Q&A) session.

Ramaphosa, who said the proposal had the backing of the Congress of South Trade Unions (COSATU) said: “We are facing a situation where our developmental needs are enormous, and in several other places pension funding is utilised for developmental purposes, for infrastructure and quite often, those pension funds make good returns out of infrastructure developments.”

Ivor Takor, the Director, Centre for Pension Right Advocacy, explained that any proposed investments by the government must be done with the consent of the fund owners, who are contributors to the funds.

Takor, who is also a former President of Non-Academic Staff Union and Associated Institutions (NASU) said: “We are stating categorically without any fear of contradiction that pension fund is about investment and not borrowing. Pension Fund Administrators (PFA) are investing organisations and not borrowing organisations. The spirit and letter of the Pension Reform Act 2014 envisage investment not borrowing. The government, PenCom and pension operators know this very well.

“We are aware that a committee is currently studying and working out modalities on how a huge sum of the pension fund can be invested in infrastructure. However, we want to believe and advise that critical stakeholders in the industry, especially workers who are the owners of the fund are carried along, through their representatives, the industrial unions and the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC).

Interestingly, a former President of Trade Union Congress (TUC), Peter Esele, thinks the labour movement must engage government by asking relevant questions, rather than opposing its decision to borrow from the contributory pension fund.

Esele, who is a former board member of Trustfund Pension Limited, explained that the Federal Government has been ‘borrowing’ from the fund since 2004 when the policy was introduced through money instruments.

His words: “As a former director of Trustfund Pension Administrator (PFA) board, I expect labour to be proactive on the matter. What I expect both the leadership of Nigeria Labour Congress (NLC) and Trade Union Congress (TUC) to do is to reach out to the government and ask why it wants to borrow the money and how to pay back. One of the points we are missing is that the Federal Government has been borrowing from pension fund from the very beginning of the contributory pension scheme. Most of the pension money goes into treasury bills; some of the money is borrowed by the Federal Government through investment in the money market and equity market where the fund is invested. So, the Federal Government is a major borrower of bonds. Therefore, what labour leaders should do is to say, ok, we will allow you (Federal Government) to borrow the money, but this is our expectation as far as the outcomes are concerned. This step is necessary not just because it is the workers’ money, but as citizens of Nigeria. It is our right to ask relevant questions about our development. This is a democracy. We are not running a monarchy system of government. Every Nigerian has a right to ask questions.

“Both Presidents of NLC and TUC are heading a very critical segment of the Nigerian nation. That platform – labour – must be used to interrogate and investigate government activities as far as democracy and development issues are concerned. We are supposed to interrogate those in political authority and also provide checks and balances platform. There is nothing wrong in wanting to know what the Federal Government wants to use the money for and there is also nothing wrong with the Federal Government wanting to borrow the money.”

While the former TUC chieftain assured that the Federal Government would pay back if it goes ahead and borrows from the fund, Esele said such conviction does not preclude labour from asking critical questions that bother on how the infrastructure that would be built would impact on the quality of lives of Nigerian working population.

“I am aware that the Federal Government would pay. While one naturally expects the Federal Government to pay, one needs to know how the payment would be made, and what in specific terms the Federal Government wants to use the money for. We must ask what infrastructure that would be constructed, and of what benefit to citizens of the country such infrastructure would be. Once benefits that would accrue to the Nigerian workers can be seen, then labour can even go ahead to grant press conferences, where it would explain how the money would be spent, and its roles in ensuring the monies are judiciously spent.

“In the same vein, labour can also cry out if the plan is not convincing enough. Labour must apply maximum pressure to ensure that workers and Nigerians as a whole get the full benefits of the borrowing. If the movement is not standing up for its members, and also not ready to stand up to protect the money that its members have contributed, then we are going to have issues,” he said.

Esele, who urged labour to stand for the right of the hapless workers whose life savings could be squandered if the right questions are not asked, accused political leaders of securing their futures through bogus pensions at the expense of the people.

He added: “Those in government are already collecting their pension upfront because if the list of contributors is checked, no one will see the name of any either a serving or former governors, lawmakers or presidents there. What would be seen is occupiers of political offices signing off humongous amounts of money as pension for themselves after their mere four-year tenure, while retired workers that have worked for 35 years are collecting peanuts, and they are not even regular. In all of these, it is the workers that are endangered.”

For Prof. Godwin Owoh, Executive Chairman, Society for Analytical Economics, given the country’s continued decline on the Value for Money Index (VMI), there is no guarantee that after investing the loan in infrastructure development repayment would be in time to facilitate the settlement of workers that are due for retirement.

Owoh, a former Adviser to the Governor of the Central Bank of Nigeria (CBN) said: “Nigeria is behaving like a prodigal son that has finished selling off assets bequeathed to him by his father, and in the absence of nothing yet to sell, is resorting to resell assets already sold to new buyers.’’

He expatiated: “The government has squandered what we had in the Excess Crude Account, and is now resorting to excessive borrowings, domestically and externally, including over-reliance on the CBN for financing outside the core monetary policy matrix. Now, with no buffer left, the government wants to turn to savings of workers, comprising public and private sector workers to squander again.

“They must not touch that pension funds because it is the last hope of workers, particularly those in the private sector that do not have gratuities or other benefits upon retirement apart from their pension savings. At the moment, when they retire, there is normally a liquidity challenge, that is, meeting their benefits. Is it when the funds are funneled into private pockets in the name of investments in infrastructure that there will be liquidity to settle them?

He continued: “Every retiree requires a large lump sum to commence a new lease of life. Now, Nigeria has been recording a constant decline in VMI because of the large scale of corruption. Before the present administration, the VMI for Nigeria said that for every N1 spent in the country, the real value is 14 kobo, but as we speak, the current value has dropped to nine kobo, meaning the scale of corruption is growing with its attendant poverty on the majority. The implication is that the real value of the N10t if deployed would be so insignificant that it cannot guarantee returns up to the level of the amount taken away.

“So, what infrastructure are they going to deploy the savings to that can guarantee liquidity for workers as they retire? The funds would just disappear into private pockets. They should leave the funds where they are. What a serious government should be thinking is how to guarantee the funds held with the custodians to guarantee reprieve for workers upon retirement, and not to be thinking of frittering the funds away in the name of infrastructure development,” Owoh submitted.