The Abysmal Contributory Pension Scheme | Independent Newspapers Limited
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The Abysmal Contributory Pension Scheme

Posted: May 12, 2016 at 2:00 am   /   by   /   comments (0)


The recent revelation by the Director General of the National Pensions Commission (Pencom),Chinelo Anohu-Amazu, that only about 7.45% of the Nigerian workforce, which is just about 3.95 percent of the entire Nigerian population, is participating in the compulsory Contributory Pension Scheme (CPS) has drawn attention to the need to raise the bar of enforcement and compliance to the scheme.

It is instructive to note that the Pension system was introduced in Nigeria to protect employees against poverty after retirement. The essence, therefore, is to provide income that could at least meet the basic needs of retirees. Research shows that the Pension Scheme is not peculiar to Nigeria. It is a global practice especially in public service. Private sector employers are also meant to establish some form of retirement benefit schemes for their employees. But because this is hardly complied with, as there were enormous challenges, many countries began to make adjustments to the extant laws regulating pensions schemes to make it more efficient and effective. As such the Contributory Pension System was introduced in many countries such as Chile and some of its Latin American nieghbours, personalising it to the contributor and managed by licensed private sector entities. As it were, Nigeria was the first African country to introduce a version of the Chilean Pension System with some peculiarities.

The compulsory CPS, as it is currently operated in Nigeria is, therefore, a product of 2004 and 2014 pension reforms. Under the consolidated 2014 pension reform Act, which is currently in force, employers, both in the public and private sectors, are compelled to open a Temporary Retirement Savings Account (TRSA) on behalf of their employee that failed to open a Retirement Savings Account (RSA) within three months of assumption of duty. Also, away from the 15% contribution recommended by the old Act, the 2014 reformed version raised it to 18%, and recommends that the employee contributes 8% while his employer compliments with 10% contribution to his RSA. Moreover, the current pension Reform Act identified new offences and provides tougher penalties that will serve as deterrence against mismanagement or diversion of pension funds assets under any guise. It recommends a 10-year imprisonment or fine of an amount equivalent to three-times the amount so mismanaged or diverted or both. In addition, the Act empowers the Attorney General of the Federation to initiate criminal proceedings against employers for persistent refusal to remit pension contributions, among many other items of reference.

However, the Pencom DG’s revelation shows that the Pension Reform Act has made some level of impact but not sufficient, given the wide spectrum of the working population not yet captured in the Pension Scheme. Although the Pencom DG reportedly noted that about 200,000 private sector employers of labour are implementing the CPS while over 162,343 workers had retired under the scheme as at March 2016 and are currently receiving pensions as and when due, the truth is that this is a microcosm of the working populations who are eligible to participate and benefit from the scheme. It is unfortunate that many of the private sector organisations have failed to implement the Pension reform Act.

There is no doubt that a lot more needs to be done to encourage participation.  In fact, every organisation, including the private sector must key into the scheme. Not doing this is tantamount to defrauding both government and the individual employee. Besides, the future of the employee, especially at retirement, would have been jeopardized and rendered insecure both in the short or long term.

We believe that the problem is not so much with the Act but its enforcement to ensure total compliance in the interest of the Nigerian working population.We,therefore, urge Pencom to up its game by invoking all the powers in the Pension Reform Act to ensure that employers of labour do not take their workers and government for granted.