Contributory Pensions Scheme: A Time Bomb | Independent Newspapers Limited
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Contributory Pensions Scheme: A Time Bomb

Posted: Jul 11, 2016 at 12:29 pm   /   by   /   comments (0)

 In well organised climes, people take pride in retiring from their jobs, even when asked to extend their years of service, they refuse. But in Nigeria, the story is different as fear of the unknown and the insincerity and fraud associated with the Contributory Pension Scheme has made the scheme the retirees’ nightmare and a time bomb. In this special report, Emmanuel Okwuke, Charles Okonji,  Oyeniran Apata, Nkasiobi Oluikpe and Andrew Utulu takes a detailed look at the scheme and its attendant challenges. Excerpts..


The understanding of pension fund by the lay man is an income to fall back on in the event of a retirement, whether voluntary or involuntary.

It is common knowledge that at retirement and old age, chances of getting a reasonable means of livelihood are slim. That is why people during their active years, put in their best, deny themselves of some comfort to prepare for a life after active years in service.

Under normal circumstances, it is supposed to be a guaranteed and secured means of income for the retired aged man.

In well organised climes, people take pride in retiring, even when asked to extend their years of service, they refuse. But in Nigeria, the story is different as fear of the unknown makes people go back to make a false age declaration towards the end of their days in service, just to extend their services years.

With pension guaranteed, a retiree ceases to be a dependent, a burden and nuisance to members of his immediate family, who might not be economically buoyant enough to cater for all his needs at old age.

Even during his active years of service, the assurance that there is money to fall back on later in life boosts his morale and increases his productivity.

Beyond earning the retiree some reasonable respect from people around him, pension also helps to extend the life span of retirees as they can always see a place they can draw from, especially, for their health needs, which at this stage in their life, fails frequently.

Six months before retirement, the worker is supposed to start the process of documentation. For the Federal Government employees, they have to go for a Bond verification exercise organised by the National Pension Commission (PENCOM).

This is to enable PENCOM consolidate their account and ensure that their accrued rights are paid immediately they retire.


Insincerity, Bane Of Pension Scheme

For the private sector employees, their Pension Fund Administrator has to confirm that all contributions due to him or her have been made. Here, it is called the consolidation of account. Thereafter, the actual payment begins three weeks after.

However, pension in Nigeria, has become the retirees nightmare, who for no fault of theirs has found themselves in miserable situations, despite having efficiently played their roles towards the scheme during their years of active service. Even when the money comes, the payment process most times is erratic.

The situation in the public sector of the pre-existing pension scheme is that a civil servant or worker working for the government will collect a certain amount of money worked out as gratuity depending on the number of years put into service.

The gratuity is expected to be paid immediately the worker stop working. Subsequently, his pension is paid immediately on monthly basis if the worker is of the ‘pensionable’ age.

Definite Pension Scheme

Prior to 2004, Nigeria operated a definite benefit system of pension scheme, where the civil servants bore no direct responsibility, by way of payroll tax. This form of pension system did not cover the private sector. Pension benefits were paid through budgetary allocations to be kept in the consolidated revenue fund.

However, in most cases, the amount released for payment, usually falls short of the actual appropriation for pensionpayment. And when they are eventually released, they come very late.

This has led to situations where retirees are made to wait a long time without receiving their pension. Some even die in the process.

Despite the released amount falling short of the actual amount needed, the monies are usually prone to misappropriation by politicians. Added to this, was the fact that its administration was not transparent. Both the way the pension records were kept in the public sector and the procedure for payment created avoidable problems.

At a point, government insisted on a yearly verification exercise where huge amounts of monies were expended to weed off ghost pensioners. Still no improved results were achieved. Stories were told of pensioners waiting for long hours on queues to undergo the verification exercise, sometimes, they have to travel long distances for same purpose.

Irrespective of all the measures adopted by government to curb fraud in the pension scheme, with no accurate statistics, pension costs got inflated through insertion of fictitious names on the list of pensioners. All these among other factors led to massive accumulation of pension debts.

Nigerians will not be quick to forget Alhaji Abdurasheed Maina, former chairman, Pension Reform Task Team, who is presently said to be at large and who was said to have cornered pension monies running into hundreds of billions into private account.


Private Sector Pension Scheme Fraught With Fraud

In the private sector, on the other hand, many employees were not covered by the pension schemes put in place by their employers and many of these schemes were not funded.

Besides, where the schemes were funded, the management of the pension funds was fraught with malpractices between the fund managers and the trustees of the pension funds.

According to records, as at December 2005, pension backlog was put at N2.56 trillion. It became clear that the system ofpension funding operated in the country was not sustainable.


Pension Reform Act

This was why on June 25, 2004, a new Pension Reform Act known as the Contributory Pension Scheme was enacted to eliminate and address all the problems associated with pension schemes in the country. But majorly, to relieve government at all levels, the social responsibility of having to care for its workers after retirement.

The pension reform programme is said to be governed (on paper) by the key principles of sustainability, safety and security of benefits, transparency, accountability, equality, flexibility, inclusiveness, uniformity and practicability.

In the 2004 reformed scheme, both the employees and employers were to compulsorily contribute 7.5 per cent of their monthly income, each into the scheme. It covers both the public and private sector. Even the self employed are expected to be making voluntary saving towards the scheme.

The result is that for the workers in the private sector, it immediately translates into the workers getting less pay than what they were getting previously. The previous contribution used to be 4 per cent but now it has almost doubled to 7.5 per cent from the salary of the workers.

For workers in the public sector, it is being described as anti-worker, as the government, who is the employer is being relieved of a major social responsibility of caring for its workers after retirement, while the worker on his part, coughs out 7.5 per cent of his income every month which many of them are not happy with.

Government also established the National Pension Commission (PENCOM) to register and effectively supervise pensionmatters in Nigeria. It licences, regulates and supervises Pension Fund Administrators (NFA) and fund custodians.

The objectives of the 2004 contributory pension scheme according to Section 2, Part 1 of the Pension Reform Act of 2004 was to ensure that every person who worked in either the public service of the federation, Federal Capital Territory (FCT) or private sector receives his benefits as at when due; and to assist improvident individuals by ensuring that they save in order to cater for their livelihood during old age.

Others are to establish a uniform set of rules, regulations and standard for the administration and payment of retirement benefits for the public service of the federation, FCT or private sector; Stem the growth of outstanding pension liabilities and secure compliance as well as promote wider coverage.

The 2004 pension scheme charges a 2% total contribution fine on any employer who default for each month and peradventure, there is a need for a revision of the rate of contribution, it shall be based on an agreement between the employer and the employee, whether in the public or private sector.

One of the benefits of the contributory scheme is that whether or not an individual was dismissed from service or retired, he or she is still entitled to a full pension right.

Outside abolishing the lifelong pension system, it also abolished the payment of gratuity, which the national president of the Nigeria Labour Congress (NLC), Ayuba Wabba, described as a golden handshake; pointing out that the absence of gratuity in the scheme amounts to short-changing workers.

“Lifelong pension and gratuity is the only thing each worker probably still looks to as a mild compensation for the very poor salary package they are presently receiving as wages. To now say that they have to contribute to their pension, which will also not last till they die, from their present meagre salary is most uncaring and callous,” Waba said.

The 2004 pension reform also empowers administrators and custodians to invest the pension funds into other ventures such as shares and stocks, as the administrator deems fit. If in the process, these funds collapse, the government provides no guarantee. That is why the law empowers the employees to carefully select their PFA themselves, so as to take responsibility and bear liability in the event of a fund collapse.

Despite all the security measures adopted in the 2004 Pension Reform Act, it is also fraught and liable to corrupt practices. As a result, government sought better ways to remedy the deficiencies and inadequacies of the Act such as insufficient penalties against infractions of the law.

Hence, the 2014 Pension Reform Act was enacted. For any fund diversion offence, it spells out 10 years imprisonment or fine of an amount equal to three-times the amount so misappropriated or diverted.

The 2014 PRA also empowers the worker to institute criminal proceedings against employers for persistent refusal to remit pension contributions; PENCOM can now take proactive corrective measures on licensed operators whose actions or inactions jeopardise the safety of pension assets.

Well, it is assumed that some of the provisions of the 2014 PRA fortify the pension assets against mismanagement and systemic risks. The minimum rate of pension contribution was also increased from 15 per cent to 18 per cent monthly.

Employers are to pay 10 per cent while the workers are to contribute 8 per cent. This is said to ensure the enhancement of their monthly pension benefits at retirement.


The 2014 PRA Has Not Changed Anything

But is the 2014 PRA the end that will justify the means; Does it answer all the questions agitating the minds of the soon to be retired worker; Does it allay their fears. Despite all the clauses that tend to address the flaws of the 2004 PRA, are there still not cases of workers being short-changed by their employers, especially in the private sector? For instance, a woman who just retired from the Ogun State civil service; all the while, she said she has been paying into the Contributory Pension Scheme before retiring. To her utter dismay, she just discovered that the state government did not contribute its counterpart funding. The only money found in her contributory pension scheme is her contributions.

Ironically, all she could do is to lament about town. Even while she was invited by Independent for a discussion, she declined and even refused to disclose her identity and the particular ministry she worked.

Stakeholders are of the view that it is enough that the total income of the average worker is hardly enough to take care of his or her immediate needs in this harsh economic environment. Deducting eight (8) per cent of that amount into the contributory pension scheme, they say, is a huge sacrifice that many people, if given the opportunity, will not want to make.

Now, making that sacrifice and not being able to reap from it as at when due is a bitter pill many are finding difficult to swallow.

With a lot of people ignorant of their pension rights, questions are now being asked as to what becomes the fate of the active workers today who are likely to retire tomorrow when even government who was supposed to be the last hope of the average worker, is also culpable of pension fund fraud.

People are entertaining fears that they foresee a situation where the country will be filled with lots of dependents in the near future. With Nigeria not having enough of old peoples’ homes, where do these people run to for sustenance when they become incapacitated, since due to medical advancement, life expectancy has improved and people no longer die early. “It is just a time bomb, waiting to explode!” they say.

However, the 2014 Act also empowers PenCom, subject to the fiat of the Attorney General of the Federation, to institute criminal proceedings against employers who persistently fail to deduct and/or remit pension contributions of their employees within the stipulated time.

Furthermore, the 2014 Act has incorporated the Third Alteration Act, which amended the 1999 Constitution by vesting jurisdiction on pension matters in the National Industrial Court.


Programmed Withdrawal Or Annuity

T he choice between programmed withdrawal and annuity by a retiree is a matter of choice.

The Contributory Pension Scheme (CPS), seeks amongst others to ensure that every worker receives his retirement benefits as and when due.

Accordingly, Section 4(1) (b) of the Pension Reform Act, PRA 2004 allows a Retirement Savings Account, RSA, holder upon retirement to utilise the balance of his RSA for ‘Programmed withdrawal or annuity for life purchased from a life insurance company licensed by the National Insurance Commission (NAICOM), with monthly or quarterly payments.’

Features of Programmed Withdrawal

It is product of Pension Fund Administrator (PFA) Pays pension over an expected life span Longevity risk – RSA balance may be exhausted during life time.

Retiree can collect lump sum, provided monthly pension is 50 per cent of last pay If retiree dies within 10 years of retirement, RSA balance goes to beneficiaries of the deceased as inheritance. If retiree dies after 10 years of retirement RSA balance goes to beneficiaries of the deceased as inheritance.


Slow Processing Of Documents

Comrade Kazeem Labaika, Secretary Trade Union Congress, Lagos State Council and Chairman, Academic Staff Union of Secondary Schools (ASUSS) , Lagos state described the new pension scheme as the best thing that has happened to Nigerian workers.

He stated that though many still believed that the old system should continue because of the little challenges in the new scheme.

Speaking from the standpoint of teachers in the state, Comrade Labaika explained that the greatest challenge facing the smooth delivery of the scheme is that the people who are supposed to process the documents of our members sometimes ‘deliberately encourage or extort the retirees of their hard earned and life savings.’

He expressed appreciation to the intervention of the state governor, Mr. Akinwunmi Ambode saying that the issues inpension fund in the state will ease up judging from the proactive approach of the administration.

I am happy to inform you that the issue is now a thing of the past, saying that the slow processing was responsible for the backlog of unpaid retirement benefits in the past.

“Without apology, the honourable Hussein that was the DG then deposited money meant for retirement accounts into investment until when Ambode learnt of the N2.2bn somewhere and moved against that by removing the man.


Commending the renewed effort of the Ambode administration, Comrade Labaika stated that though the government had commenced payment of backlogs, saying that there are still backlogs to be settled since 2010.

He added: “As I am talking to you they are just attempting to clear 2014. There are lots of challenges retirees are facing. Today they just cleared up to July 2014 and there is a barrage of backlogs to be cleared. People are leaving the service every month.’


Pranks PFAs Play On Retirees

He lamented that Pension Fund Administrators (PFA) often take advantage of ignorance displayed by some retiree to force them into the programmed withdrawal to soothe their own selfish desire for commissions.

Affirming that the unions are equal to the task, Comrade Labaika stated that as soon as teachers retire from service, the union has taken upon itself to organise sensitisation seminars to teach them what they need to know about life after retirement.

“We always organise seminars to sensitise them to understand that it is just the beginning of another life after retirement. If the bond is ready and handed over to retirees, it will now be taken to the PFA for processing where they marry the retiree’s contributions from both the employer and employee compared with the bond and in the process a template will be given.

“Many retirees and those still in public service are ignorant of the usefulness of the template. Immediately the bond is submitted rather than print the template where the total sums of is coming from.

“Deductions from both sides as lump sum are clearly stated as gratuity they will not or inform the retiree. They will only print unless the retiree request for it.

He explained that PFA played on the ignorance of the senior citizens by encouraging them to fill some forms that are not necessary in the first instance, saying that what the retirees are supposed to be given to sign is the indemnity form and nothing else.

“The only form retirees are supposed to be given to sign by the PFA is indemnity form. The PFA because of their own vested interests and plans will put about 10 forms together under the indemnity form. They ask the retirees that are ignorant of the processes to take the form to court and sign.

“The retirees who are anxious to sign any form and collect their money ignorantly process the form by getting it stamped. Whereas there unexplained clauses underneath that contained in the attached forms. Due to ignorance the PFA will help them to fill the information rather that tutor them on the benefits of both programmed withdrawal and annuity.


Old pension Act Is Evil

Emphasising that the old pension act was evil, Labaika stated that many corrupt public official have taken advantage of the lapses in the Old Act to siphon and throw out light out of the lives of thousands of innocent senior citizen that have sacrificed their youthful years for the sake of the country.

“Unlike the Old Pension Act that gives room for people to take money meant for retirees and convert it personal use. The case of the Nigerian police readily comes to mind where the person in charge of the fund cornered N52bn into his personal account. When the law caught up with him, he was found guilty and fined N450, 000 that was paid on the spot by the criminal.

“The only thing that can make public service workers get their own as at when due is for government to clear the backlog and make sure retirees get their money within one or two months,” he added.

Failure of Counterpart Funding By LGs

He blamed state and local government administrations for challenges teachers in primary schools are facing because allocation accruing to the council areas and parastatals are exhausted without provision for pension funding.

“Many states owe primary school teachers in the pension scheme because when allocations get to the council areas, they are supposed to set aside 5% of the money to service pension, but they end up spending everything.

“Likewise the parastatal that empties their account without keeping anything to service pension account. But when allocation comes people want to take the national cake and that explains why these kinds of problem still persist.

I advise retirees to keep good records of their document because this will facilitate speedy processing and audit.


Pension Fund Administration In Banking Sector

Comrade Ogunremi Francis, Chairman TUC Lagos Council and NUBIFE Skye Bank branch told Independent that thepension challenges is not pronounced in the banking sector.

“We don’t have much problems with the scheme in the sense that ours is deducted from the source. When salary is paid remittance is made to the PFA. In most cases bankers don’t wait till 60 years or 35 years of service before retiring.

He said, “We don’t really have much complaint because our employers remit regularly. When we joined the banking industry we start the exit from the day of engagement”.


Maritime Sector and Contributory Pension Scheme

 To many in the maritime sector, the Pension Act 2004 which made it mandatory for individuals, Ministries, Department and Agencies of Government and private sectors to remit 7.5 per cent of income to the contributory pension scheme could be described as a welcome development and a dream come true. But to so many others, that aspect of government Act is a tall dream that can never be actualised.

Maritime sector in Nigeria is made up diverse categories of people and businesses.

Some are in the pay roll of the Federal Government, while some are outright business men who are self employed as well as individuals in various associations and engaged by private outfits.

Among those that fall under the employment of the Federal Government are the Nigeria Ports Authority, (NPA), the Nigeria Maritime Administration and Safety Agency (NIMASA), the Nigerian Shippers’ Council (NSC), the Nigerian Customs Service (NCS), the Standard Organisation of Nigeria (SON) as well as security outfits and paramilitary organisations that the call to duties  brought to the maritime sector.

Those private sectors include the importers, the freight forwarders, clearing agents, transporters, service providers, shipping companies and others. This however made the industry peculiar when it comes to adapting to government policies.

Virtually all that falls under the government direct control sees that Act as mandatory, and the one that cannot be compromised as a result have since cued into it while those of them in the private sector are indifferent to it.

Speaking on the pension act, Iheanacho Ebubeogwu, General Manager, Public Affairs, Nigeria Ports Authority (NPA), said that the NPA has since cued into it as it is beneficiary to the workers.

He noted that in an economy like ours, there was every need to work towards retirement and what to fall on after retirement. According to him, people who have sacrificed so much to their country in terms of putting several years in service should not have any course to regret after disengagement, but have everything to fall back on.

He lamented that the disjointed employment policies in the country had one way or the other affected this scheme from realising the real objectives. “The money you contribute is yours, when you retire, what happens after”.

He however advised that the pension managers should ensure that the fund entrusted to them is properly and prudently managed.

“The pension managers must make sure they manage such funds judiciously. They should invest where they will not have stories to tell the owners”.


For Hajia Lami Tumaka, the Deputy Director, Public Affairs, NIMASA, the Act as enacted is carried out in NIMASA. “Since it is mandatory, I can assure you we are doing it”.

Wale Adeniyi, Public Relations Officer, Nigeria Customs Service (NCS), noted that it is compulsory and mandatory as such, the Nigeria Customs Service have cued into it.

Adeniyi said he cannot discuss on his experience since he is still serving and not a pensioner yet. “Since it is mandatory, it cannot be compromised”.


Pension Scheme Not Practicable In NAGAFF

For Barrister Fred Akhokia, the Legal Adviser, National Association of Government Approved Freight Forwarders (NAGAFF),  it is not practicable among the freight forwarders. According to him, if we are  talking about the parastatals that are pensionable, “this is practicable only in established maritime outfits. This is where it will be possible.

“But we that are in associations do more or less charitable job, it is not practicable. Some of the freight forwarding outfits that even have workers in their employment does not have the numbers of workers required for them to fit in. So for other established maritime organisations like NIMASA, NPA, Shippers Council, it is possible because they are pensionable.


Impact Not Felt In IFFA

Also speaking in the same vein, Chief (Dr.) Osita Chukwu, the Coordinator of Save Nigeria Freight Forwarders, and General Secretary, the newly inaugurated International Freight Forwarders Association (IFFA) noted that since the introduction of the scheme, the impact has not been felt in the private sector of the maritime industry.

“We only heard about it but it not being implemented. You know this industry is so bastardised. It is one of the reasons we have come up with this International Freight Forwarders Association. Only a few have complied but many have not. The experience so far is that any time they relinquish their staff when nothing comes to them. My advice is that the government should be very serious about the scheme”.

I don’t see why ours should be different. All over the world, the scheme is applicable. It is a thing you can lay your hands on after retirement, but what we have is stories. If you have travelled abroad, you will know that it is good. Only some people are not sincere about it.

Also, the treasurer of IFFA, Mr. Anthony Onyia said that if the government want to introduce any policy, the people should be carried along.

Also, Austine Ekwenuya, a stakeholder said the awareness was not there before the government introduced it. He added that most of the freight forwarders are not salary earners thus may not fit in.

“We are all business men. Except in most cases the secretary in the office who is a salary earner and on pay roll, others are not”.


Shell Operates Closed Pension Fund

Shell Companies in Nigeria (SCiN), which comprises The Shell Petroleum Development Company of Nigeria Limited (SPDC), Shell Nigeria Exploration and Production Company (SNEPCO) and Shell Nigeria Gas (SNG), operates a closedpension fund for its staff in Nigeria.

The pension fund, called Shell Nigeria Closed Pension Fund Administrator Limited (SNCPFA), is non-contributory fundprovides end-of-service pension benefits for Nigerian staff of the company.

The company’s Communication Manager, Mr. Precious Okolobo, refused to oblige any information on Shell’s pensionscheme, claiming that it was an internal affair of the company.

The information, which Shell posted on its website, however, admitted that SNCPFA was the biggest licensed ClosedPension Fund Administrator in Nigeria with internally managed assets.

SNCPFA investment portfolio, according to Shell, was a multi-asset class portfolio, which involved equities, fixed income and alternative assets, and it comprised of both domestic and offshore investments.

Shell disclosed that the pension fund was created in the early 1960s, but it was incorporated in 1991 as Shell Trustees Nigeria Limited (STNL) for the primary purpose of managing the Shell Nigeria staff non-contributory pension fund, with a defined benefit pension scheme of the company.

The company stated: “The purpose of end-of-service payments is to ensure that long serving company employees who have reached the end of their established working term in Shell exploration and production companies in Nigeria will be able to enjoy a regular monthly income to enable them to maintain a reasonable standard of living in retirement.

“Lump sum payments are made to employees, whose period of service or conditions of departure do not qualify them for a monthly pension. As the name implies, the scheme is non-contributory, thus employees are not required to make any financial contributions.

“It is also a Defined Benefit (DB) scheme and as such, all benefits payable from the scheme are computed based on pre-defined criteria. The Fund currently caters for almost 3,000 pensioners and 4,000+ active employees of SPDC.

“SNCPFA’s mission includes optimization of investment returns by minimising the contribution level required to maintain the 100 per cent funding target level for SPDC’s Defined Benefit Scheme.

“It is also to safeguard the pension fund assets by making sound investment decisions, using the right pension fund custodian and ensuring strict compliance with the Pension Reform Act of 2004, and other applicable laws and Shell Group policies.

“It is equally to offer our members first class retirement benefit administration services by dealing professionally and efficiently with all members and stakeholders through qualified staff who are empowered to contribute towards the continuous improvement of SNCPFA’s suite of services.

“SNCPFA’s primary objectives are to reduce the long-term cost of the fund to SPDC through efficient management of the Fund. This is achieved by developing an asset structure that closely matches the fund’s liability profile and, within this structure, maximizing investment returns thereby minimising the amount of contribution required to maintain the funding level at 100 per cent.

“It is to efficiently administer issues relating to SPDC’s pensioners in accordance with the fund’s Trust Deed and Regulations,” it stressed.